Discipline of Growth

Francisco Crespo
Chief Growth Officer

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Good afternoon. I’m Francisco Crespo, I’m the Coca-Cola Company Chief Growth Officer. So, basically that means that if this company doesn’t grow, it is my fault and if it grows, it’s because the operations are doing it right. So, let’s get that clear and right.

I’ve been six months in job and basically I have been traveling a lot. I had a lot to catch up. I have been in Asia, Africa, Europe, just trying to understand better all the world that I really don’t know and don’t understand as much as I need to. So I have been doing a lot of traveling. I also have been using the vast amount of information that we have available, trying to shape a growth agenda. And I think that’s what I’m going to try it to share with you. And I have been connecting with the team, figuring out how are we going to shape the things that we will be doing in the future, as we work to make that growth agenda move forward.

So here is the statement, I’m sure you already read it, when James presented it. And it’s there in smaller print, so you can practice with your eyes reading smaller letters.

I would like to start with a thought that is very important and it’s that growth is not an objective. Growth is not an objective. Growth is a discipline. A discipline is training people, lots of people to act consistently and follow certain behaviors and rules. But discipline is also a branch of knowledge and a field of study. And when you practice that discipline, then the outcome is growth, and that’s what we are looking for here. But growth is necessarily embedded in these five principles that I think explain with all clarity what is different, what is new, and why we will get the discipline of growth right?

Well, you see, rather than telling consumers what they should be drinking because we are the marketing experts, we will humbly align our portfolio to follow their tastes, their needs, their wills. Instead of defining volume as the sole metric of growth, well we will find how do we empower our brands with the ability to capture transactions and revenue, that is growth.

Beyond defining the picture of success in internal terms. So, how many coolers there has to be in this customer? We will ensure that in every outlet we are expanding our competitive advantage. And of course, we will jump out of the bench being a digital aficionado to be in the field, start playing the game and master the game and it boils down to the culture. The culture we want is one in which the values of curiosity, experimentation, learning and excuseless delivery are the values that are rewarded.

So, we are members of a club that has growth in it. Just by being a member of the club, we grow. You can argue that we are with our weight heavier into the lower growth. So, maybe rather than a 4%, we are more in the 3% simply that’s where our weight is heavier. But there’s $150 billion to be created through 2020 and the argument that you have been hearing and it’s simply logic is to accelerate growth beyond what the club will already provide. We need to expand our share in all those categories, where we don’t have a decent share. Right.

Well, not exactly. The notion that I would like to share is the notion that we don’t want any share, anywhere, at any cost. As James was saying, there is a key concept in quality leadership. Quality leadership for me is when you beat your next competitor two-three times, so you have two three times better brand preference, two-three times better brand love, two three times better share of visible inventory, two three times more items per store, two three times more coolers in the market. When, when you do that, well, simply put and I have gone through the correlations and study all of it, you double system margins.

So what we need to do is we need to deliberately build quality leadership in all these other categories. That’s what we need to do and that is the first discipline, the discipline of building quality leadership. So, what is quality leadership. Well, it starts with edge. Edge is our competitive advantage. If we can’t explain why our brand is better, why consumers should adopt our brand rather than any other brand for that occasion, then we’d probably don’t have edge. The easy thing for me to do would have been to show you Coca-Cola, right, iconic brand, unique taste, incredible assets and then I could have shown you seven times more brand equity than our next competitor, four times better activation and that’s how we earned the right to collect that value in prices.

But, I would rather do it with simply. You see having this distinctive tariff, distinctive packaging, having a product that has the fresh taste that brings you closer to nature, having an advertising with the voice of God that tells you that this is really the real thing, is a good start on edge.

And then when you put your connection plan in such a way that you start closing in the brand equity, the brand preference and then you execute and activate in the market and you start closing your gap in share of visible inventory, well, after that eventually you earned the right to collect better margins.

And then you start challenging the incumbent, but this is a dynamic thing. This is something that needs to be nurtured, that needs to be checked, that needs to be studied, that needs the learning. So, the discipline of building quality leadership takes me to the next discipline, which is the discipline of building a portfolio. So in the Y-axis, you have basically the profit pools. The higher the better the profit pools and brand edge or quality leadership in the X-axis. We have a legacy, a big legacy here in this space where we have quality leadership brands.

So, in these brands, it is probably okay to have a lot of research before we do anything. It’s probably okay to call an agency and do advertising because we have the scale. And it’s probably okay to be sure that we have thought through the value chain because anything that we execute is huge. But that discipline, that discipline does not work when we are trying to disrupt spaces where we are either inexistent or irrelevant. In those places, the best research is trying it and checking it in the market. The more agile we can do things with co-packers and distributors, the better because we are just figuring it out. If we are calling an agency to do advertising, we don’t understand how brands are built here. Brands are built here on the experience, consumers simply get it when they see the design, the packaging and the occasion and they start getting it. It’s a very different game.

Now we are not that bad in that part, and I’ll talk to you about that in a while. Eventually because here the metric is exponential growth. Eventually with exponential growth, you build a position where you have double-digit market share. So, you’re out of the ditch, you already have a position, but you’re number two or three. Well, again, the game changes. The game changes because what we need is first of all to ensure that we have edge. Unfortunately a lot of times we all confuse innovation with imitation.

So, we see something moving, let’s say a spinach soup with bubbles, is selling a lot and we go and ask our technician, can we produce that? Yeah, of course. Let’s do it. Well, that, that is imitation. That is not edge. So, it requires the discipline of checking the previous chart. Where is our edge? And then, you need to consistently over invest and over-execute that edge. So, after quite some time, some years, you eventually bring the market to your side, totally different discipline. These are three disciplines we need to work. It is the discipline of the entrepreneurial audacity, the discipline of the fighter that has the stamina to fight and never give up and it is the discipline of the wisdom of the leader. Three different disciplines.

Let me talk about these disciplines starting with our leaders because sometimes when we are here, it sounds like yeah, yeah, not much to do here, let’s focus over there. And if that is in your head, you’re missing a lot of value. This area has a lot of value for us to capture, so I said we humbly have to follow consumers. Consumers are seeking for better tools to manage the sugar intake. That is the reality. Coca-Cola is one brand, only one brand. Coca-Cola has a unique taste. Coca-Cola is incredibly refreshing. Coca-Cola uplifts you.

Coca-Cola brings people together, your friends and family, Coca-Cola provides happiness for sense and you can have it with or without sugar. That is the one brand strategy. It’s putting all the brains, all the marketing wisdom, all the execution power of Coca-Cola on shaping choice, not offering choice, but really shaping choice.

And this brings me to the next discipline, the discipline of recipes, experimentation and customization. You see, there is absolutely no way that out of the center we can device a recipe that applied in every market in the world is going to give us maximum value, there is no way, that doesn’t exist. Each market has its own culture, characteristics. Our own strengths, our competitors have different virtues. So, the recipe and here is the summarized version of the recipe of the Coke No Sugar are just things that we know are required.

So, let me give you – I always gives very silly, very, very silly examples. So, let’s say that this recipe we have realized it is about a pancake, okay. So, don’t bring a pizza, don’t bring a burger, bring a pancake. Now if in a market we need to put eggs rather than one, fine, that’s experimenting. If in another market, we should use a different kind of flour, fine, that’s experimentation. There has to be a lot of experimentation happening in the BU levels around these recipes in order for us to customize this. So here you have how this is reinvigorating Coca-Cola trademark. Coke No Sugar growing 13%. But in places in Europe, Germany is growing almost 20%, Great Britain is growing almost 50%, Mexico is growing almost 90%. So, we are always adjusting how these recipes are applied and ensuring that we get the learnings right. These are the Fanta example, new bottle, new formula, new campaign, boom, acceleration on the growth, we are growing 8%, that’s not bad, right, high single-digits in revenues, that’s quite nice. There is a lot of value to be captured on our leading brands. When you see margins improving here, there is a lot of discipline behind making that happen.

Second example, I already talked about the average. I might be totally wrong and this is my crude reading of the world. A lot of the fast-moving consumer goods were built on the average because they were worshipping economies of scale. Economies of scale gave you mass media, mass distribution, relevance in front of your customers and low cost, that was the game. So average was the game.

Now the problem is that, allowed for a lot of local small players to capture premium niche spaces. Our portfolio has a lot to say in that space. Local ingredients whether it is a Georgia peach or a California raspberry or Mexican sugarcane, we are already seeing that people are happy to pay more for having that type of product. Upliftment is at the epicenter of brand Coca-Cola. World-class coffee, some of you probably tried it, out there. It’s an excuse to engage again with the brand, beautiful small cans, premium, news and the brand innovation in Coca-Cola. We also provide premium experiences. So, Royal Bliss in Spain, Schweppes in Great Britain and a lot of other countries, Blue Sky with organic ingredients in the States, VIO with local bio-ingredients in Germany, Appletiser with 100% apple juice out of South Africa. We have a lot in our portfolio to ensure that we are capturing that appetite for those ingredients and those benefit-driven products.

Leaders have a lot of space. We may have been leaving money in the table because we were chasing volume and not revenue. We do know how to reinvigorate following the right trends and understanding consumers. We do have an opportunity to have recipes that customize capture better value because they connect better with local consumers, and we have a lot of premium spaces that we can and should occupy.

So let me switch gears and try to talk a little bit about a different discipline. How do we disrupt spaces where we are not the leader? Well, I can give you a lot of examples. I can talk to you about innocent in Europe and Great Britain. Ayataka, fastest growing team in Japan. I could bring Maaza, a juice brand in India that has brand love – that is the brand love of a huge brand, probably one of the highest I’ve seen across beverages. But I would like to focus in Honest Tea and Powerade, because this is, as we said, a different discipline. It forces you to be sure. The first question here is, how can I be sure I am not simply imitated. That’s the first question that we need to ask ourselves, and we have to better have a good answer.

Then, we have to incubate it. Because when we follow volume, we confuse consumers, and I’m going to prove it in the next example. Consumers need to understand these are brands that are not built with the DME, these brands are built with the experience. So, if you put it in more than one experience, consumers start thinking, oh, I don’t understand what this brand is anymore. So, incubation, and then it requires obsessive segmentation to make it happen. So, let’s jump into it.

Venture Emerging Beverages is a tool that has been brilliant in the U.S. and now has been deployed in other geographies. Venture Emerging Beverages found Seth Goldman who simply thought, I think these teas and these drinks have too much sugar, I do care about organic, I do care about fair trade, and I would like for a brand to be more transparent, that’s edge. That is a perfect definition of edge, a different space. Then, he had the patience to only put it in the organic trade. If he could have – if he would have gone for volume and put it in every channel, probably consumers would have lost, I don’t understand anymore what this is, but he built it slowly, just used digital and mouth-to-mouth, and then had the courage to kill the zombies. Because unfortunately, a lot of times when we discover something that does not work, rather than killing it, and avoiding it to drag our energy and distract everybody, we say, no, we’re going to recycle it. We’re going to try it again. No, tea bag, bad idea, kill it. Kombucha interesting, but it was just an imitation to kill it, and eventually they scale it up. Oops, we can take this brand to others spaces, lemonade, sports drinks. This is going to be a billion dollar brand in a few years. So it’s not that we don’t know how to do it, but it requires the right discipline.

Now let me talk about Powerade. Because Powerade in Mexico, you know, when you sweat, you lose four ions. So it is not a long argument to say that it is better if the drink that you’re taking has four ions than only two of those. Power when you’re doing exercise, you would have to agree that is better than having a reptile number, a reptile name on it. And we have in Mexico, the Mexico team, we have the Olympics, we have the World Cup. We activated all these spaces where we had an advantage, and we executed with passion. We incubated it for a while, we overinvested in the Emmy. We lost money. We accepted that we were over-executing and over-investing, while we were segmenting getting those customers where we were not present. Putting the right packaging and pricing in those core competition was harder, and now we are the leaders, 54% of the sports drinks market in Mexico. So, it’s not that we don’t know how to challenge and become leaders. It’s that it requires discipline, it requires persistence, it requires for us to take it a different way.

As we do this, we need to disciplinedly build certain capabilities. The first one is segmentation. You see, we can’t continue to segment people simply age, group, gender, socioeconomical level. What matters is their behavior, their values, their lifestyle. What we are checking is, who is drinking my category, who is lapsing from it, what else are they drinking, what are the dual drinkers, that – those are the questions that matter. That is the information and the segmentation that we need. We – if you have seen FEMSA’s digital platform [indiscernible] (00:58:12), you will understand what I’m going to say. We know customer by customer, what is the competitive environment, what is the key occasion that happens there. And we know how to tailor execution. Segmentation is a big capability of making all these happen.

The second was this integrated experiential brand building. Brands are built on the experiences that consumer has. So, it needs to start with the brand purpose and the brand essence. It needs to follow what is the brand strategy, what is the key occasion to activate to build a habit. It needs to explain what is the brand edge and that has to go with across design, packaging, activation, communication. I laughingly said that we talk a lot of times about precision marketing. And the truth is just, it’s just sending the same message better tailored to different customers. This is precision diagnostics. This is a step behind.

Then, we need to develop 21st century storytelling, so what does that mean? That means that the diet, the media diet has changed. Those meals of 60 seconds and 30 seconds. Nobody is eating those as the only meal they get. That still exist, but now they are eating a lot of bites, six seconds, that’s all the span of attention they have, and little bit of those snacks, those 50 seconds non-skippable. So checking in your mobile phone and making sure that we have enough of our diet offered in the right place and that we are not watching in a screen like these our advertising, but in the in the little screen, that is important, that is 21st century storytelling.

And as we speak, we have people from our team in Asia, expanding our roster of agencies. Our roster of agencies have been very good, fantastic but mainly Hispano-American. We are getting three agencies from Asia in the roster, because we really need to understand how to connect the values of our brands to the values of that culture and we already hired an agency out of Amsterdam to get some different perspective there.

Partner value creation, the extraordinary jobs that our friends in North America have done with customers, we’re trying to bring it to another level with some of our partners. There are platforms like Google and Facebook. I was there 10 days ago, telling them, listen, I don’t want to tell you, I don’t want to ask you tell me what is the best price for this word in Google ads or for this in your platform. I want for you to sign a non-disclosure agreement. I want to tell you all my strategy, I want you to poke all the holes in it and I want you to bring insights, and we’re doing that in December. Because, we are going to co-create our strategy with our partners. Now for that we need to build strategic value for them, as they build strategic value for us.

Agile supply chain, I already mentioned to explore, we need to be agile with [ph] co-packers (01:01:46) flexible distribution. But then as we scale, we need to be sure that the value chain of those ingredients is coming along with us. And finally in digital, we could boil the ocean. So we have focused, we have said it’s three things, digital marketing, eCommerce and analytics. And if there’s something else, we will figure out later, but let’s start with this.

So, we are building the community, the community that can and should talk and find the governance between our bottlers and us, on how are we doing on these three categories. And the interesting thing is we’re not doing it that bad. We have 89 CokeTV among the best channels in YouTube, not bad. We are number one across fast-moving consumer goods in Twitter, also in Facebook across beverages, Fanta, Sprite and Coca-Cola and best positive sentiment across five digital platforms in fast-moving consumer goods.

Coke Studio, this is an incredible, incredible story. Ten years of Coke Studio, this year, 1 billion views, and it’s in a few countries. Now, we have to expand that through a lot more countries. Probably, one of the reasons why Pakistan is doing such an incredible job in recruiting and bringing teens into the franchise. Then, in Japan, we already have 5 million apps downloaded for our loyalty program that allows you to interact with our vending machines. In China, 5 million transactions with an e-coupon that every time temperature is above 35 Celsius, you can go and get a free Sprite that is sampling with the refreshing Sprite.

Our numbers on eCommerce, not bad, good solid growth, actually, Diet Coke is the number one grocery SKU in digital commerce in the states, and we are building partnership with our customers and with any player and platform that is in this space, because this is not a channel.

So, we are in a club that grows, that’s granted. The discipline of growth will allow us to accelerate growth. The discipline of growth will allow us to build quality leadership in more spaces. And as we do that, we will get better margins and we will get accelerated growth.

For that, we need to build capabilities, we build segmentation, edge-driven marketing, experiential brand marketing. We have to build digital, agile supply chain, but the journey is only beginning. The journey is only beginning. We know that there is a lot of value in our leadership positions that we can and we will capture by not chasing volume, but revenues by connecting better our brands with those consumers and by going after niche and premium spaces. That money is good growth for us and will help us fund the experiments that we need to have to explore.

As those experiments bloom, we’re going to have an incredible spring, unlike Game of Thrones, I have to tell you winter is going away. So, one chart to finish, I have change here, because I really think that discipline is here. It’s just not evenly distributed. You go across the world and you see that we do understand certain things. But now, what we have to do is we have to spread it and elevate the knowledge that we have on them and the quality with which we practice it.

And I’ve been told that you like mathematics, for me the definition of discipline is numerically that one, that basically says that when you are 1% better every day, at the end of the year, you’re 38 times better. That’s 1.01 elevated at the 365 power. Now when you are 1% worse every day of the year, you end up almost killing yourself. That’s 0.99 elevated at the 365 power. The difference between those two things for me is discipline. Thank you.