Responding to the continuing decline in soda sales in North America and slowing growth in markets such as Brazil and China overseas, Coca-Cola will be counting on the real thing — as much as $1 billion in additional marketing spend by 2016 from productivity savings — to move products off the shelves and down the gullets of consumers worldwide.
“This is a global increase in marketing and every country we operate in, large or small, we know it works,” said Coke chairman and CEO Muhtar Kent in a conference call with analysts transcribed by Seeking Alpha. “When we invest in marketing, our global partners invest in feet on the street, more coolers, more trucks … that’s what will be happening and that’s what we will see happening in our business as we restore steady momentum in 2014 and beyond.”
He was responding to JP Morgan analyst John Faucher, who asked a question that, like the global “Share a Coke” campaign, can be personalized by anyone selling anything: “So what is it that you are seeing that says these headwinds that you are facing can be offset with higher marketing?”
In his introductory remarks, Kent had outlined a five-point plan “to restore our momentum and to keep us on the path to achieve our 2020 vision:
Marketing Week’s Lara O’Reilly delves further into each point.
The call followed the release of full-year and fourth-quarter 2013 results showing that global sales volumes rose 1% in the quarter and 2% for the full year, Reuters reports, with volumes in North America falling 1% in the quarter. Its shares fell as much as 4.3%, the “most in seven months — making the stock the biggest drag on the Dow Jones Industrials index,” reports Reuters’ Siddharth Cavale.
“The changes that the company is making just aren't enough," Sanford C. Bernstein & Co. analyst Ali Dibadj said, reportsAd Age’s Natalie Zmuda. “Many investors aren't sharing the confidence that management does of the company's future.”
“Carbonated soft drinks are the biggest drag, particularly in the U.S., where industry volumes have fallen for nine years in a row and declines are accelerating,” writes the Wall Street Journal’s Mike Esterl. “Worsening matters, sales have slowed in key growth markets like China and Brazil as more consumers turn to still beverages. While Coke has diversified into everything from sports drinks to coconut water, soda still represents 75% of its global volume.”
“The soft drink industry is in perilous decline,” CIBC World Markets analyst Perry Caicco said in a report last week cited by the [Toronto] Globe and Mail’s Marina Strauss. “It is safe to assume that the soft drink business is not going to recover.”
But, Strauss points out, “other observers are more bullish about the prospects of soft-drink companies being able to eventually turn around their North American operations by offering more popular, non-carbonated products.”
Coke will fund the increase in marketing and media spending with cuts elsewhere, including "information technology system standardization,” as the Los Angeles Times’ Stuart Pfeifer reports.
RBC Capital Markets analyst Nik Modi “said he expects Coca-Cola sales volumes to improve as the company pumps more money into marketing in the United States than Pepsi,” writes Reuters’ Cavale.
Let there be no mistake that the flagship brand is still just that in the minds of Coke executives.
“There is quite simply no other brand in the world like Coca-Cola, the world’s most universal beverage brand,” said Kent in his opening remarks. “… Our global marketing community is laser-focused on doing their best work while reallocating resources to the most impactful campaigns and mediums.”
He went on to cite the “Share a Coke” campaign launched in Australia in 2011 and now executed in 21 markets globally, calling it “a system-wide collaborative effort to engage consumers in a meaningful and a very authentic Coca-Cola way.”
Indeed, a YouGov study of the campaign in the UK “showed that when personalization works, it can be highly engaging and effective,” The Drum reports. (There have been some hitches in the personalization, however.)
Meanwhile, Jeff Stier, senior fellow of the National Center for Public Policy Research and director of its Risk Analysis Division, issued a press release yesterday attacking the Center for Science in the Public Interest’s “attack on Olympic figure skating champion Michelle Kwan, who is a member of the President's Council on Physical Fitness and who appears in ads for Coca-Cola.”
Citing a CPSI press release and a Huffington Post piece last month by its director, Michael F. Jacobson, Stier writes: “This absolutist view is not only absurd, it undermines public health by suggesting that people who enjoy an occasional sugary beverage cannot be active, athletic, and healthy.”
The real question is just how “active, athletic, and healthy” the flagship brand itself can be in its golden years.
It has nothing to do with a higher health consciousness (just look around). The problem is that brands - old and new - can't bust through the growing din of an on-demand media universe in which there are more places to avoid Coke's ads than there are people to buy Coke. Another $1B won't make a dent. Or, as ersatz plumber Curly Howard would say after mistaking an electrical conduit for a water pipe: "No wonder the water don't work. The pipes are clogged with wires."
Another problem is price, especially out of the US ($3-4 for 6 oz.). As the cost of food increases - and it is precipitously - somethings will have to give. The volume of soda as one of the sacrifices consumed increasingly will decrease. Soda will not be the only product with slowing sales.
Unfortunately, Upper management sometime fail to see decline in sales could directly related to consumer confidence,ability to purchase, declining job security, etc...
The United States corporations are experiencing the unwinding of middle class American debt. The consumers cannot afford to purchase items that as one commentator noted ($3-4 for 6 oz.) of a beverage. Price increases continue to be unsustainable and $1 billion in advertising expense has to be funded somehow...the sales to consumers. There may a be a boost initially to the ads, but then the consumer will remember why it is they have stopped purchasing soda in the first place. It is a sad time when allegedly Baseball, Apple Pie and Chevolet (and potentially soda) are out of reach for the Middle Class consumer purchasing mind set and become items of luxury or unaffordable in the family budget. Such as sad day in America another great Consumer Icon allegedly destroyed by a devistation of US Currency courtesy of the Federal Reserve.