Coca-Cola's Strategy for Success, 6 Elements
When most of us think about Coca-Cola we think about the Coke brand. We grew up drinking Coke but when a company is in business for over 130 years as Coca-Cola has been it learns a thing or two about staying relevant. Over time Coca-Cola has had to diversify its portfolio, which generated $43 billion last year, because the carbonated soft drink category is “characterized by general stagnation” Now Coca-Cola wants to be a “total beverage maker” by “giving people more of the beverages they want for every occasion in their lives – including drinks with less sugar, more functional benefits and different package sizes.”
How many Coca-Cola products do you consume? More than you think. With more than 1.9 billion beverages served by Coca-Cola each day it sneaks into your daily habits in ways you may not realize. Need some caffeine in the morning? Then Costa Coffee might be your source. Need a refreshing beverage for your afternoon walk? Then AHA might be what you turn to. Need to relax after a stressful week at work then try Topo Chico Hard Seltzer. These are all brands Coca-Cola has purchased or introduced within the last six years. If you are curious about the strategy Coca-Cola is using to grow then consider these six areas it is focusing on.
1. Sparkling Water. As consumers move away from sugary drinks they have found refuge in sparkling water. If you have noticed more and more sparkling water options every time you step into your local convenience store you are not imagining things. Seeing the writing on the wall Coca-Coca introduced sparkling water brand AHA in 2019. You, like me, may have seen or even tried this beverage but didn’t realize it was owned by Coca-Coca. This explains why AHA, out of thousands of beverage brands, is able to get lucrative shelf space in so many retailers. “Many people are shifting over … from carbonated soft drinks to sparkling waters,” said Alex Beckett, director food and drink at Mintel, “because those drinks often have no sweeteners, no calories, and “have a more of a health healthy image.” That’s one of the reasons Pepsi launched sparkling water brand Bubly in 2018. “As the largest and fastest-growing part of the water business, mainstream flavored sparkling water is a segment we know we must double-down on,” said Celina Li, former VP, water, for Coca-Cola in 2019. “AHA is our big-bet brand in this big-bet category.”
“Consumers are voting with our wallets, and sugar is something that people definitely want less of in our lives,” said Danny Stepper, CEO of LA Libations, a beverage company incubator. “That opens the door for a lot of opportunities and categories. Consumers want new things, so that’s opening the door to new ideas.”
2. Coffee. If there is one thing many people can’t get enough of its caffeine. From a needed morning jolt to the afternoon blues there is always a reason to consume caffeine. Businesses often talk about capturing their share of your wallet. This is one of the reasons Amazon has moved into so many categories if you have $100 to spend this week Amazon wants as many of those dollars as possible. In the beverage industry they talk about “share of throat” which sounds funny but highlights how companies like Coca-Cola keep growing. If there is an occasion where you are drinking a beverage and it’s not owned by Coca-Cola they want in. To this end Coca-Cola bought British coffee chain Costa Coffee in 2018 for $5.1 billion.
With over 4,000 locations the purchase of Costa Coffee gave Coca-Cola a large retail store footprint but Coca-Cola insists the move isn’t about retail. “This is a coffee strategy, not a retail strategy,” said Coca-Cola CEO James Quincey. “Consumers continue to want to spend more money on beverages,” said Quincey. “They just want greater diversity” including “coffee in its various formats.” Speaking about the acquisition of Costa Coffee Quincey said: "Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand."
Costa Coffee also has hundreds of locations in China a market that is typically difficult for foreign companies to penetrate. At the time of the acquisition Costa Coffee was the third largest coffee chain in the world after Starbucks and McDonald’s. “Coke really believes they need to be in coffee in a big way,” said Macquarie analyst Caroline Levy. “They’re going to come at it from lots of different angles and figure out what works.”
3. Sugar free soft drinks. Do you ever wonder what’s the difference between Diet Coke and Coke Zero Sugar? This may sound obvious but the main difference is that Coke Zero Sugar does not use the word diet in its title. In the last few years the soft drink industry has moved away from using the word diet. The notion of being on a diet has gone out of favour with younger consumers. To respond to this trend Coca Cola created Coke Zero Sugar. Both Diet Coke and Coke Zero Sugar have no sugar, no calories and use artificial sweeteners. “While the diet designation may be associated with strict regimes or deprivation, the ‘zero’ designation has fewer negative connotations, corresponding with simply a cleaner profile,” wrote Mintel in areport.
On a call discussing 2022 second quarter earnings PepsiCo CEO Ramon Laguarta said the non-sugar trend is “unstoppable”. He also said that in the United States “in beverages, non-sugar is growing three times the speed of full sugar.” “So that gives you a sense of how consumers are, in the US, choosing with their choices. If you go more (to) developed markets around the world like Western Europe, the categories are pivoting very quickly to non-sugar. In the UK, for example, the non-sugar segment in beverages is already almost above 80% of the market. So clearly, in beverages, non-sugar is king.”
The diet carbonated soft drink market reached $11.2 billion in 2020 in the United States. It is still smaller than the market for regular carbonated soft drinks in the United States which reached $28.2 billion in 2020. But diet soft drinks are growing at a faster clip, up 19.5% between 2018 and 2020 vs. 8.4% growth for regular carbonated drinks in the same time period. “As much as Pepsi and Coke would love a scenario in which their flagship product comes back in favor, that’s not the world we live in,” said Elizabeth Ebert, former CIO advisory partner at Infosys Consulting. “Unfortunately, that means they have to continue to evolve.”
4. Sports drinks. In 2021 Coca-Cola bought sports drink brand Bodyarmor for $5.6 billion which is Coca-Cola’s largest acquisition ever. The sports drink market is dominated by Gatorade which had a 64% market share during the four week period ending October 9, 2021. Bodyarmor had an 18% market share during that period and Coca-Cola owned Poweraid had a 13% market share during that time.
Bodyarmour is seen as a healthier sports drink and is part of Coca-Cola’s strategy to move outside of its bread and butter of sugary drinks. $8.4 billion is spent each year on sports drinks in the United States making this a lucrative market for Coca-Cola and one in which Coca-Cola wants a piece of Gatorade’s success.
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5. Hard seltzer. Coca-Cola bought Topo Chico a sparkling water brand in 2017 and then launched Topo Chico Hard Seltzer in conjunction with Molson Coors in 2021. It had been nearly 40 years since Coca-Cola sold an alcoholic drink. Consumers like that hard seltzer typically has fewer calories and less alcohol than other drinks like beer.
Coca-Cola isn’t the only company focusing on hard seltzer. PepsiCo has also introduced an alcoholic version of Mountain Dew called Hard Mountain Dew. “If successful, [Pepsi’s] foray into alcohol to capture a wholly new white space opportunity (while ultimately better leveraging its pre-existing and extensive network of distribution assets) could drive meaningful new sources of revenue and profit growth over the next three to five years, while challenging the near oligopolistic beer distribution networks of [AB InBev] and [Molson Coors] as a viable third alternative in beverage alcohol distribution,” said Deutsche Bank analyst Steve Powers in 2021.
Beverage makers are focusing on the hard seltzer market because of its growth opportunities. In 2020 off-premise hard seltzer sales grew by 160% in the United States while sales of beer only increased by 15%. The growth of hard seltzer has not gone unnoticed. The number of hard seltzer brands in the United States increased from 10 in 2018 to 65 in 2020. “Within the hugely successful and growing hard seltzer segment, new and ‘old’ brands alike can succeed even if their market share is relatively small or declining, because the total pool of sales of hard seltzer within US retail is growing at such a high rate,” said Danelle Kosmal, former VP of beverage alcohol at NielsenIQ.
6. Coca-Cola has also cut its portfolio in half. Coca-Cola has gotten rid of many brands including Coca-Cola Plus Energy, Odwalla smoothies and juices, Tab and Zico coconut water. “In the end, it’s a Darwinian struggle for space in the supermarket or in the convenience store,” Quincey said. “The retailer wants to make as many dollars” as it can for each spot on the shelf. If a brand, even a beloved one, “sells a fraction of what these other bottles will sell, eventually it will get pulled out.”
Quincey has also said that people often think that all of their brands “must be a part of the overall success formula,” “even if I’m not sure what role this brand plays.” But you often have to prune a tree in order for it to grow. Clearly Coca-Cola has done a good job not only of adding the right brands to its portfolio but in deciding what to remove. If only retailers like Sears or Blockbuster got this concept down in their spirt earlier they might still be significant today.