Dear Wall Street:

Halloween is Friday. Don’t get spooked when it arrives.

I mention that because last Friday the absolutely obvious occurred -- and you acted like you’d had a nighttime visit from the walking dead. Coca-Cola Co. announced a year-over-year decline in sales and profits in the third quarter and -- ahhhhhh!!! –FREAK-OUT!

The selloff cost the company $10 billion in market cap. That’s a lot of money. To put that in perspective, with $10 billion, you could buy 667 million 24-packs of Dasani water, 20 niobium mines in Quebec or Snapchat.  It is the stuff of shareholder revolts. But very peculiar.

The surprise wasn’t Coke’s third-quarter results. The surprise was the surprise. As CEO Muhtar Kent did his best to explain: "The consumer is challenged everywhere around the world. There is a lot of volatility in the world, in currencies, in interest rates, in growth rates and in geopolitical issues." That’s for sure. And it is going to get worse. A whole lot worse.



I’ll get to why in a minute -- although, once again, it’s obvious. The key thing is that Kent promised bold action.  1) $3 billion in cost-cutting, 2) re-franchising (i.e., selling back what CCC probably never should have taken in-house) its North America bottling operations 3) cashiering CMO Joe Tripodi. And 4) I’ll tell you in a minute. You won't believe it.

Truthfully, I'm in no position to understand what prompted the bottler strategy then or now. I do know that billions in cost-cutting means management is either guilty now of putting organic growth at risk or was guilty before of squandering cash. But more than anything I know this: Coca-Cola's problem is not marketing.

On the contrary, considering all the external conditions buffeting the company, marketing is what has been keeping things upright. By all logic and reason, the financials should have been scarier. Not just because of lingering economic problems globally and regional wars. Not because of interest rates, surely; in much of the world, debt is free. The bitter issue is sweetener. And it’s only getting bitterer.

Coca-Cola sells sugared drinks into a world that is seeing lethal effects of obesity, especially in the Americas. And it sells aspartame acesulfame-K and saccharin into a world that is increasingly skittish about them. Hard to say why that is -- there is no indicting body of scientific evidence, but these days “unnatural” isn’t an especially enticing proposition.

Coca-Cola and Pepsico have addressed this looming structural problem in their businesses by expanding their portfolios to waters and juices. This is approximately like trying to ward off those zombie attacks by piling socks behind the door. There is no short-term way to compensate for a global megatrend that threatens the very core of your business. Ask Big Tobacco. And they had the advantage of being evil.

Coca-Cola Company has the opportunity to redefine itself by embracing a radical change in promotion and distribution. It can never be a health-food company; it sells confections. But it can de-emphasize brand Coke and its other sugared drinks worldwide in favor of its sugarless “Zeros,” and invest some of that $3 billion to develop the likes of Stevia, low-calorie sweeteners born in nature, not a beaker. 

Yeah, there will be a gigantic write-off attached to this -- and Wall Street will hate that, too -- but the alternative is a slow, perpetual erosion in sales as consumer trends mutate into regulation and legislation. The first of the two competitors to own “responsibility” will be a global hero.

But that’s not what Kent has done. Instead, he has criticized his marketing and canned the guy who in the last two years oversaw two of the largest and most successful integrated marketing campaigns in history, for the Olympics and the World Cup. On Tripodi’s watch, brand Coke also captured imaginations and generated buzz, not to mention endless delight, with the adorable Share a Coke personalized-can promotion. And under him, Coke’s social-media presence was best in class worldwide.

So, yeah, definitely. Send him packing and go forward with your astonishing Initiative #4. Give the new guy more money for marketing! Yep, your brand promotion was the problem… so by all means do more of it. That’s the ticket. I’m sure from now on, everything will be just fine.

6 comments about "Gulp!".
Check to receive email when comments are posted.
  1. Douglas Ferguson from College of Charleston, October 27, 2014 at 9:22 a.m.

    And yet beer is not perceived as having any lethal effects.

  2. george smithson from smithson, October 27, 2014 at 12:29 p.m.

    You are way smarter than I, Garfield, as proven in all your previous posts - some quite brilliant. However, in your second to last paragraph, you of all should know better: 'most successful integrated marketing program..."; 'captured imaginations and generated buzz / endless delight...'; 'social-media presence as best in class worldwide.' You didn't mention driving shareowner value through sales... THAT'S the only metric that ultimately matters, and you aren't privvy to what's been happening behind the scenes, expectations being met, etc. Swing and a miss, Bob.

  3. Tom Messner from BONACCOLTA MESSNER, October 27, 2014 at 10:19 p.m.

    How was Joseph Tripodi's tenure as CMO assessed?

  4. Sean Hargrave from Sean Hargrave, October 28, 2014 at 6:52 a.m.

    Hi Bob, fellow Mediapost (UK) writer, Sean here. Love this post. I've previously looked in to this and seen that the sugar fizzy drinks market is on path to lose a billion dollars worth of sales over the next couple of years as people wake up to the impact of, well, sugary fizzy drinks. Not even spending a crazy sum on the soccer World Cup made much of an impact. How Wall Street could see this as a sudden surprise is very odd, isn't it? Figures have been out there for all to see for quite some time.

  5. Adam Hartung from spark partners, October 29, 2014 at 4:57 p.m.

    Great observations Bob. agrees with you, and thinks this may well be a turning point in the life of Coca-Cola company. From the world's best global brand manager, to a company losing relevance as it has fallen out of touch with major trends and how to create world class brands today

  6. Paula Lynn from Who Else Unlimited, November 22, 2014 at 7:39 p.m.

    Nobody of relevance saw the real estate market dive coming or the reasons why. Yeah.

Next story loading loading..