Is Coke hip?

Thirst for the Coca-Cola Company’s brown carbonated syrup is undisputed, but the fickle world of fashion may well end up taking the fizz out of the number one soft drinks company when it launches a collection of clothing later this year.

The Coca-Cola Company’s venture into fashion clothing unveiled exclusively in Marketing Week (January 21) comes at a time when the number one global brand failed to hit growth targets during 1998.

Soft drinks analysts, industry experts and followers of fashion were left feeling lukewarm about the move into clothing, which is being made by a company synonymous with one thing: Coca-Cola.

But Coca-Cola Company US spokeswoman Susan McDermott says: “Our main focus has been and will always be soft drinks.”

In-house designers have been recruited to help shape the new casual clothing line, to be called Coca Cola Ware.

The range will include jeans, knitwear and woven clothing, as well as accessories such as hats and bags. Contrary to tabloid newspaper reports there are no plans for the range to include underwear or swimwear. Initially targeted at teenagers and young consumers, McDermott says a whole line of clothing will eventually be made available to all ages.

McDermott says: “This is an integrated approach to create a fashion line with a cohesive feel and a sense of lifestyle.”

Britain and the US will be among the first global markets to test the clothing line which is expected to roll out within the year. Redditch-based clothing manufacturer Action Apparel, which has been making its own men’s and women’s jeans and casualwear brands for 15 years, has been recruited by the Coca-Cola Company as a licensee to develop a distribution base and in-store marketing for the new lines.

McDermott refuses to discuss pricing of the new clothing range and how it will fit alongside the plethora of brands sold in the high street. She says the company will not set up standalone stores for the range, but will sell it through “mid-tier and up” department stores and specialist “active” wear shops.

“It’s really an extension of our Coca-Cola licensing programme, being one of the ways to market Coke around the world and to connect with consumers,” says McDermott. “What we have learned through our current licensing operation is that there’s a thirst out there to extend that relationship.”

The Coca-Cola Company already has 250 licensees around the world providing 10,000 items which are sold through department stores and independent outlets in 40 countries, the UK being one. Promotional clothing, duvets, glasses, and trays are all manufactured through this scheme which began in the Eighties.

In the US, the Coca-Cola Company also sells promotional clothing, sometimes dual-branded with a Coca-Cola sponsored event from its five standalone stores. McDermott says: “The Coca-Cola Ware line won’t be sold in our standalone stores as it’s intended to be more of a fashion collection.”

Talking about the proportion of the company’s total turnover which comes from licensed products, Louise Terry, communication director for Coca-Cola Great Britain, says: “It’s a like a drop in the ocean. The main reason for extending the brand through licensing is that it’s an extra way of communicating brand values.”

The Coca-Cola Company has already visited the route of diversification, eventually selling off Colombia Pictures and its vineyards to focus on soft drinks in the Eighties.

One brand extension which paid huge dividends for the company was the launch of Diet Coke – introduced into the UK in 1984 – under then chief executive officer Roberto Goizueta. But this was followed by a classic marketing mishap in 1985 when Goizueta backed a decision to launch a different taste coke, called New Coke, in 1985 in the US. Following complaints from angry consumers the old formula was reinstated.

The company has also benefited from a huge growth in soft drinks sales around the world. In the UK, soft drinks sales have almost doubled over the past ten years. In 1986, consumers drank 6.5 billion litres of sparkling liquids, rising to 10 billion litres by 1987 to spend more than 6.5bn on fizzy drinks.

But the Coca-Cola Company has seen a slowdown in growth for the third and fourth quarters of 1998.

The company aims to achieve between seven and eight per cent volume growth on average and, according to Terry, has done so for the past 50 years. It announced last December that fourth quarter worldwide unit cases were expected to increase two to four per cent on a comparable basis, following ten per cent growth in the fourth quarter of 1997.

At the time, Douglas Ivester, chairman of the board of directors and chief executive, said: “The fundamental strengths of our business model and our long-term opportunities and strategic approach remain intact throughout the world. “However, during the fourth quarter we have seen a pattern of volatility in many markets that has resulted from continued economic and political uncertainty.

“In our 113-year history, there is scarcely a time when we haven’t weathered economic storms and emerged in a better position than before.”

Any suggestion that the growth of the company’s core business is reaching a plateau and is connected to the extension of the brand into other product categories is flatly denied by the company. It claims its main sources of competition are tea, coffee and water, as opposed to other soft drinks manufacturers such as Pepsi.

Terry says: “Britain is at the stage of development that the US market reached in the Sixties and we drink a third of the levels of soft drinks that are consumed in the US. We think the business is still in its infancy. We therefore deny categorically that the clothing extension is anything to do with the suggestion that the soft drinks market is reaching a plateau.”

Analysts are equally bullish. Caroline Levy, a beverage analyst at Schroder & Co in the US, says: “In my opinion Coke falling short of goals in the past year is really to do with the difficult global economies and not to do with the management of the company. It’s the problems in Asia, Latin America and Russia. You have to bear in mind that Coke derives 75 per cent of its income from outside the US.”

US analyst George Thompson at Prudential Securities agrees. “To me, the impact has been to do with the economic turn. Coke has survived this before and it is stronger now than ever.”

Nevertheless, one industry observer claims to see an underlying trend in recent developments, such as the Coca-Cola Company’s attempt to buy Orangina, its acquisition of Cadbury Schweppes brands in non-US markets, and Ivester’s admission that the company is considering entering the water market.

Richard Hall, chairman of marketing consultancy Zenith International in the UK, says: “The greatest strength of the Coca-Cola Company has always been its focus on the Coke brand. The announcement about Orangina, Schweppes and now clothing, signal a major strategic shift. I suspect that Coca-Cola genuinely believes the competition is not just share of cola, share of soft drinks or even a share of throat. Maybe now Cola-Cola is going for share of lifestyle.”

Thompson is unfazed by the company’s move into fashion clothing, citing its experience of promotional clothing.

But Levy says: “I have mixed feelings about an extension into clothing as there’s a risk that you devalue the brand unless you do it carefully. Plus, teenagers are very particular about the brands they wear and drinks they drink.”

Branding expert Tom Blackett, group deputy chairman of Interbrand, is equally unimpressed by the move. “This is a difficult market to get into and it is saturated with labels. The proposition has to be something very special indeed. If not, it can only damage the brand.”

He thinks that Coca-Cola is not viewed as an “aspirational” brand in the West and is even considered to be a little “bland”, whereas a clothing line may have more success in emerging markets, where labels are extremely popular.

The Coca-Cola Company claims the range is in development, with final designs yet to be approved. McDermott says the brand name Coca-Cola Ware will be used in a subtle manner such as inside collar labels, small tabs on the seams of outside pockets and on the front of sweaters, as well as on hang tags {a fashion term to de note cardboard removable labelling such as on Levi’s jeans}.

But the Coca-Cola trademark will be used in more creative ways interwoven into the fabric of some items.

McDermott says: “In some cases the branding won’t be very visual, but because of the flexibility of fashion it will occasionally be more overt. Every season the clothing is going to change.”

She claims “genuineness, quality, new and refreshing” are the key attributes of the Coca-Cola name that will be carried through to the clothing range.

One product area which has successfully diversified into branded clothing is tobacco. Faced with potential cigarette advertising bans some would say the move into branded clothing for Marlboro and Camel was an alternative form of marketing the main product.

Fiona Harbottle, marketing manager of Camel Trophy Event for Worldwide Brands Inc, denies this is the case and points out that non-smokers are happy to buy the brand because of the quality of clothing. In the UK, Camel clothing and boots have created a turnover of 14m to 15m and $600m (363m) worldwide.

Harbottle has words of warning for the Coca-Cola Company. “If you have used brands promotionally then it is quite hard to make the leap to selling items. Coca-Cola’s hardest problem is that its clothing is seen as a promotional item and the brand is very, very mainstream.”

Emma Fric, managing director of Cato Consulting, who helped diversify the Marlboro brand into clothing in the Eighties, says the mother brand must have one of three strengths to be extended successfully – expertise, image and reputation.

In the case of Marlboro Classics, the image of the Marlboro man and the cowboy lifestyle had already been created. Marks & Spencer brought in the expertise when it diversified into personal finance and Calvin Klein used his reputation to successfully extend the brand from men’s wear into women’s wear and fragrances. Fric believes that the Coca-Cola Company has aspects of all three.

She adds: “With Coca-Cola there’s this notion of a classic and timeless brand: as the advertising strapline says ‘Always Coca-Cola’. But fashion is fickle. For Coca-Cola to succeed it will have to be always ahead of the game. It could probably have done this earlier because the brand has always had such a strong position.”

She emphasises that, in the fashion business, branding must be subtle – suggesting that this is one of the reasons behind the poor performance of Virgin clothing over and above the extremely competitive market in casual clothing.

It will be impossible to judge the success of the Coca-Cola Ware line until the range of clothing is unveiled later this year. But it may be that the Coca-Cola Company should have created its own fashion line much earlier, before consumers had become over-exposed to promotional clothing and cynical about the motives of corporations keen to extend their brands.

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