Coke risks watering down its core brand

Coca-Cola’s senior executives have always identified Adam’s Ale as the biggest global rival to its own fizzy sweet liquid – former chief executive Roberto Goizueta was quoted once as saying he wanted to make Coke more popular than water.

Yet apart from its recent foray into the fashion sector, with Coca-Cola Ware, the soft drinks giant is essentially a one-brand company, making it highly vulnerable if sales start to decline.

Fast-food giant McDonald’s faced a similar problem, but has tried to address this by diversifying into other areas, for example with the purchase of the Aroma coffee chain.

Water appears to be an obsession within the company, as Coca-Cola bosses have taken the unprecedented step of launching a water brand in India, which carries the Coke name more prominently than the brand, Kinley.

The move is part of chief executive Douglas Daft’s new “think local, act local” strategy, which has shifted the power away from Atlanta and given greater control to the regions.

But one insider, who used to work at Coke’s Atlanta head office, believes it sets a dangerous precedent: “I can’t understand why it would want to launch branded water. It is complete madness.

“There has always been the problem of how to move on from the core brand – Diet Coke has done quite well, but variants such as Cherry Coke have not been so well received. The company seems to have lost its sense of direction.

“This exposes the complete insanity of Daft’s new philosophy. Years ago, Coke was far too centralised – Atlanta laid down the law and everyone had to follow it – but now it seems to have gone too far the other way. This move will wreck the brand values of the original product.”

Although there is no evidence that branded water will be moved into other countries, some observers believe it is a dangerous precedent.

One brand consultancy director says: “If they get away with that, there are no end of possibilities for diluting the core proposition.

“Coke has always been an aspirational brand – it has pushed its American heritage and that has been at the heart of all its activities. If suddenly it is saying ‘Coke water – enjoy’, what will consumers make of that after being told that Coke was the ‘real thing’?”

Of course the bottled water sector is not a new area for the soft drink giants. Like its arch-rival, Pepsi, Coca-Cola has been steadily moving into the market for a number of years. In the early Nineties, it recognised the potential to make more money by selling the processed water it uses in the manufacture of Coke as a separate product.

The company launched the product, called Bon Aqua, in Poland and it is now widely available across continental Europe. It markets a similar product in the US.

It has also been busy acquiring other bottled water companies. Earlier this month it bought Indonesian publicly-listed business PT Ades Alfindo Putrasetia, and with it the company’s most popular bottled water Ades and several other beverage brands. Pepsi also owns a number of water brands.

Coke has always kept these brands separate, with only the strapline “a product of the Coca-Cola Company” appearing in small print.

Not everyone is convinced that the move will damage the brand or that other soft drinks – whether water or fruit – are such a major threat anyway.

After all, on a global basis Coca-Cola still outstrips its rivals, last year ringing up worldwide sales worth more than $19bn (&£13bn), despite the decontamination scandal in Europe.

And one City analyst doubts whether the carbonated soft drinks market will ever lose its fizz. “Obviously soft drinks will never overtake water, how could they? But I believe they will remain the biggest category. Fruit-based products, such as Snapple and Oasis, have not made major in-roads into the carbonated market.”

“The trend towards so-called healthier drinks simply does not appear sustainable. Parents might want their children to drink more fruit juice, but ultimately they can’t force it on them.”

He cites Procter & Gamble’s Sunny Delight brand, which was one of the most successful launches of recent years. Parents thought they were providing their children with something healthy – only to discover that it had virtually no juice or nutritional content.

UK sales have fallen to &£127m – down nearly a third compared with last year, according to AC Nielsen figures. Meanwhile, Coke achieved sales of &£648m, up 11.3 per cent – making nearly three times as much as its nearest rival Pepsi. However, bottled waters Evian and Volvic were among the fastest growing brands – up 49.7 and 22.2 per cent respectively.

It is still too early to say whether Coke water will be extended to other markets. What is certain is that the “think local, act local” mantra is starting to have an effect in every market around the world.

It appears, on this evidence, to be a high-risk strategy, which threatens to dilute the brand – you could question how long it will be before the UK gets Coke-branded tea-bags.