On Coca-Cola's Future: 5 Steps to 21st Century Growth

The Coca-Cola company seems to be at an existential crossroads.  As with a number of iconic 19th century companies, its legacy business model is in growing conflict with contemporary consumer realities.  Like Kodak, that was forced to close its consumer photography business because it couldn’t muster the strategic and organizational wherewithal to pivot toward digital photography, there are a couple of profound consumer ‘sea changes’ occurring that challenge Coke’s traditional carbonated soft drink business, its brand, and potentially the company itself.  A New York Times article from February 28, 2014 questions the company’s continued relevance and starts with the question, “Can this brand be saved?”

While the Coca-Cola brand has always positioned itself as a vehicle of happiness, much of the public conversation about it now is diametrically opposed to that.  The current consensus is that its just not good for you and contributes to a variety of health problems.  Child obesity is a growing concern in the United States, with the First Lady making it a signature issue.  The former mayor of NYC tried to ban large cup fountain soft drink sales for health reasons.  High Fructose Corn Syrup (HFCS), a key ingredient in many soft drinks, is seen as a huge part of the problem and has largely taken on a demonizing presence.  

While health concerns mount, an equally damaging and seemingly unrelated consumer shift is also occurring.  Young people - who are the key consumer target for soft drink brands - have largely moved on to other beverages.  Energy drinks like Red Bull seem to speak more directly to them.  Aided by the pervasiveness of social media, kids these days have a greater role than ever in defining the brands that are for them, and are quick to reject brands that are not.  (Just ask Facebook.)  In fact, although Coke targets late teens as their primary consumer demographic, their average consumer is now 56 years old - a fact that no doubt creates much angst within the company.

As a result of these fundamental shifts in the consumer landscape, carbonated soft drink volume is, not surprisingly, down.  At the Coca-Cola Company, business is down in its primary North American market, as is their stock price - roughly 7% this year.  The company is clearly not in free fall, but there is enough concerning news to take the data seriously.

So, as the Times asks, can this brand be saved?   As with cigarettes, that seem to be a "dead industry walking", do they just "milk" existing volume for as long as possible or can they reverse these trends?   There's no question that they can.  Here's how:

- Find something healthy and big to put the Coca-Cola brand name on.  The company cannot allow its name to become synonymous with "unhealthy".  It’s hard to fathom that consumers will abandon their current health focus.  This issue isn't going to just go away.  The company needs to leverage the strength of its iconic brand name on something big that can position both the brand and the company for the future - and address growing consumer sensibilities around health - perhaps even outside of the cola category.

- Embrace their identity.  In "refreshing" the Coca-Cola brand for younger consumers, Coke can’t credibly position itself as a youthful, hip product like energy drinks.  It needs to figure out ways to embrace its brand assets around its heritage, its Americana positioning, etc. in a way that young people can emotionally connect to.  While I'm certainly not recommending the exact way that Old Spice did it, that brand offers a compelling example of a 19th century brand remaking itself and becoming relevant again.  It can be done and the company must do this to add new generations of consumers to the franchise. 

- Reject HFCS.  Whether it's true or not, the sweetener seems to have become a proxy for all that is wrong with soft drinks.  If the economics of sugar sweetened drinks can work in other markets, figure out how to make it work in the United States.  Publicize a plan to remove it from all Coca-Cola products.  Bite the cost bullet of using the more expensive pure cane sugar for the ultimate benefit of removing this albatross from their neck.  In the same way that Coke from Mexico is loved in many US markets because it uses sugar, the launch of sugar sweetened Coca-Cola could even create an actual boost to volume.  Plus, beating Pepsi to this (inevitable?) punch puts Coca-Cola in a leadership position that can be helpful competitively.  Think of the synergistic power of removing HFCS with a relaunch of the iconic "It's The Real Thing!" tag line!

- Heighten the focus on innovation.  For the Coca-Cola Company to remain vital, it must offer a compelling range of products that meet a variety of contemporary consumer refreshment needs.  While the company has been active for years in creating and buying beverage brands, the current "crisis" begs the question of whether their efforts have been enough.  They need to 'up the ante' on R&D - even more aggressively searching for new products, ingredients, and brands rooted in 21st century consumer-centric solutions.

- Continue to invest in new businesses and brands.  Coca-Cola recently announced a $1.5 billion investment in Green Mountain Coffee.  The relationship should bring in valuable new technology and thinking to the company.    While they've certainly made similar acquisitions in the past, the current predicament begs two important questions.  First, if they have been sufficiently aggressive in this area over the years.  Second, if the company effectively infuses the best of what is valuable and special about incoming companies or, as is not uncommon, that much of what is bought is "ground down" by the weight of the acquirer's culture, modus operandi, procedures, etc. 

To be sure, a corporate and brand makeover of this scale is an extraordinarily tall task. Plenty of companies can't get beyond legacy income streams and ways of doing things to envision a future any differently - even if their corporate lives depend on it.  One of the things that has me most optimistic about Coke’s future, though, is something that is largely characterized as one of their lowest moments.  The ‘New Coke’ launch in 1985 is seen by most as a failure.  I see it differently.  

When presented with years of declining competitive share, and data that a new formula out-performed both their product and Pepsi, the company bit the bullet and, against a very conservative corporate culture, did what was in the best interests of the business to make the change to New Coke.  

While the execution itself was perhaps flawed in a way that embraced consumers’ physical preferences at the expense of their emotional ones, it revealed a measure of introspection and willingness to reject sacred cows that could serve them well now.  For Coca-Cola to position itself in our current world, as a continued dominant brand and business for the 21st century then it’s going to have to reach back to some of the courage and resolve from the mid 80’s.  They've done it before. My bet is on them to do it again!

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Tags: beverages, brand, brandstrategy, coca-cola, health, innovation, strategy


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