Coca-Cola's profits slide as consumers tastes change

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Posted

June 02, 2017 14:57:19

For decades we’ve been told that, “things go better with Coke!”

Key points:

  • Coca-Cola’s profits have slumped over the last few years
  • In Australia, Coca-Cola Amatil announced a profit warning and closure of its SA plant
  • Carbonated drinks market is declining as consumers steer towards healthier options

But in recent times the developed world has decided that things go better without Coca-Cola.

“Consumers’ preferences have changed,” according to Retail Oasis senior strategist, Pippa Kulmar.

“We’ve become a lot more aware of what’s good for us and what’s not good for us, and sugar is a large part of that.”

That has been reflected in Coca-Cola’s deteriorating finances, and a now prescient comment in 2013 from Muhtar Kent, who has just stepped down as CEO of Coca-Cola in the United States.

“Organic growth of our sparkling beverage business is the oxygen of our business, because unless we can do that our numbers don’t work,” he said.

The numbers back that up.

In the United States, revenue at the parent company is down 13 per cent over the last five years and profit has slumped 28 per cent.

As it struggles to stay ahead of changing tastes, Coke USA has slashed more than 100,000 jobs, and changed chief executives.

The new man, James Quincey, is putting on a brave face.

“We’re very positive on the US business,” he said soon after taking the job in April.

“We’re very positive on the strategy we have put in place and we see a continued opportunity for good runway and another good year in the US business.”

Coke is also under pressure in Australia

At Coca-Cola Amatil in Australia, revenue is up over the last five years — but only slightly — while profit is down by nearly half.

Like her US counterpart, Coca-Cola Amatil boss Alison Watkins is also putting a positive spin on the situation.

“Our Australian business is challenging, but we’re very happy with the direction that we’re going with our longer-term plans,” she said.

“And in the meantime, our other businesses such as Indonesia and alcohol and coffee and New Zealand are performing really well.”

Coca-Cola Amatil is also slashing costs as demand for soft drink fizzles.

A profit warning in April and the announcement of the closure of its South Australian plant are further evidence all is not well.

New flavours, smaller can sizes and that push into other products and other markets were only partially successful.

“The carbonated beverage market is in decline and you can’t be in denial about that,” Ms Kulmar said.

“And actually throwing a lot of money at that through marketing to try and encourage people to drink every day is ultimately throwing money to waste.”

According to brand strategist Geoff Dart from DGC Advisory, among the things Coca-Cola Amatil should do is scrap plans to sell its troubled SPC Ardmona fruit canning business.

“I can’t imagine why you wouldn’t look at that facility and say we could produce a really good fruit vinegar and fruit cider out of that plant for a global market,” he said.

Mr Dart also said the expansion into Indonesia, Fiji and Papua New Guinea is wrong on ethical grounds, and short-sighted.

“As those countries develop, as they become more aware of health issues, whether it’s sugar, alcohol, carbonation, whatever it may be, what’s going to happen then?” he asked.

“Strategically, where’s the long-term vision?”

Valuable brands aren’t immune from oblivion

Despite its problems, Coca-Cola remains the third most valuable brand in the world, behind hi-tech behemoths Apple and Google.

But tellingly, its brand value has hardly moved since the turn of the century, and it does not appear in a global list of the top 30 growing brands.

Sugar per 100ml in soft drinks

  • Solo – 12.1g
  • Fanta – 11.2g
  • Red Bull – 11g
  • Bundaberg Ginger Beer – 10.8g
  • Coca Cola – 10.6g
  • Sprite – 10.1g
  • Vitamin Water – 5.49g
  • Lipton Ice Tea – 5.3g

This is something Ms Kulmar believes does not auger well for the future.

“They’re kind of riding on the brand equity that they have built over a long period of time from their very successful advertising in the last 30 years, she said.

“And potentially they’re not actually connecting with their audience anymore, and maybe that comes down to the product and the relevance of the product in today’s modern life.”

While Coca-Cola may be a global household name, as companies like Kodak and Blackberry found out, that is no protection from oblivion when consumers no longer want your product.

Mr Dart explained that the challenge for Coke is to stop the slide in earnings of the last few years turning into terminal decline.

“When you are turning over I think it’s about $100-110 billion, it’s a large revenue base, it still has a large profit pool,” he said.

“The ball is totally in their court. They have the resources to look at the market place from a totally new perspective for a new age.”

Mr Dart believes the future is not carbonated soft drinks — but new age fermented drinks like kefir and kombucha, as well as fruit vinegar and fruit ciders and a Coca-Cola company much smaller than it is now.

And he says, the clock is ticking.

“I’m not seeing cultural change within the organisation, and that’s a concern and that takes time,” he said.

“It can take, you know, a generation. I don’t know that they have a generation. I don’t know that they have 30 years.”

Topics:

food-and-beverage,

business-economics-and-finance,

company-news,

united-states,

australia



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