Here’s How the Coca-Cola Company is Fighting Back
Coca-Cola Makes History
There’s Still Plenty of Fizz in the Coca-Cola Company!
The Coca-Cola Company (KO) now finds itself battling public opinion at home in the US, and across Europe. Negative perceptions regarding the high caloric and sugar content in carbonated soft drinks have caused a rethink of Coca-Cola’s marketing strategy. Among the many problems facing the Coca-Cola Company are declining sales, and a move away from sugar-loaded carbonated drinks. Demand has shifted towards sports beverages, flavoured water, sweet tea and the like. This presents all sorts of challenges for companies like Coco-Cola. Added to this shift in demand are the increased costs of raw materials, increased transportation and distribution costs, bottling and packaging costs and others
The Coca-Cola Company and PepsiCo have both responded to these challenges by way of increasing the costs of their beverages. 20-ounce bottles now retail for around $1.50 each, but this is yet another reason for consumers shying away from sugar-loaded, calorie rich drinks. These companies have also been working hard to produce and promote their ‘safer alternative’ drinks such as Coke Life, Coke Zero, Diet Coke and the like. PepsiCo released Pepsi Next and both these manufacturers use natural sweeteners in their products.
It’s interesting to point out that Coca-Cola boosted margins in Q2 2014 by producing smaller offerings in the form of 7.5 ounce packs and 16 ounce packs. The profitability of these products ensured that the Coca-Cola Company was able to maintain its competitive edge in the US and Europe. It should be pointed out that the company’s overall portfolio has remained rather lacklustre for the 3 months ending in June 2014. But their premier product – Coca-Cola – recorded a 1% growth increase across Mexico, the US and Canada. A large part of the increase in revenues is the result of the marketing efforts vis-à-vis the FIFA World Cup in Brazil.
FIFA World Cup in Brazil
By contrast PepsiCo recorded sterling gains too – to the tune of 24% growth for their mini cans. In any event, there remains high demand for both Coke and Pepsi products – just not for the regular-sized cans and plastic bottles. Flat sales in the US were propped up by an increase of mini can sales to the tune of 3%. Statistics show that overall, the market for carbonated drinks in the US is declining year after year. The marketing focus of companies like Coca-Cola and PepsiCo is now clearly shifting to impulse buyers – with smaller product offerings and higher profitability. In much the same fashion, the confectionaries market in the US has also been reeling from decreased overall demand. They too decided to target impulse buyers with smaller speciality offerings at higher prices. The result: growth of 14% was recorded for the confectionery industry in the five-year period between 2008 and 2013.
From Super-Size to Mini Cans
Coca-Cola’s mini cans were released in 2011. This marketing initiative has been imitated by PepsiCo which re-introduced them in 2013. For both manufacturers, the goal is to reach as many supermarkets, quick-shops and convenience stores around the country as possible. The market is already saturated and growth is negligible with existing customers. However, there remains potential with impulse buyers and occasional shoppers. Net pricing has increased with both Coca-Cola and PepsiCo in the smaller cans and this all points to increasing revenues moving forward. The imminent release of Coca-Cola Life will be yet another feather in the cap for Coke, as it looks to reel in health-conscious customers across North America.
Coca-Cola Arctic Home Cans Roll Off the Factory Line
Coca-Cola Company: Performance and Trends
At present Coca-Cola holds the dominant market share of the US liquid refreshment market at 34%. The gross profit margin has been tapered from 64.2% in 2009 to 60.7% in 2013. The Coca-Cola Company sells syrups and concentrates to bottling companies that produce the final product. By contrast, PepsiCo accounts for 26% of the US market. Global revenues from sales of Coca-Cola topped $11 billion last year. Around the world, Coca-Cola dominates with a solid 25.6% of the foreign carbonated soft drinks market. While the US and Canada, along with Europe are switching from sugar-loaded fizzy drinks to healthier alternatives countries like India, China, Brazil and Argentina are just getting started with Coca-Cola. Diet drinks have not done any better for Coca-Cola or PepsiCo, since customers are now aware of the dangerous side effects of artificial sweeteners. To substantiate these facts, there’s been a 7% decline in the consumption of Diet Soda in the US during Q1 2014. In spite of the general move away from carbonated soft drinks to healthier alternatives, Coca-Cola is always looking to innovate and expand. The company purchased a 16% share in Green Mountain Coffee Roasters this year. GMCR owns Keurig. Coca-Cola is looking to bring ‘Coke Pods’ to the Keurig Cold System. In-house consumption of Coca-Cola products is definitely something that the company is taking seriously. Soda Stream is the frontrunner for at-home soda drinks and it estimates that the market can grow by as much as $260 billion on the proviso that 87% household penetration is reached. On a 30% penetration basis, there is still room for $14 billion in growth potential.
Coca-Cola Company Performance
Coca-Cola Company and Global Expansion
The graphic represents the performance of the Coca-Cola Company between 2009 and 2014. The share price of $40.14 remains a few dollars off the stock’s high end, but it is certainly a value share given Coca-Cola’s multi-billion dollar global enterprise. When it comes to a master plan, Coca-Cola has certainly adopted a sustainable approach to growth. The CEO of Coca-Cola Company, John Brock, laid out the company’s plans for growth and development moving forward.
CEO's Perspective: Sustainability at Coca-Cola Enterprises
Global Expansion for Coca-Cola
Among the many initiatives listed by the CEO are the following:
- Coca-Cola has reduced its carbon footprint by 23%
- The CCC has invested €12.5 for creating 2 recycling JVs
- The packaging and product portfolio has been expanded
- Sports programs have been created and accelerated
North America remains the most lucrative market for Coca-Cola. CCCs growth is focused mainly on emerging markets, but domestic growth remains an important strategic objective. The company’s bullish outlook foresees a doubling of its revenues by 2020. Coca-Cola is aggressively expanding at home and abroad, as can be seen in the construction of a new distribution and sales facility in Chattanooga, in Hamilton County.
Chattanooga Coca-Cola Finalizes Expansion, 43 New Jobs
The 411 on Coca-Cola around the World
- The Coca-Cola Company is expected to build 5 new factories in Pakistan and Egypt over the course of the following 1.5 years. Sales growth of over 20% is forecast in Pakistan. For Egypt, there is a $500 million investment initiative in the works which will commence on October 6th 2014.
- In Telangana India the Coca-Cola Company will be setting up a Rs1,000 crore bottling plant.
- Also in India, the Coca-Cola Company will be investing an estimated $5 billion by 2020 as it seeks to solidify its market position in the world’s fastest growing economy. Indian consumption of Coca-Cola per year averages juts 12 x 8 ounce bottles, and Coke is looking to build on that.
- Coca-Cola will soon be distributing its products in Myanmar. It will also be opening up in North Korea and Cuba. These countries pose a greater degree of risk since there is inherent political and economic instability.
- Coca-Cola trailed PepsiCo for years in India, but once it entered the market in 1993, it bought up the local brands and gained a 60% market share. CCCs growth in India grew 20% in the 3-month period between January and March 2014.
- Viewed from a global perspective Coca-Cola has a 53.1% share of the market and PepsiCo has a 21.7% share.
- The CCCs total investment in global growth is estimated at more than $100 billion by 2020.