World’s top beverage maker innovates aggressively and taps acquisition strategy as it redefines its business in challenging times
The iconic red Coca-Cola delivery truck is a common sight around the World, perhaps as iconic as the company’s contour Coke brand bottle – or even the Coca-Cola logo, with its unique typography that has stood the test of time, clocking more than 130 years as one of the most outstanding brands ever.
The Coca-Cola Company’s products are distributed in over 200 countries and territories in worldwide – except for Cuba and North Korea – with a majority of these countries served through local production plants and people.
With over 500 brands – including such diverse global brands like Sprite, Dasani and Fuze, or such unknown brands in Africa such as Aquarius, Georgia Coffee, Sokenbicha – and with 21 of these brands crossing the million dollar mark in sales in 2018, the casual observer may probably think that Coke doesn’t have to try very hard to succeed in the marketplace, where the company has had runaway success for more than a century.
But this is further from the truth for this global giant.
Changing market environment
Coca-Cola remains steadfast in its focus on the future around the world. But, recent changes in consumer perception on food and their drinking habits, regulatory head winds and changes in the way consumers buy beverages has brought back the Fortune 500 veteran company into deep reflection on the way forward for its business.
With the coming into the fore of young Millenials and changing consumer behaviour on their food and beverage consumption habits, Coca-Cola has had to invent new ways to meet the unique needs of its young consumers.
As more and more consumers have become concerned and worried about their sugar consumption and its impact on consumer health and well-being, the world’s largest carbonated drinks maker has had to face up to the changing scenario.
Consumers also continue to ditch regular carbonated soft drinks in mature markets like the US and Europe, opting more for sports and energy drinks, carbonated water and ready-to-drink coffees and teas.
To compound the company’s worries are the raft of taxes that have been imposed on sugar-sweetened drinks across the world from the famous Mexico case, to South Africa, UK, Saudi Arabia, France, several states in the US and another 25 countries or so. So what do you do if the bulk of your products are in the sparkling beverages side and the market is shifting?
Innovate faster with a new culture
For a company that is in its 13th decade, Coca-Cola is rare as a consumer facing brand.
Not many companies with Coca-Cola’s history still have the first product that they introduced when they started out, remaining as their core product after all these years as Coke has done, with few iterations or changes to the brand’s formulation or visuals. The consumers of Coke transcend generations, race, income and more.
For a long time, Coke was not one of the companies to talk about when you considered innovation, instead focusing on building a scalable production and distribution enterprise that is second to none, that ensures that its products were at ‘arm’s reach of desire’ wherever you are were around the world – only launching new flavour options once in a while.
However, the company has had to seek new ways to disrupt its own business to remain relevant, despite decades of run-away success.
This can be demonstrated by the fact that at last year’s Africa Food Industry Excellence Awards held in Nairobi, Kenya, and organised by this magazine, the company took home the coveted New Soft Beverage Product of the Year award category for its Minute Maid Fruity Boost brand, a blend of juice and dairy that seeks to meet consumer needs for healthier beverages.
And it’s ready-to-drink Fuze Tea took the Hot Beverage of the year accolade at the same event.
But the two products are just a tip of the iceberg, according to Duncan Kimani, the Manufacturing Director of Coca-Cola Beverages Africa, Kenya, who says in an earlier interview with Food Business Africa that the company is focused on rolling out more and more products into the marketplace, with more on the way.
As the company evolves, it has had to look for growth in more areas than its sparkling beverages line, entering and expanding such product categories as energy drinks, water, ready-to-drink coffee and tea and even dairy products and blends – playing in new territories that were inconceivable just five years ago.
Coca-Cola East Africa General Manager, Ahmed Rady, says that the company is lining up a number of new drinks to be gradually rolled out in the region’s market in response to the changing consumer needs.
“We are trying as much as possible to give consumers a variety based on what we hear every day from researchers, from sitting with them, observing what they are doing and their shopping behaviours,” he said.
“You can expect a lot of new products coming from Coke because consumers are asking for more. The world has changed and there must be customisation. The trend where everybody is going to conform and drink the same thing is gone,” said Ahmed.
Quincey’s zombie-killing innovations focus
With a new CEO James Quincey, who has been in charge since May 2017, Coke has changed its innovations approach, in what Quincey calls the ‘test and learn’ approach to deliver world class innovation, which has been engrained in the company’s culture as he changes the company to be a consumer-focused organisation.
He says that Coke has to be faster and more experimental in its innovations approach, while the culture of the company has to change drastically.
He adds that the company has to be growth oriented, curious to discover consumer changing habits and consumption strategy, inclusive (where views from all irrespective of their role or origin is taken in) and that its employees have to be empowered to make decisions both in the offices and in the field.
“One of the principles that we have been trying to live up to in this faster, exponentially ever-changing world is to move quickly. We have taken the bull by the horns. We are working around changing the culture in the organisation. Speed and not waiting for everything to be perfect is one of the things that we have been trying to do,” he told the company’s investors conference last year.
“In new product development process, the company has adopted the ‘test and learn’ approach, that is increasingly an important part of our culture. In the past we would see ourselves as set piece battles where you would prepare yourselves for a very long time for any product launch, try to make it perfect and then go for it. That means it took a very long time and you relatively had few of them and you bet big on whether they would work or not. The future is not going to be that way,” he cautioned.
“We must be much more agile, get things to market quicker, maybe smaller, test, learn. They work or they don’t work, move on. If they do, take them to the next stage.”
He gave the example of Coke Zero Sugar that wasn’t one monolithic idea launched everywhere, but was launched in waves around the world.
Launched in 2005 in the US to give consumers a calorie and sugar free drink and a taste that is ‘a lot like Coke’, the brand has been rolled in most markets around the world at break-neck speed, even as the company keeps on tweaking the brand.
In Kenya, the company has changed the name to Coke Without Sugar (and Bila Sukari in Kiswahili) to convey the right messaging that its consumers understand.
The company is on a roll, introducing 600 new products in 2018 according to its latest financial release, but at the same time, Quincey insists that country teams have to continuously hunt down the ‘zombies’, or products that actually fail to gain traction in the market and fail to deliver on the promise.
“At Coca-Cola, we’ve developed a guide to help our markets identify and kill zombies using a disciplined process. We have started issuing quarterly zombie lists to our top 32 markets. Our CEO, James Quincey, has requested zombie reviews as part of overall business reviews, every time he visits a market,” says Francisco Crespo, the company’s Chief Growth Officer.
“Our primary focus is on products and packages that, despite our best intentions and efforts, have not grown over a three-year period. They are only distracting our attention and misusing our resources . . . . We see that even in some of the best companies, zombies exist side-by-side with rock stars,” he adds.
He reveals that in the beverages industry, research shows that it takes about a decade for a brand to become a leader, and most brands don’t make it. As part of the zombie removal process, the company culled 700 products in 2018.
Crespo advices that good business leaders must embrace failure in a way that eventually makes them stronger.
“Now, let’s be clear: It is perfectly OK to fail. It is not OK to not know why. When we experiment, we focus on learning. If something works, we should scale up the idea. If we learn something doesn’t work, we need to stop doing it. This last part – stopping – is hard, as we see hope in everything we do. But doing things we know do not work or repeating an experiment without conclusive learning is a futile exercise. And this creates zombies.
“Well-meaning leaders keep zombies based on hope and often misplaced optimism that maybe, one day, the zombie will come to life. Reputational risk is another factor – the risk of being seen as someone who made the wrong call.”
He adds that letting complacency to seep into an organization, where organisations slip into the ‘culture of explanation’ which is the ability to justify in exhausting detail any issue, while being paralyzed to drive action to make things better, is a sure way for such organisations to keep zombies, with fear of cleaning the pipeline.
“Zombie-infested organizations often say, “There is no harm in keeping this product.” The reality is that the unseen costs of zombies actually harm an organization. Imagine the costs related to material management and procurement, production, inventory costs, distribution, salesperson time and, most of all, the opportunity cost of putting a better product in its place.”
He gives the example of the company’s famous dalliance with New Coke brand in the 1980s that spectacularly backfired when consumers failed to like the new taste, despite the company extensively researching and powerfully launching the product.
“The lesson of New Coke was not so much the conviction to launch it but the courage to withdraw it after less than 80 days,” Crespo says.
Innovating beyond sparkling beverages
A rejuvenated Coca-Cola continues to seek growth in areas beyond its core carbonated (or sparkling) beverages, with innovations into the dairy, teas, coffees, juices and even plant-based beverages gaining momentum.
Quincey says that the company’s multifaceted approach to meet changing tastes and needs includes reducing sugar and calories across brands; offering new drinks that provide health benefits like hydration and nutrition; expanding the availability of smaller, more convenient packages to help people control sugar more easily; and providing clear, easy-to-find calorie information to help people make informed decisions without the guesswork.
The new innovations focus has delivered some quick product launches and wins around the world, as the company seeks to expand its portfolio of products that cover the 8 drink occasions a regular consumer has throughout the day – and deliver on the company’s total beverage company goal.
This has seen the introduction of a whole range of zero calorie across its brands Fanta, Sprite and Krest and other brands, in addition to Coca-Cola Zero Sugar; Coca-Cola plus Coffee in Australia and has since been rolled into Vietnam, Thailand and other Asian countries; a low calorie tea drink in Singapore called Authentic Tea House; Coca-Cola Clear, a new variant of Coke without the caramel coloring; and the company’s first-ever alcoholic drink in Japan.
In India, it recently debuted two lines of beverages dubbed Enhanced Hydration and Nutritious Edibles, launching Aquarius Glucocharge and Minute Maid Vitingo respectively.
In the US, the company is currently test-marketing Bar None, a line of bottled booze-free adult sparkling drinks that are targeted at the booming alcohol-free drinks space. The drinks were crafted with bar-inspired flavors and premium, on-trend ingredients to appeal to beer, wine and cocktail drinkers.
In Japan, Coca-Cola also recently debuted the first frozen Coke in a squeezable pouch and Coca-Cola with dietary fibre, with the country acting as a test case for the company’s most out-of-the-ordinary innovations, tapping into a population that is continuously seeking new nutrition and taste adventures.
Coca-Cola in November 2018 unveiled plans to roll out a range of own-branded energy drinks, “Coca-Cola Energy” and “Coca-Cola Energy No Sugar”, for the first time in history. In early 2019, the company unveiled its first Coca-Cola trademark flavour innovations by launching Orange Vanilla Coke and Orange Vanilla Coke Zero Sugar.
Coca-Cola’s lift and shift globally strategy, where ideas are tested in a few markets and then aggressively rolled out elsewhere is bound to deliver significant innovations and product launches across markets in the near future.
Through this strategy, brands like ready-to-drink tea brand Fuze, which was launched in 2012, reached the million dollar status within two years, and is now available across the world. Coca-Cola Zero Sugar hit the billion dollar mark within two years, indicating the pace with which Coca-Cola can deliver on its ambitious goals.
Acquisitions drive scale
As Coca-Cola seeks to disrupt itself internally, the company has also sought to leverage its scale to tap bolt-on acquisitions and investments in big and small companies as it seeks to break the innovations barrier, while gaining traction with consumers around the world.
The company has achieved a lot by investing in small, disruptive companies with great ideas, and then giving these upstarts space to continue innovating, sparing them the big company mentality, thereby deriving the best out of them.
The company’s 16.7% acquisition of a stake in Monster Beverages, which the company did in 2015, and whose brands have benefited from the scale Coke provides and is now available across the world, is a case in point.
Others are the 2018 minority investment in Bodyarmor, a fast-growing line of premium sports performance and hydration beverages, through its Coca-Cola North America Venturing & Emerging Brands (VEB) portfolio.
Through this strategic relationship, Bodyarmor will remain an independent company and gain access to the expansive Coca-Cola bottling and distribution system.
“By maintaining the independent thinking backed by the scale of Coca-Cola, we have succeeded with these acquisitions by taking the best these companies have to offer and boosting them with the resources of Coca-Cola,” says Quincey.
In Africa, Coca-Cola has been very active in seeking new avenues to grow its portfolio of brands, especially after the formation of the Coca-Cola Beverages Africa unit.
The formation of CCBA, which is responsible for the bottling of the company’s brands across Eastern and Southern Africa and some Western African countries, brought in a list of market leading water brands including Keringet in Kenya, Ruwenzori in Uganda and Voltic in Ghana.
In Zambia, the company recently closed the acquisition of Fairy Bottling, the leading soft beverages manufacturer in the country, and which also owned the country’s biggest water brand Aqua Savana. The deal came just shortly after CCBA bought out the bottling business operations from Zambian Breweries.
Perhaps the most outstanding acquisition in Africa has been the take-over of Nigeria’s largest juices, beverages, dairy and snacks maker, Chi Ltd.
“Coca-Cola is continuing to evolve as a total beverage company, and Chi’s diverse range of beverages perfectly complements our existing portfolio, enabling us to accelerate expansion into new categories and grow our business in Africa,” Peter Njonjo, President of the West Africa business unit of Coca-Cola said of the transaction.
Sustainability initiatives change the game
With a long history of being at the forefront of being criticised for selling products that contributed to the obesity epidemic in some countries, Coca-Cola has fronted the critics head-on by implementing several initiatives to change the narrative.
In 2014, Coca-Cola was among America’s beverage companies, together with PepsiCo and Dr Pepper Snapple Group, the Alliance for a Healthier Generation and the American Beverage Association (ABA) announced a push to encourage greater interest in and access to lower and no-calorie beverage options through their Balance Calories Initiative (BCI).
A voluntary effort by the beverage industry to help fight obesity, the BCI’s goal is to reduce beverage calories consumed per person nationally by 20% by 2025 by engaging in efforts to educate the consumer and work with stores to diversify product offerings and offer more choices for the them.
Since then, the company has not only innovated low or no calorie products but also ensured that the products are availed to consumers, while communicating to the consumers of the options available so that they make an informed choice in their marketing activities.
Smaller pack sizes have also been introduced to reduce the amount taken by consumers at any one time, reducing their calorie intake.
The company has also led in sustainability initiatives aimed at reducing the impact of its packaging on the environment.
In 2018, it introduced a sustainability initiative dubbed World Without Waste, a holistic, three-pillar plan that includes ambitious goals to create packaging made of at least 50% recycled material by 2030; to help to collect and recycle a bottle or can for every one the company sells by 2030; and to partner with industry, governments and local communities to tackle the global issue of plastic waste.
“Our aspiration – as part of our World Without Waste vision – is to close the loop on our packaging by helping turn more old bottles into new ones,” explains Scott Pearson, senior director, Global R&D Engineering, The Coca-Cola Company. “And enhanced recycling is the next big step in that direction.”
The company recently announced two investments to ‘speed the development and deployment of breakthrough enhanced recycling technologies that will convert recycled plastic into food-grade PET’ for use in its beverage bottles and also opened up its PlantBottle technology to its competitors, to catalyse the adoption of this unique technology across the industry.
New company structure delivers
The company has also had significant changes in its top management and structure with a view to align itself with the new business model that has refranchised most of its bottlers, thereby returning the daily management of manufacturing, bottling, storing, and distributing Coca-Cola to larger, more capable franchisees.
The refranchising initiative has seen the creation of 68 bottlers across the US since 2013, when the company was responsible for bottling operations across vast swathes of the country.
In Africa, in 2014, Coca-Cola Beverages Africa (CCBA) was formed from the merger of SABMiller PLC, The Coca-Cola Company and Gutsche Family Investments (GFI) beverage bottling operations in Southern and East Africa.
Coca-Cola Beverages Africa, which has a head office in South Africa serves more than 12 countries, employs 12,000 people and accounts for 40% of the total Coca-Cola beverage volume consumed in Africa.
In China, it previously had three major bottling groups – Bottling Investment Group China, COFCO Coca-Cola Beverages Ltd and Swire. To improve the efficiency and scale of its local partners, it signed an agreement to refranchise all its bottling operations in China in 2016, to return its focus to the company’s core strengths.
Coca-Cola divided its bottling system in China between two franchise partners – COFCO Corp and The Swire Group.
The company completed its franchising transition in 2016 in Germany, by joining its businesses including Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG to form a new bottling business named Coca Cola European partners. Similar initiatives have been carried out in Europe and Latin America.
The initiative has led to significant reduction in head count at the company, with Quincey revealing that 40,000 people are currently employed by Coca-Cola, from a high of 150,000 at the start of the process. At the top, new management has come on board to work with Quincey to deliver for this highly ambitious company.
Quincey is set to take over the Chairman and CEO role in April as Mukhtar Kent retires from the Chairman role he has had since Quincey became CEO. Working closely with Quincey will be the new President and Chief Operations Officer Brian Smith and John Murphy who has taken over the Chief Financial Officer role.
With a new team, new focus and strategies, and ambitious goals, Coke is surely set to surprise in the future.
This story appeared in the January/February 2019 issue of Food Business Africa magazine. You can read the entire magazine HERE