With fewer people drinking soda, Coca-Cola will have to diversify its product portfolio. The company’s new CEO is leading the way.
Consumers in most of the world, particularly younger generations, are becoming more health-conscious with each passing year. Along with ecommerce and the call for greater transparency, the trend continues to disrupt the food industry. It is now essential for food and beverage brands to show they’re on board by offering healthier options. Smaller, nimbler companies are gaining share. Coca-Cola, a company synonymous with its sugar-laden core product for over a century, will need to adapt.
In many countries the market for soda is fizzling out. In America, soda consumption peaked at nearly 53 gallons per person in the late 1990s. It has since declined to about 75% of that level. Last year, volumes of bottled water in the US outnumbered those of carbonated soft drinks. Governments are also posing a challenge. A growing number are introducing soda taxes to lower consumption of drinks with added sugar. France, Norway and some US cities tax the sweet drinks, and the UK will join them next year.
Coca-Cola occupies an enviable position in the food and beverage industry. It is the world’s largest soft drinks company. It has $42 billion in revenue, and its products are readily available in every country except Cuba and North Korea. Its distribution network is massive, and its marketing has always been strong. What confronts the company’s new CEO, James Quincey, promoted from Chief Operating Officer in May 2017, is the path of diversification. “The company has outgrown its core brand”, Quincey said.
For more than 80 years the company sold only Coca-Cola. The farthest it went towards diversification was, starting in the 1950s, the introduction of other sodas like Sprite and Fanta. The emphasis was on high sales volumes. More significant changes started to be enacted under the previous CEO, Muhtar Kent. As The Economist reports, the company is reducing sugar in some sodas. It is also investing in drinks other than soda, both through acquisition and in-house development. Quincey is aiming to accelerate these efforts. Coca-Cola’s Venturing & Emerging Brands unit is dedicated to discovering and investing in new drinks.
With diversification, there is some risk of diluting the Coca-Cola brand, especially given the prominent role of marketing in the business. Margins could also be slimmed down, as the ingredients in healthier products are more expensive. However Coca-Cola believes it can profitably expand its portfolio through premium drinks, such as its SmartWater brand. With its traditional products, Coca-Cola is seeking higher volumes in newer markets and higher profits in mature ones.
