Commentary

Coca-Cola Looking To Caffeine To Fuel Its Growth

Coca-Cola is waking up to coffee. After closing its $5.1 billion acquisition of the British coffee-shop chain Costa early this year, it said yesterday that if will launch the caffeine-infused Coca-Cola Plus Coffee in 25 overseas markets by the end of 2019. 

“Coke Coffee was designed to reach consumers during specific occasions and channels like the mid-afternoon energy slump at work,” Coca-Cola CEO James Quincey told analysts on a Q1 earning call transcribed by Seeking Alpha.

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“Already offered in international markets including Vietnam, Brazil and Colombia, Coke Coffee varies from country to country in that some versions have sugar and others do not, a Cola-Cola spokesperson emailed,” CBS News’ Kate Gibson writes.

A coke spokesman tells Yahoo Finance’s Brian Sozzi that there are no plans to debut Coke Coffee in the U.S. “It will likely be here before you know it though,” Sozzi conjectures.

“Coke’s more aggressive posture should worry Starbucks -- especially as it has had trouble driving afternoon traffic to its stores. Figure it this way: Each can of Coke Coffee purchased in the afternoon is one less cold foam cold brew bought at Starbucks,” he adds.

“The drink, which blends Coke with coffee, has slightly less caffeine than a normal cup of coffee but more than a can of the soda. The move comes as consumers have shifted from drinking soda to choosing less sugary options, like bottled water and Coca-Cola Zero Sugar,” CNBC’s Amelia Lucas reports.

“The drink also allows the company to capitalize on a trend that is working: coffee. Ready-to-drink coffee is the fastest growing segment in the coffee category, growing 31% in 2016 and 2017, according to Mintel. Chilled coffee drinks such as cold brew are also growing in popularity with consumers. From 2013 to 2017, cold coffee grew at least 10% annually in the U.S., Mintel research found,” Lucas adds.

“Coke, as it tries to fend off Pepsi and other upstart competitors, has been diversifying beyond sugary drinks. The company said it will release Costa ready-to-drink coffee in the second quarter, its latest push to boost sales with new kinds of beverages. Quincey to date hasn’t laid out its strategy for the U.K. chain,” Craig Giammona writes for Bloomberg.

In addition, “Coca-Cola Energy is launching in Europe this month, starting in Spain and Hungary, and will be heading to other countries in 2019 and 2020. Coca-Cola Energy is primarily for adults between the ages of 18 and 25, the company said in the March 28 launch announcement,” Tonya Garcia reports for MarketWatch

“Innovation isn’t just about the taste of the beverage. For example, while unit case volume was down 1% in North America, the mini can business was up 14%,” she adds.

“‘The most important thing is to work out how to stay relevant,’ said Quincey," Garcia reports. “‘There are innovations which are about new products, but there are innovations about marketing and packaging which is all aimed to help stay relevant.’”

That said, “as Coca-Cola diversifies beyond soda into water, coffee, juice and other drinks, it is also looking to offer new variants of its flagship brand,” the Wall Street Journal’s Jennifer Maloney points out

“Coca-Cola Zero Sugar, a reformulated diet version, grew by double digits in the latest quarter. And in the U.S., where price increases and a late Easter holiday contributed to a 1% drop in case unit volume, the company said the launch in February of Orange Vanilla Coke, its first new flavor in a decade, helped drive 6% retail sales growth for the Coca-Cola brand.”

The company will also “forge ahead in Europe with Coca-Cola Energy, despite objections from its partner Monster BeverageCorp.,” Maloney reports. “Coca-Cola owns an 18.5% stake in Monster … and distributes the brand through its bottling network. Monster has said the launch of Coca-Cola Energy is a violation of an agreement the companies struck in 2015. The complaint is now in arbitration.”

Analysts were buzzing about the results.

“We expect the company to over-deliver on the 4% organic growth guidance this year, driven by innovation, global market share gains, and pricing power,” Guggenheim Partners analyst Laurent Grandet wrote in a note cited by Reuters’ Nivedita Balu.

“They’re making progress with innovations in general … it is still early for a lot of these innovations, but we do like the increased focus that the company is bringing to its core brands and also its coffee products,” Edward Jones analyst John Boylan said.

We’d be remiss if we didn’t point out that yesterday was the 34th anniversary of the launch of New Coke, the biggest innovative blunder in the company’s history. The lesson of that disaster? 

“First: don’t mess with something that can’t be improved. Second: the people who enjoy our brands ultimately own them,” then-CEO Muhtar Kent wrote in 2015.

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