At Coca-Cola’s first Investor Day meeting with Wall Street analysts in eight years, CEO James Quincey and his executive team had a lot to talk about, including shifting the company’s product lineup in step with changing consumer tastes and diversifying the portfolio away from the core Coke product.
If those priorities seem a world apart from past Investor Days which might reveal a Cherry Coke or mini-cans, it’s because the iconic brand the Coca-Cola Company is named for is no longer its core focus. Quincey and the beverage giant are facing a new world in which its flagship Coca-Cola line is experiencing a long-term sales slide because of concerns about obesity and wellness, concerns it says it’s ready to address and reverse.
A culture shift is powering the company’s innovation agenda. “We must be more agile and get things to market quicker,” Quincey said. “We operate in 200-plus countries, so having a success in one country frankly doesn’t move the needle. The needle only really moves with a big success in more than one big country. So lifting and shifting… the best and most successful ideas around the world is absolutely critical to creating more billion-dollar brands in a diverse portfolio.”
Quincey, CFO Kathy Waller and colleagues assured investors that Coca-Cola is taking a confident, comprehensive and multi-pronged approach that hits all the appropriate levers for growth: changing its corporate culture; overhauling its approach to e-commerce; developing more nutrition-friendly options such as smaller packages, sugar-free beverages and alternative ingredients; and, perhaps most important, continuing to diversify the portfolio away from the core regular Coke and Diet Coke products.
Coca-Cola welcomed more than 100 analysts to its global headquarters in Atlanta to hear the corporate and regional strategies for growth, and to sample an array of innovative international products in various global markets that included Coca-Cola Plus Coffee No Sugar (Australia and Japan); AdeS, a soy-based line (Latin America and, soon, Europe); Georgia Cold Brew, a ready-to-drink coffee in Japan and South Korea; Barista Bros (Mexico); and vitaminwater active and Honest Sport, an “enhanced hydration” drink, both in the U.S.
In other examples of incubating innovation in a market, learning and scaling geographically, Honest Tea and smartwater recently made the jump across the pond from the U.S. to the U.K. And the company’s central and eastern Europe unit recently adopted Coke North America’s Venturing & Emerging Brands (VEB) model, which takes an entrepreneurial approach to investing in, nurturing and incubating up-and-coming beverages.
Chief Growth Officer Francisco Crespo introduced a new concept for Coca-Cola: the discipline of growth. “Growth is not an objective… it’s a discipline,” he said. “When you practice that discipline, the outcome is growth.”
Taking a disciplined approach to growth includes building a portfolio of brands with what Crespo calls “quality leadership.” The end result: stronger profit margins than the competition. “Rather than telling consumers what they should be drinking, we will humbly align our portfolio to follow their tastes, their needs,” Crespo said. “Consumers are looking for ways to manage sugar intake.”
Crespo outlined three broad categories: explorer brands, challenger brands and leader brands.
Explorer brands like Honest Tea grow by establishing a differentiating edge through startup-like incubation. “Quality leadership starts with edge… our competitive advantage,” he said, citing the Simply juice brand in the U.S. as an example. “Edge requires discipline and consistent over-investment and over-execution.”
Brands ideally graduate from explorer to challenger status. The biggest winners become leaders in their respective categories, like the iconic Coca-Cola brand in much of the world. “These are three disciplines: the discipline of entrepreneurial audacity, the discipline of the fighter that has the stamina to never give up, and it is the discipline of the wisdom of the leader.”
Developing and launching beverages based on consumer tastes and needs is paying off, Crespo said. For example, retail sales of Coke Zero Sugar, which launched recently in the United States, are up 13% in 2017. And Fanta, which was updated with a new bottle design, new formulation and new marketing, is up 8% year-to-date. “There is a lot of value to be captured on our leading brands,” Crespo said.
Coca-Cola’s consumer-driven innovation also includes a growing presence in natural, craft, organic and premium sparkling categories, through brands like Schweppes (Great Britain), Appletiser, Vio and Blue Sky (U.S.). The company is also adding value to the Coca-Cola Trademark with extensions such as Coca-Cola Coffee in Japan and Australia.
Crespo said this focus on smaller, but highly profitable, categories aligns with the company’s shift from volume to value. “Instead of defining volume as the sole metric, we will find ways to empower our brands with the ability to capture transactions and revenue.”
Coca-Cola also showcased innovations coming to convenience stores such as a cooler that turns a cold bottled beverage into a slushy in a few seconds through chilling technology developed in partnership with former NASA engineers, as well as a system for offering customized recipes for various drinks in personalized packages that would be shipped directly to a shopper’s doorstep via e-commerce.
The Internet of Things is coming to its global fleet of 16 million pieces of cold drink equipment to drive sales for both its system (of distributors) and customers. Coolers are wired to track inventory and even correlate the number of times a shopper opens the door with sales. And proximity beacons can send tailored coupons or offers to nearby consumers with a Coke mobile app.
The DASANI PureFill “premium water fountain,” which developed from a Shark Tank-style hackathon, provides free, ultra-filtered water with the ability to add flavors and carbonation for a small per-ounce fee. The idea behind the innovative unit, which is being piloted on a university campus, emerged as a prototype last summer during a two-day workshop hosted by Coca-Cola North America’s R&D team. DASANI PureFill is paired with a custom-built smartphone app, which lets users track their hydration and geo-locate a nearby machine, and a cashless payment system.
Among the most potentially impactful innovations unveiled—the first-ever Coca-Cola with no added sugar sweetened only with a sweetener derived from the stevia leaf. The company plans to test Coca-Cola Stevia No Sugar in the first half of 2018 in a to-be-announced market outside the United States. Coke has used stevia to supplement sugar before, but Stevia No Sugar—which will be designated by a strip of green on a classic Coca-Cola red can and a Stevia logo with the phrase “Sweetened from a natural source 100% Stevia”—will be the first to rely entirely on stevia.
Coca-Cola Stevia No Sugar is emblematic of the new Coke—healthier, innovative and precision-marketed. Quincey told CNBC that the beverage’s “great-tasting” formula will be “far superior” to other stevia-based products, and not leave the typical licorice-like aftertaste of stevia. (Rival PepsiCo CEO Indra Nooyi a few years ago famously complained about the difficulty of using stevia alone in a cola beverage like Pepsi.)
Quincey acknowledged the headwinds of change in his opening remarks: “Consumer preferences are changing, they’re changing around ingredients, whether it’d be less sugar at times, whether it’d be more natural, whether it will be organic, whether it’d be just really understanding the core provenience of where the products coming from. Sometimes it’s about where they buy them, how they buy them electronically.”
“The shift from the bricks and mortar (retail) … and the digitization of the total of shopping is part of what’s going on. You can see it in your own lives. You can see it around the world. This is not just a first world phenomenon. It’s across the developing and emerging markets. So consumer preferences are changing fundamentally and that’s making the category shift, making the products within the category shift. Of course, some of these could be represented as challenges, but for an industry or for a company like ourselves with a great foundation and the capabilities, we can turn those into opportunities to drive much as the growth with the share gains for ourselves.”
Quincey also says Coca-Cola can be a catalyst for change, wellness and help fight the obesity that many consumers fear: “We think we can help to solve the obesity problem… we have to turn each of these challenges into opportunities.”
Quincey’s five key strategies across the company:
• Accelerating the growth of our consumer, leading consumer-centric brand portfolio
• Driving the revenue growth algorithm
• Strengthening our system’s value creation advantage
• Digitizing (“our products need to be within arm’s reach of desire; maybe in the future they need to be within a click’s reach of desire”)
• “Unlocking the power of our people. And in doing that, we need to make the right choices and invest for growth.”
On the digitization front, Coca-Cola is shifting its focus on “route to market” to “route to me” to stay competitive in a landscape where e-commerce is reshaping the way people buy (and receive) orders of food and beverage items. The company is partnering with meal-kit provider Chef’d to pair Coke beverages with menu items and exploring ways to tack on beverage suggestions to orders placed via artificial intelligence (AI)-powered voice interaction services. Coke is also looking to give shoppers an easy way to add drinks to orders for pickup at e-grocery “lockers” found in dense urban areas and on college campuses.
Quincey also spoke of the need to embrace “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 their habit; it needs to explain what is the brand age; and that has to weave across design, packaging, activation, communication. We talk a lot about precision marketing and the truth is that it’s just sending the same message, better tailored, to different customers.”
“We need to develop 21st century storytelling. So what those that means? That means that the media’s diet has changed. Those ‘meals’ (ads) of 60 seconds or 30 seconds, nobody is eating those as the only meal they get. That still exists, but now they are eating a lot of bites: six seconds—that’s all the attention span they have—and a little bit of those ‘snacks,’ those 15-seconds non-skipable (video formats). So making sure that we have enough of our diet offered in the right place… the little screen is important. That is 21st century storytelling.”
Quincey added that its digital marketing strategy will be co-created with its two biggest platforms, Google and Facebook, saying they were recently instructed by Coca-Cola: “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. We’re doing that in the December, because we are going to co-create our strategy with our partners. We need to build strategic value for them as they build strategic value for us.”
See more in the transcript of the day and the videos below.
James Quincey, President and CEO, The Coca-Cola Company:
Francisco Crespo, Chief Growth Officer:
Kathy Waller, Chief Financial Officer:
Jim Dinkens, Incoming President, North America:
Alfredo Rivera, President Latin America:
John Murphy, President, Asia-Pacific:
Brian Smith, President, Europe, Middle East & Africa (EMEA):
Analyst Q&A session: