At 119 years of age, the emblematic US transnational corporation is looking slow when it comes to making changes and confused when it comes to defining its strategy. PepsiCo is getting close to stealing the crown away from Coke, who’s still trying to figure out if it’s sick with bureaucracy or if ‘coke... just doesn’t... add life’ anymore.

Coca-Cola, Blāk and Job Generation

On January 15, Coca-Cola will launch its new beverage infused with coffee extracts. Aimed at adult consumers, “Coke with Coffee” –as they’re calling it- has 20 calories per 100 milliliters, half of what a regular Coke has. In this way the transnational corporation is betting on the upward trend in coffee consumption and the also increasing demand for low-calorie beverages. With the presentation of this new “invigorating, stimulating, and lightly carbonated” product, Coca-Cola hopes to compete with its archenemy, who several weeks ago came out with a similar beverage dubbed PepsiMax Capuccino.

In no time the two transnational corporations will probably be coming against each other again in yet another battle, brandishing a product whose original idea belongs to neither of them. It was the Portuguese group Ness World who first brought the world a cola and coffee soft drink called Coffee Mix, back in 1995. This drink was produced in Asturias, Spain and targeted the international market, but due to scarce advertising and limited distribution the product was short-lived.

Thanks to globalization and pressed by dropping sales in Western Europe (in France it’s been losing market share since 2003), for the first time ever Coca-Cola will launch a new product outside the United States. France is the chosen country and the new beverage will be produced in Spain, more specifically in Corunna. At central headquarters in Atlanta, the company is heralding the launch as the most important since the introduction of Coca-Cola Light in 1998.

No doubt Blāk will be premiered in the best Hollywood style, with all the fireworks that surround such events and an aggressive ad campaign, but few people are aware that Coca-Cola is planning to close down two of its French factories, and even less people know that in the Galician plant selected for the production of this brand new soda –which will be sold first in France and later in other European countries- there are only 360 people working.

Coca Cola May Lose its Kingdom

Roberto Goizueta was president of the company for 16 years, a position he took in 1980. Under his direction, Coca-Cola changed its strategy, shifting its focus from mass media to distribution channels and points of sale. The product was everywhere at the same time: in universities, subway stations, airports, museums, any place where people got together, etc.¹ A single remark synthesizes that strategy: “Pepsi? Sorry, we only have Coke.”

In 1997, Goizueta dies and Coca-Cola goes into a truly unstable period in management: in the following eight years, the company had three presidents.

Things were looking pretty bad in June 2004 when 62-year-old Neville Isdell, a veteran of 35 years with the company, abandoned the leisure life of retirement and got back in to try to save the day at the last minute: He came back as chairman and chief executive director of Coca-Cola. Following three and a half months of self-imposed silence after taking over, Isdell cautioned that there was no immediate solution to prevent the company’s deterioration. “Coca-Cola is in very urgent need of remedial actions. The important thing is for the company to take the offensive, anticipate consumer needs, and act clearly,” the senior executive declared in a press conference.

Nineteen months into his administration, some leading shareholders are getting a little nervous. “ Neville (Isdell) says the right things, but I’m interested in seeing him describe specific programs, as opposed to just stating good intentions. It’s time to perform,” said Allen Adler, a New York money manager, who owns shares in Coca-Cola.²

The downtrend in Coke sales continues in strategic markets such as Western Europe, the Philippines and India. Although Coke still beats Pepsi 2 to 1 in sales, in the last five years PepsiCo’s sales have gone up 7.8% compared to the 2.4% rise in Coca-Cola sales. Naturally, that affects the price of shares and the companies’ capitalization in the stock market. While PepsiCo’s shares have gone up, Coca-Cola shares have dropped 17% since Isdell was rehired. Last year Coca-Cola’s shares increased a mere 2.2%, and the company’s market value stands at 101.2 billion dollars. PepsiCo’s shares, for their part, were up 14% in that same period, and the company is now worth 99.1 billion dollars.³ The difference in value between the two transnational corporations is 2.1 billion dollars. A decade ago, the most optimistic estimate in favor of PepsiCo placed its value at half of Coca-Cola’s.⁴

A Face Lift for Coca-Cola

Neville Isdell admitted that the problems the company faces are due to the fact that his predecessors, Douglas Daft and M. Douglas Ivester, cut marketing spending to boost short-term profit, and that Coca-Cola reacted too calmly to the increasing popularity of non-carbonated beverages.⁵ That’s why in order to recover the ground lost to its staunch competitor and the growing juice, water, and energy beverage markets, in 2006 Coca-Cola will be launching a publicity and marketing campaign designed by the Wieden & Kennedy agency, most famous for its campaigns for Nike and the “Just do it” slogan. The slogan for the Atlanta transnational corporation will be: “Welcome to the Coke side of life.”

Thus, 400 million dollars were added in 2005 to the 2 billion dollars spent in advertising and marketing in 2004. Two point four billion dollars! The figure is so huge that you lose all perspective. But let us just say, for example, that with 2.4 billion dollars you could buy low-cost drinking water supply and sanitation facilities for 48 million people, end tuberculosis and malaria, feed 53 million children for a month, or provide elementary education for 14 million children currently out of school.

Consumer Infidelity

Coca-Cola and PepsiCo control three-fourths of the beverage market, which moves 66 billion dollars a year. During the 1990s, soda sales grew at an annual rate of 3 to 4% in the United States. In the present decade, the growth rate of the carbonated beverage segment in the US stands at less than 1%, and the market share for this kind of beverages has dropped from 83% in 1999 to 73%. The sales outlook for non-carbonated beverages, excluding bottled water, increased by 8% in 2004 alone.⁶

In May of last year, a survey by the company Morgan Stanley revealed that 52% of young adults aged 18 to 24 were drinking less soft drinks or were drinking them very rarely, while 48% reported that they were drinking more water.

Coca-Cola is still the top soft-drink selling company in the world. PepsiCo’s growth, for its part, is based on its diversification, as less than 20% of its turnover comes from non-alcoholic beverages, a percentage which in Coca-Cola’s case is more than 80%. In addition to having started to sell bottled water four years ahead its competitor, PepsiCo has diversified into the food sector, acquiring strong brands such as Frito-Lay, an undisputed leader in the packaged snacks segment (PepsiCo obtains more than half its profits from this company), Gatorade (with 80% of the energy beverages market in the US), and Tropicana juices.

Neville Isdell has dismissed the possibility of making a large acquisition that would diversify Coca-Cola into the food industry. Will the new advertising campaign and the launching of new beverages be enough for it to regain its position in the market?

Image Is Everything

The hiring of the Wieden & Kennedy agency is just one of the changes introduced in the marketing and advertising area since Mary Minnick, the company’s designated change agent, was appointed to her current position in May 2005. She oversees the coordination of marketing, innovation and strategic growth, and reports directly to Neville Isdell.

Minnick has been with Coca Cola for 23 years, and before she took over the new strategy division for the development and promotion of new products, she had served as president of the company in Asia starting in early 2001. From her new executive position and through the advertising campaign, she seeks to convince consumers to see the brand as a unique and irreplaceable choice in beverage. The campaign will focus primarily on young people, and to that end an aggressive loyalty program will be put in place, distributing 4 billion codes in packages for consumers to collect and win prizes.

Besides the debut of Blāk next Sunday, this year the company will also present Coca-Zero in Australia, a launch which is being announced as the biggest in history.

In his analysis of Coca-Cola’s directing group, Wall Street Journal reporter Nikhil Deogun⁷ says: “It’s a board made up of stars from the business world, but the soft drink industry is looking more and more like the fashion industry, where new trends and tastes emerge.” Surprisingly enough, the average age of the current members of Coca-Cola’s board of directors is 66.

Lastly, and to continue on the subject of image, the number of Coca-Cola factories with active trade unions is much higher than that of PepsiCo’s, a company which can truly be characterized as antiunion. This speaks well of Coca-Cola, but in the last few years, the situation in Latin America has been changing. It would seem the company is trying to emulate its competitor in union freedom and right matters. In Guatemala, in Nicaragua and in Colombia, the unions are fighting very tough battles. Let’s hope that the new slogan, “Welcome to the Coca-Cola side of life…”, won’t have to be expanded to read “…a side without unions.”

Gerardo Iglesias

© Rel-UITA

January 18, 2006

FOOTNOTES:

1-Battle of the Titans. Horacio Marchand

2-Coca Could Lose Crown to Pepsi. Chad Terhune (December 6, 2005)

3-Coke Wants to Be Unique and Irreplaceable Again. El Observador, Montevideo

   (December 18, 2005)

4-Coca Could Lose Crown to Pepsi. Chad Terhune (December 6, 2005)

5-Op. cit.

6-Op. cit.

7-In the War of the Colas, Pepsi Has the Last Round. (January 4, 2006)