On Tuesday, at Barclays Global Consumer Staples Conference, Coca-Cola COO James Quincey broke down the company’s game plan for creating long-term growth in the declining soda sector. The plan has three essential steps: new recipes, a completely revamped marketing strategy, and smaller bottles and cans.
It’s a three-pronged strategy that could mean a healthier future for Coke, both financially and nutritionally. Last year, the total volume of soda consumed in the US dropped 1.2%, and, in July, Coca-Cola reported that its sparkling-beverage sales by volume dropped 1% in the first quarter.
Here’s a breakdown of the three steps, and what they really mean for Coca-Cola and the future of soda.
Coca-Cola has been talking about moving from “offering choice to shaping choice” all year. To translate from PR speak, “shaping choice” means that, instead of simply adding more options to the portfolio, Coca-Cola is going to focus its innovation efforts on healthier options that fit trends in customer interest.
“It is about responding to the changes in the consumer landscape and the stakeholder landscape in terms of people’s desire whether it be more natural ingredients, whether it be for the desire for less sugar, less calories, more of a treat,” Quinceysaid on Tuesday.
Much of Coca-Cola’s new brands and acquisitions has been non-soda beverages, such asready-to-drink coffee, bottled water, and iced tea.However, the emphasis on “shaping choices” in sparkling beverages indicates that the soda giant will likely be debuting more sodas with less sugar or calories, as well as more all-natural ingredients, in the near future.
Plus, there’s potential for Coke to tinker with recipes of existing brands. There may not be a New, New Coke hitting the markets, but with options like Coke Life, there is clearly room for more variations on the classic cola.
More unified branding
Coca-Cola’s “One Brand” strategy, which launched in January, could be key to the rise of these revamped takes on Coke’s namesake soda.
The new strategy combines Coca-Cola Classic with Diet Coke, Coke Zero, and Coke Life in marketing. In theory, other new variations of Coke could be included in the One Brand marketing strategy, if Coca-Cola was to launch them.
“The One Brand strategy takes us from ineffective way of talking about four different brands and if you grew up drinking Coke Classic and you wanted to switch to Coke Zero you almost have to change brand and change your lifestyle,” said Quincey. “Now the idea of the one brand is you can enjoy Coca-Cola the whole of your life and you can have it in different product variants as you want to mix and match whether it is caffeine or sugar or whatever.”
Historically, Coca-Cola has avoided grouping low- and no-calorie Coca-Cola options with the flagship soda, fearing that the inclusion would dilute the brand. Now, as Coke Classic’s reputation has taken a beating due to high sugar content, the unified campaign is intended to elevate its brand by showcasing variations that fit a wide variety of nutritional needs.
In other words, the One Brand strategy aims to convince people that Coke (and soda in general) doesn’t have to be sugary, caloric, or generally unhealthy.
Smaller bottles and cans
As Coke sales by volume drops, the company is increasingly focused on revenue. And, Coca-Cola says that’s not a bad thing.
“We have taken the idea of being more revenue focused rather than volume focused,” said Quincey. “So, in simple terms, that’s not just about taking price but it is about marketing smaller packages, more premium packages, more affordable small packages.”
Basically, Coca-Cola has figured out how to make more money by selling less soda.For example, a 8.5-ounce aluminum bottle of Coke generates $1.60 in revenue per purchase, while a two-liter gallon only generates $0.18.That’s nearly nine times the revenue.
The rise of smaller bottles and cans has an additional bonus for Coca-Cola when it comes to health.
“It allows us to bring more people into the franchise because… some of the people who are out of the franchise didn’t want to come in drinking 20-ounce bottle,” said Quincey. “They prefer to come in at six or eight or 12 ounces. So, the smaller packages works from revenue point of view. It also works to help shape choice from a consumer obesity point of view.”
In 2014, the American Beverage Association pledged to cut calories by 20%. By serving smaller cans and bottles, Coca-Cola is able to do just that, without necessarily cutting sugar from the recipe.
Coca-Cola needs to get healthier. While much of that nutrition-push is focused on expanded beyond soda, Coke’s new strategy meansthat the soft drink business is going to be forced to cut calories if it wants to grow sales in the coming years.