Own-label bites into Coca-Cola

Coca-Cola will reveal fourth-quarter results later this week showing an estimated operating profit of more than $800m (ú530m), bringing its annual income to $3.6bn (ú2.4m).

According to Wall Street analysts, the company will also announce that consumption outside of the US has grown by more than 750 million units.

But behind the buoyant projections from analysts Salomon Brothers there is a growing cloud on the Coca-Cola horizon. It is called the UK, where a combination of the growing private- label sector, the overwhelming strength of retailers and the apparent internal conflict over Coca-Cola’s UK marketing strategy is eroding Coke’s market share.

“I don’t know how Coca-Cola can afford another two years like the one it has just had,” says one UK industry source. Coca-Cola needs to act swiftly to retain its dominance in this country.

Nielsen figures in the UK show that in the past 14 months, own-label brands have stolen 6.7 per cent market share from Coke, far more than Pepsi’s 1.6 per cent loss. “There is concern in the UK,” says Leigh Ferst, senior analyst with SG Warburg, “but it is not a big enough problem to affect worldwide results.”

However, Coke will have to take action. The company has already poured ú4m into a pre-Christmas campaign by Bartle Bogle Hegarty, designed to attack own-label rivals including Sainsbury’s Classic Cola and Virgin Cola. The campaign is expected to continue throughout this year but observers believe it will have to do more.

“It should go for the Rupert Murdoch strategy and cut the price,” says Interbrand chairman John Murphy. Others believe Coke will have to take a more sophisticated approach and revamp its total UK marketing strategy.

Coke’s problem in the UK is the strength of retailers which have launched own-label versions.

“In the UK [Coke] is being faced with a real challenge. The likes of Tesco have a much greater share than equivalents in the US,” says Salomon Brothers global beverage analyst Andrew Conway. “Coke needs more effective brand marketing and has to continue to manage a strong retailer relationship.”

But arguably the most deadly conflict faced by Coca-Cola UK is internal. According to sources, the bottling plant of Coca-Cola Schweppes Beverages and the branding company Coca-Cola are locked in internal battles over marketing.

Budgets from Atlanta are said to be split between the two, and sources close to Coke’s marketing effort claim the two are battling for control over budgets and strategy. This is denied by Coca-Cola.

“We have the greatest respect for our bottler system, including the crucial job of CCSB in Britain,” says Coca-Cola spokeswoman Louise Terry. “Our marketing strategy is very clear and that is to continue to differentiate our brands and offer value to our consumers.

“We will continue to communicate that Coca-Cola is unique, authentic and special,” she adds. But with a host of other UK Colas claiming the same thing, the danger is that fewer people will believe it.