The Coca-Cola Company will cut a number of its “zombie brands” as it looks to focus its resources on its biggest, most profitable lines in the wake of the “toughest and most complex” period in its history.
Speaking on an investor call today (21 July) CEO James Quincey said: “We need to do a better job of nurturing and growing smaller and more enduring propositions and exiting zombie brands, not just zombie SKUs.”
Coca-Cola currently has around 400 master brands but admits that more than half are country brands of little to no scale. They also account for just 2% of the company’s total revenue, with the rest accounting for the remaining 98%.
Yet despite their small size, they still require resources, which Coca-Cola believes is pulling time and money away from its bigger, more profitable businesses.
“They are going slower than the company average but each one still requires resources,” Quincey added.
Quincey promised that Coca-Cola will “weed out” smaller brands that “have not worked” in order to redirect resources to those with more opportunity to grow.
He explained: “What we want to see is a steady pipeline of progression of creating ever stronger brands. We have got to launch a series of explorers to get there knowing most of them won’t make it. But we have not been assertive enough and directive enough at weeding out the explorers that have not worked so we can redirect resources onto explorers and challengers that have the most opportunity.”
Coca-Cola has adopted a three-tier system for its brands since 2019. These include leaders – its biggest brands; explorers – with which it looks to disrupt markets; and challengers – those that have the ability to grow to become leaders.
It is not doing away with this system but rather being brutal in its assessment of whether brands can make it to the next level or not.
Quincey said: “The question is are they succeeding or not? Success criteria for explorer is very fast growth and starting to gain a core of very engaged and loyal consumers, making waves in the category although small. For challengers, it is being able to gain enough market share that over time we believe they can get to leadership – where there is both scale and more favourable margins.”
We have not been assertive enough and directive enough at weeding out the brands that have not worked so we can redirect resources onto brands that have the most opportunity.
James Quincey, The Coca-Cola Company
This also does not mean Coca-Cola wants to stop innovating or launching new brands. But it will be “streamlining” its innovation pipeline and skewing it towards initiatives that can scale regionally or globally.
“It would be a sign of weakness to have no smaller brands in the portfolio because it would mean we are not nurturing the future,” said Quincey.
“In a way, lots of experimentation is a good thing but we are looking at the incomplete task of weeding out ones that don’t work. That is smaller brands that have stayed small over a good period of time, are not growing, and are not meeting success criteria.”
Emerging stronger from the pandemic
The move comes as Coca-Cola looks to position itself to emerge strongly from the coronavirus pandemic and economic recession amid a difficult quarter for the company. It was hit harder than rivals by the closure of bars, restaurants and other venues through which it normally generates about half its annual revenues.
Coca-Cola’s second-quarter sales fell 27% year on year, its steepest quarterly sales drop in a decade. That pushed net income down a third from the same period last year to $1.76bn.
Despite the disappointing results, Quincey said there was a “sense of optimism” about the future as the company is “using the crisis to accelerate a business transformation that was already under way”.
He added: “We are clear on how we will emerge stronger. We will win more consumers, gain share, strengthen our impact across stakeholders and equip our organisation to win the future.”
The company’s “north star” is to return to pre-Covid-19 levels ahead of the global economy, which is predicted to recover in two to three years.
Quincey noted that the pandemic has caused the company to scrutinise its business and strategy more than ever, through which it has learned that “some elements need to be evolved and others need to be pushed harder”.
He listed five priorities to guide the company for the future including prioritising its strongest brands, increasing marketing effectiveness and efficiency, strengthening revenue growth management, improving its supply chain and evolving the organisation.
On marketing, it is re-evaluating all its investments to ensure cut-through and quality of messaging, improved ROI and more effective traditional and digital spend.
Having cut marketing spend in the second quarter, it is now looking to ramp that back up again to ensure the strength of its brands as recovery continues. It is launching its first global campaign, ‘The Great Meal, since the pandemic broke out to strengthen its connection to food.
That will form part of a new global campaign for the Coca-Cola brand, ‘Together Tastes Better’, which is rolling out this month.
“Our key priority is to emerge stronger and faster. With that in mind a key objective in the second half of the year is to position well for 2021, particularly in markets that are important to us and where competitive pressures are strongest. We will be stepping it [marketing] up on a case by case basis to be ready for 2021,” said CFO John Murphy.