Coca-Cola believes that cutting its portfolio in half can help it deliver stronger innovation on the brands it retains.
Speaking on its results call this afternoon (22 October) Coca-Cola’s CEO, James Quincey, said that the decision to cut ‘zombie brands’ in July paved the way for more, rather than less, innovation. He pointed to the fact that revenue per innovation has already doubled in 2020 compared to last year as a sign of how much more effective focusing its efforts can be.
He explained: “The reduction of the portfolio by about half is going to allow us to bring stronger innovation to the table. This is not about less innovation and less ability to tap into local insight, it’s actually leveraging the most successful vehicles to do that.”
He added: “It’s about combining platforms of the global and regional brands to connect to local insights. That is part of the art of bringing [innovation] to life.”
Three months ago Coca-Cola had around 400 master brands with more than half of those country brands of little to no scale accounting for just 2% of the company’s total revenue. The company said these brands were pulling time and money away from its bigger, more profitable businesses and needed to be cut.
Quincey noted that although innovation remained a priority, it now had a clearer decision-making process on when to invest and when to pull back.
He explained: “The question of how long do you wait to pull this innovation. We have some pretty clear metrics. The first is what is the innovation for? What is it’s objective? Are we trying to get into a new category? Are we trying to do a flavour extension on a brand? Is it a packaging innovation? Each one has its mission and has its goal and we are very focused tracking how doing and [will cut it] as and when rational hope is no longer there.”
Coca-Cola reported better-than-expected revenue and profits as strong at-home sales helped the company bounce back after lockdowns across the wold.
The beverage company’s sales of its trademark Coca-Cola and Coca-Cola Zero Sugar were positive and while organic sales fell 6% for the three months ended 25 September that was an improvement on the 26% fall in the second quarter.
Marketing spend declines
Despite the focus on innovation Coca-Cola acknowledged that marketing spend was down 30% year on year, although there was a sequential increase of 65% between the second and third quarters.
Coca-Cola chief financial officer, John Murphy, explained that it would continue looking at where best to invest, specifically at “targeted investments in those markets where it makes sense to do so.”
He added that “there is a lot of opportunity when you wire together the organisation” and that in 2021 the company will “take that on a market by market basis”.
He explained: “As you look at 2021 I would encourage you to think about 2019 as and anchor, and then from there factor in the work we have underway on marketing innovation to drive greater efficiency.”