Coca-Cola readies for ad spend ‘step change’ following lockdown freeze

The soda giant’s chairman and chief executive James Quincey told investors the business wants to emerge from Covid-19 in a stronger financial position, which will be supported by a “refreshed marketing approach”.

The Drum explores what this means and why it matters.

How has Covid-19 impacted Coca-Cola?

• Coca-Cola reported a quarterly net sales drop of 25% to $7.2bn for the three months to June.

• Sales have been hammered by the coronavirus-led closure of restaurants, bars, cinemas and sports venues – which account for around half its business.

• The weak performance comes after stronger numbers from rival PepsiCo, which has been buoyed by its snacks arm.

• Chief exec Quincey thinks the worst is over. “However, we still have work to do,” he said.

• Volume trends (a key demand indicator) have improved sequentially in recent weeks, from a decline of about 25% in April to a fall of about 10% in June as lockdowns around the world eased.

How has Covid-19 impacted Coca-Cola’s marketing plans?

• In an effort to cushion its bottom line, Coca-Cola reined in marketing and other spending across the company at the start of 2020. This was in stark contrast to FMCG firms like Unilever, which bolstered its brand investment as Covid-19 hit.

• Though it did not officially join the ‘Stop Hate for Profit’ Facebook boycott, the company also announced in late June that it would be pausing all social media advertising for 30 days.

• “We thought no marketing was going to make much difference in Q2,” Quincey explained to investors on Tuesday, “so we pulled back heavily. We’ll have to gauge and be adaptable as we work through the known unknowns as to which markets it’s going to make sense to invest in from now on.”

• Elsewhere, John Murphy, chief financial officer at Coca-Cola, cautioned that while some marketing investment will return to pre-Covid levels, the business still needs to be “flexible” and able to adapt its media strategy as events unfold.

• He also pointed towards a bigger shift, which will see the business embrace a “refreshed” marketing approach: “There’s also an opportunity to use this time to rethink the amount of investment our markets need to run at an optimum level going forward,” he said.

• Quincey said the brand would continue to be “judicious” about its marketing expenditure and that it would spend more on ads as economic conditions improved.

• This will include “a step-change in marketing investment effectiveness and efficiency” according to a statement from the business. It is a shift that will see the Coke invest in more robust end-to-end digital capabilities that capitalise on emerging, lasting shifts in consumer behaviours.

Why it matters

• Coca-Cola is one of the world’s largest advertisers, with data from Learnbonds indicating that it spent $4.24bn on marketing in 2019.

• The Costa, Fanta and Sprite owner's sharp downturn in Q2 contrasts with its results during the 2008 financial crisis and its aftermath, when Coca-Cola demonstrated it could outperform in recessions.

• The brand is one of the first significant spenders to report its financials for the second quarter of the year. The fact that Covid-19 has led to an internal plan for marketing transformation and potential longer-term cuts to spend (or "system-wide efficiencies" as Coke put it) indicates that more of the same could be expected from other advertisers.