The Coca-Cola Company’s ongoing transformation is beginning to bear fruit thanks to the acceleration and evolution of strategic actions, including brand reinvestments and new marketing programs, President and Chief Operating Officer James Quincey told analysts this week at the Barclays Global Consumer Staples Conference.
Company’s Brands and Assets Provide Strong Foundation
As the market share leader in sparkling, still and total nonalcoholic ready-to-drink (NARTD) beverages, Coca-Cola is well positioned for long-term growth. "We have an unparalleled set of assets from which to build," Quincey said.
The company's dynamic portfolio of 500-plus brands, anchored by 20 billion-dollar brands, comes to life in the marketplace through high-quality marketing and sharp commercial execution in collaboration with more than 250 bottling partners globally.
Refranchising Plan On Target…
Coca-Cola is on track to refranchise all company-owned bottling operations in its flagship market by the end of 2017. Quincey noted that U.S. distribution territories that have been refranchised 12 months or longer are thriving. “The large majority of these partners have taken these territories to a higher growth level and been able to sustain it,” he said.
… and Setting Up the Coca-Cola System for Success
The company continues to invest in key international markets with bottling partners with the goal of returning to its core focus of building brands and leading a focused franchise system. “We believe that what's happening now in this transformation is refocusing each component on the system… on what it does best and how we best create value together,” Quincey said. “The focus on strengthening the system – whether it'd be through refranchising or through working together in new ways with bottlers – is leading to better results.”
Deals to establish Coca-Cola European Partners and Coca-Cola Beverages Africahave closed, Quincey noted, and recent investments made in Indonesia withCoca-Cola Amatil are fueling growth in the once-struggling market.
'The focus on strengthening the system – whether it'd be through refranchising or through working together in new ways with bottlers – is leading to better results.'
“The company will be, in large measure, the concentrate company we have talked about,” Quincey explained. “As we return to a brand-focused, customer value-driving, franchise-leading company, we will have a more asset-light, higher-margin model.”
He added, “Refranchising is not an end in itself. The end is a stronger system. It's about a better aligned system that is positioned for growth, is organized and energized, and is more efficient.”
'As we return to a brand-focused, customer value-driving, franchise-leading company, we will have a more asset-light, higher-margin model.'
Beverage Industry Will Continue to Grow
Macro trends including globalization, urbanization and a booming middle class point to a promising runway for the NARTD business, Quincey said. And considering Coca-Cola today captures approximately only one-third of the industry’s total revenue, “there's still plenty of market share to continue to go for.”
Innovation Powering Coke’s Stills Business
Despite being the global market share leader in juice and juice drinks and ready-to-drink coffee, and a strong No. 2 in energy drinks, water, sports drinks, ready-to-drink tea and more, Coke only accounts for roughly 15 percent of the fragmented still beverage category’s total value. The company is steadily gaining share, Quincey said, by launching and building successful local brands – such as Simply Orange and Gold Peak in the U.S. and Georgia Coffee in Japan – and making strategic bolt-on acquisitions, including the recent purchase of AdeS soy beverages in Latin America.
'If we build them steadily – the combination of local, bolt-on and the global expansions – we can build profitable positions in each of these stills categories and continue the ongoing share gains.'
The company also is keeping a close eye on global trends and, when appropriate, scaling local brands internationally, Quincey said, citing the recent launch of Honest Tea in the UK, expansion of Innocent across Western Europe, and expansion of Del Valle across Latin America.
In 2015, still beverages accounted for 36 percent of the company’s total volume in the U.S. – up from 16 percent in 2000.
“So we have added 20 percent of the mix of the North American business, a little over a point a year,” Quincey said. “That's also more or less true globally. Those small amounts each year over time add up to a great deal of value creation.”
He concluded, “If we build them steadily – the combination of local, bolt-on and the global expansions – we can build profitable positions in each of these stills categories and continue the ongoing share gains.”