Coca-Cola has sped full throttle on its course to reduce the amount of sugar in its fizzy drinks and while it is seeing some positive results, the drinks company’s health kick is not yet enough to offset some of the wider challenges it faces in emerging markets.
Coke’s marketing strategy over the past few years has focussed on pushing low calorie, low sugar versions of its fizzy drinks, as well as smaller pack sizes and water. It’s one that has delivered promising return, particularly in the US where Coca-Cola’s strategy of chasing higher prices over larger volumes saw its sparkling beverage price/mix grow 4% in the fourth quarter and 3% for the full year. The drinks company also attributed this to “the continued execution of disciplined occasion, brand, price, and package strategy”.
However, pressure on its core sparkling business, and difficult international economies led to a 55% drop in fourth-quarter earnings to $550m. The company reported a 2% decline in sparkling-beverage volume during the fourth quarter, while its still-drink category rose 2%.
Speaking on a call with analysts earlier today incoming CEO James Quincy, hinted that water and still drinks would be an area of focus in the coming year. “The underlying trend [of stills] is even better than what we jumped at in volume,” he said. “The strategy is to participate in the categories of highest value in revenue and profitability… we are resetting the way we attack some of these categories.”
The company was also hurt by higher costs attributed to the refranchising of its bottling operations in North America, a strategy that will enable Coca-Cola to instead focusing on marketing its brands and sell syrups and concentrates, which will result in lower costs for the business.
Coke intends to spend less on advertising in 2017, however Quincy said that despite investing a smaller amount of money it is becoming more productive in the way it “organises and produces marketing”.
“The aggregate amount of marketing spend is slightly lower, but what is important to know is we will continue to increase working spend of the marketing ahead of revenue, but we are driving material productivity in the way we organise and produce the marketing to become much more efficient. So we are able to grow media in all its different forms ahead of revenue…so we will be able to do more in the marketplace in a more efficient way.”
Coca-Cola has already shaken up its advertising model. Having multiple agencies run different accounts independent of one another was expensive for the brand but didn’t result in a big difference to its business. To tackle this it decided last year to move its social media to a much lower cost base with high productivity benefits.
That shift created the North American Social Centre, a real-time newsroom to manage social media marketing for all the Coca-Cola trademarked brands.