Coca-Cola is trying to change. From headline-grabbing acquisitions such as Costa Coffee to its first multibrand campaign last July, one thing is clear: Coke is committed to becoming what it calls a “total beverage company” – and fast.
From the moment you walk into the $35bn turnover business’s headquarters in Atlanta you can sense that change is happening. A circular marbled hall is surrounded by three arches, with the Coca-Cola logo emblazoned above each. But the red and white branding of classic Coke is not the sole focus; instead a logo with multiple drinks takes pride of place and various brands, including Honest Tea and Sprite, also adorn the walls.
As Marketing Week learned on a recent visit to Atlanta, the company is on a mission to diversify its portfolio and innovate on its products faster than ever before.
This is all encapsulated in a logo produced in 2017 to introduce Coca-Cola’s corporate positioning statement, ‘beverages for life’. It illustrates the company’s strategy of following consumers throughout their lifetime, and the eight drinks assembled together in the graphic reference the fact that the company currently accounts for an eighth of the world’s beverage supply and the belief it has the opportunity to cater for more.
The Quincey effect
This change in mindset is largely down to CEO James Quincey. He introduced the total beverage strategy as he took charge of the 133-year-old business in 2017.
The impact of Quincey is mentioned almost constantly at Coke. A CEO with a new vision is naturally going to have an effect but Quincey’s influence seems truly embedded.
Employees across different seniorities and working in a range of departments and markets all speak about the 53-year-old Briton’s mission to change the company from the inside out. His influence is clear and, whether mentioned in passing or through a direct reference, it seems every employee is on-message.
He’s made clear what he wants Coca-Cola as a total beverage company to look like. It needs to be unafraid of failing, faster at getting to market and better at introducing products that cater better for multiple occasions.
However, Quincey isn’t a pioneer at the forefront of FMCG disruption; he’s a pragmatist who realises Coca-Cola has to change or be left behind. The world is changing: governments are cracking down on high levels of sugar in food and drink, and consumer trends are leaning towards healthier options. The company’s future will not be as glittering as its past if it doesn’t keep up. Revenue fell nearly $13bn between 2012 and 2017, though in the past five years the share price has risen from $40 to around $50.
Coca-Cola Classic will still be the biggest jewel we have but we do feel innovation has to happen with Coke.
Arnab Roy, Coca-Cola
According to Euromonitor International, global volume sales of carbonated soft drinks have been in decline for the past three years, falling from 164.3 billion litres in 2014 to 162.6 billion litres in 2017.
Yet the total soft drinks category has been in growth, with sales up 9.5% between 2014 and 2017 to 601 billion litres. Sales of coffee, tea and energy drinks are all on the rise too. Coffee has grown 10.2% to 5.4 billion litres, tea 0.2% to 35 billion litres and energy drinks 14% to 21.2 billion litres.
The trends mean Coca-Cola is losing volume market share. Its share of the global soft drinks category fell from 18% in 2016 to 17.6% in 2017.
This is, in some ways, down to Coca-Cola’s strategy to focus on value over volume sales, meaning the company is focused on premium-priced beverage categories rather than increasing consumption.
Obsessive pursuit of growth
To mitigate the decline in soft drinks, Coca-Cola must also prioritise growth in different markets, across different occasions and with a wider range of consumers.
This goal is reflected in its corporate structure, with Coca-Cola scrapping the CMO position in March 2017 and appointing Francisco Crespo as chief growth officer instead.
Coca-Cola’s global vice-president of creative, Rodolfo Echeverria, explains: “We have always been big but now we are obsessively pursuing growth, not in the sense that we want to be richer but in the sense that we are looking at those consumers who are not our consumers right now. We’re asking how can we grow? How can we satisfy more and better consumer needs?”
If the goal is growth, then innovation is the means. Over the past two years, Coca-Cola has launched more new flavours and product offerings than ever before. But it is also pushing for innovation across the business. From launching new brands to updating classic products and branching out into new markets, the company is expanding beyond sparkling drinks, all of which is supported by leaner marketing and a digitised business.
Revolutionising the marketing models
“My life 20 years back as a Coca-Cola marketer was much easier. Today it’s much more complex,” says Javier Meza, who has just returned to Atlanta to take on the newly-created role of CMO of sparkling beverages after heading up marketing in Asia.
Meza says his biggest challenge in Coke’s new obsession for growth is adjusting the marketing models. The company now divides brands into three categories – leaders, challengers and explorers – with the marketing strategy changing depending on the category the product sits in.
He explains: “[The products under the Coca-Cola master brand have] a leadership position so the marketing model for that brand is not the same as what we want to do with a brand like Powerade because in most markets it is a challenger. And in some categories we are not even a challenger, we are just exploring.”
Coca-Cola has honed how to do marketing as a leader and is gaining confidence as a challenger, but marketing explorer brands is new territory.
“The way we engage consumers is different, the way we do insight is different as well. For smaller explorer brands we are taking the new approach of more social listening and less of the structured research that we do with Coca-Cola; it’s trying to learn faster from the consumer,” says Meza.
Echeverria agrees and says explorer brands require “a typical West Coast, California attitude”.
He explains: “Those digital companies are born and die in seven months and then they recreate themselves. You need to find a marketing model that is more agile and fast, and that means when you stumble, you stand up [again] immediately.”
New brands failing is not theoretical either. In China, Coca-Cola has recently launched a tea brand for the eighth time and in the UK it withdrew Coca-Cola Life after disappointing sales.
This means that Coca-Cola has to change the way it works with agencies. Echeverria says: “We cannot go through the long process of calling Ogilvy or McCann or the big networks we usually work with. We are willing to use influencers and co-create with our consumers, and use models that are not the typical big, fat agency which we may use when we have the time and budget.”
Last year, Coca-Cola used crowdfunding site Indiegogo to launch its premium Swiss water brand Valser into the North American market. Not only does it allow for quick – and, most importantly, cheap – failure but also functions like a marketing tool and creates buzz around a product, as well as offering valuable learnings.
One example of this shift in thinking is its use of crowdfunding. A tool favoured by asset-poor startups is starting to be adopted by larger companies to allow for faster innovation.
George Parker, director of innovation at Coca-Cola, explains: “Working with a company like Indiegogo allows us to move quicker. Given how rapidly consumer tastes are changing, the innovation team at Coca-Cola is challenged with taking risks, testing, iterating and cycling through ideas quickly to see what works. Indiegogo was an opportunity to quickly get Valser out there and see if there was a demand.”
Acquisitions and brand-building
The focus on startup brands is combined with bigger bets on areas of growth. Quincey has committed the company to making more acquisitions, with notable purchases including Costa Coffee in the UK and sports drink BodyArmor in the US .
Quincey told investors not to “read too much into it” and promised the rate of acquisitions would not be replicated every quarter. But it is clear that buying brands is becoming a more important tactic as Coca-Cola looks to move faster into new markets.
This focus on brands beyond Coca-Cola has required structural changes too. The drinks company launched a Global Ventures group in October specifically designed to “help drive growth and greater speed going forward” for new acquisitions and brands, and to “identify and nurture the next series of fast-growing opportunities” across markets.
In some categories we are not even a challenger, we are just exploring.
Javier Meza, Coca-Cola
Chief people officer Jennifer Mann heads up the group and in a blog post Quincey wrote: “Jennifer’s number one job is to get maximum value out of the things we’ve already bought or invested in. There’s a lot of opportunity to leverage what’s already under way.”
The company is also rebranding older products and investing in its lower-sugar variants, with some success. With the introduction of the sugar tax in the UK on 1 April 2018, Coca-Cola invested £10m in a marketing campaign to relaunch Diet Coke.
It worked, and by July 2018 UK Diet Coke sales had overtaken classic Coke, aided by an instant boost in the week after the overhaul. Meanwhile, Coca-Cola says Coke Zero Sugar has been the biggest single driver of the company’s overall growth.
All of this brand-building hinges on one big element: choice. Echeverria explains: “We want to give choice so that consumers who like a Coca-Cola with sugar can fulfil their craving for sugar. You don’t want sugar or calories? We have zero for half of our portfolio. It’s a choice and we are not only offering that choice but shaping choice by promoting the zero-calorie options.”
No more ‘holy grails’
Nothing reveals the change in Coca-Cola’s strategy more than its attitude to its core brand. The company’s flexibility with the Coca-Cola trademark is previously unheard of, as it attempts to figure out what the future of the brand looks like.
KOLab is where the majority of the Coca-Cola brand’s innovation happens. In this small, inconspicuous building tucked away from the rest of Coke’s campus, employees have to sign NDAs, so top-secret are the goings-on.
Marketing Week was among the first members of the media to be allowed in. The circular main room would not look out of place in a Bond Film, with screens surrounding a circular table lit by a single light. In this customer collaboration centre, Coca-Cola uses the latest technology to gain consumer insights and uses virtual reality to see what innovation will look like at scale in retailers.
Its focus is on global innovation and there are five more similar R&D centres around the world, including in Brussels, Shanghai and Mexico City. While the KOLab is in a separate building from the rest of the Atlanta HQ, it is integrated within the company, unlike at other brands such as PepsiCo, where innovation centres are housed in separate business hubs.
The impact of the lab can be felt across the business. The launch of Coke Zero took five years of research, 60 prototypes, 18 global studies, 90 sample testings and various formats. Compare that to today and the route to market is cut drastically. Coca-Cola Clear with lemon, which was launched in China in 2017, took just two months from concept to launch.
Change is not easy, as Coke’s history will attest to. In 1985, Coca-Cola changed its formula but was forced to ditch ‘New Coke’ and go back to its original recipe after just 70 days. Critics called it the biggest marketing blunder ever and the company still cites it constantly as an example of how beloved Coke is.
However, Coca-Cola is now tinkering with that formula again.
Arnab Roy, senior global marketing director and brand head of trademark for Coca-Cola, says: “A lot of the ‘holy grails’ have a ‘why not’ attitude now. Before you could not play with the Coca-Cola formula. You could add a flavour to it – a Coke vanilla and a Coke orange – but not change the recipe. Now we are saying start with the consumer: who are you trying to connect with and therefore how must Coke adapt itself to fit?
“Coca-Cola Classic will still be the biggest jewel we have but we do feel innovation has to happen with Coke. Over the last two years, with the guidance of our CEO, there is a lot more flexibility with what Coke can do and what Coke can’t do.”
Looking to the future
To understand the future of Coca-Cola it helps to look to Japan, where the company launches four products a week.
Sparkling CMO Meza explains: “One of the things the Japan business has done is to understand very quickly which products have the chance have to be maintained and which have to be removed. It’s a change of mindset and that’s what James Quincey is pushing us to do, and I’ve seen more and more of that in Coca-Cola.”
Coca-Cola might appear to have been innovating for years given the steady stream of new Coke flavours. However, Roy admits these new flavours “don’t really help the brand grow in a long-term, sustainable way”.
To do that it needs to expand into new drinking occasions. And this is where it is starting to experiment. A year ago, Japan launched Coke with coffee. It’s a prime example of breaking the ‘holy grail’ rules because the combination of Coca-Cola and coffee beans fundamentally changes the core Coke recipe.
Coke with coffee is also different because its sales do not come at the expense of the core product. Instead, they come from looking at an occasion and a need – people wanting more caffeine to perk them up during an afternoon slump – thus taking sales from other categories rather than cannibalising Coca-Cola sales. It launched in Spain in October and the hope is that by the end of next year it will be in 50% of Coca-Cola’s markets.
Another example is the growing ‘food for specified health uses’ trend in Japan. The trend is about offering products that aid health and metabolism, so Coca-Cola has launched Coke plus fibre, which lowers the body’s fat absorption and is targeted at the over-40s.
It’s unlikely to launch more widely any time soon but the point is there is a market for more functional drinks. Following those trends will see Coca-Cola going boldly where Coke hasn’t gone before.
There is no doubt the organisation will look very different in 20 years’ time from how it does now if it continues on its current trajectory.
However, it’s unclear how this will translate to consumers. The Coca-Cola Company will still be synonymous with carbonated drinks and its namesake product but perhaps more popular products in other categories will become more important to the business.
Is there a point when the business owns a product bigger than Coca-Cola? Meza isn’t ruling it out, although he doesn’t see it happening in the next 10 years. What will be key, he believes, is Coca-Cola keeping up with the pace of change. “The moment the pace of change outside the company is higher than inside, then you start to lose,” he reflects.
Coca-Cola not a disruptor or a startup or an underdog tapping into a niche. It’s a big corporation and no amount of innovation hubs or logo updates is going to change that.
However, Coca-Cola is prioritising rapid innovation, launching into new markets and exploring nascent trends. Quincey’s decision to break old habits and adopt faster processes might be one born of necessity, but history is littered with companies that failed to do that. The future of the Coca-Cola brand may not be as exalted as in the past, but the company that bears its name still has some fizz left in it.