The Coca-Cola Company, one-time global corporate and marketing icon, is losing its lustre. Anti-US, anti-globalisation sentiment and the backlash against 'unhealthy' foods have cost the company dear, and to these problems can be added management succession issues, a poor record on innovation, inefficient marketing and high-profile mistakes.
The value of the Coca-Cola brand declined by 4% to $67.3bn (拢37.7bn) last year, according to Interbrand's annual survey of global brands. Meanwhile, Marketing's Biggest Brands survey found that UK supermarket sales of the flagship Coke Original drink fell 5% in the year to June 2004, as sales of Pepsi Cola rose 14%. On top of this, a recent NOP World survey found that trust in Coca-Cola fell from 55% to 52% between 2003 and 2004. Given all this, the recent warning that earnings for the second half of 2004 would miss forecasts came as little surprise.
Sluggish sales point to a growing resistance by consumers to what one observer has called 'bland ubiquity and a surfeit of power'. In a bid to revive its performance, the company has decided to market itself on consumer choice.
Coca-Cola is shifting the emphasis within its portfolio to fruit juices, waters and products that offer functional health benefits, such as its Powerade sports energy drink. It now has more than 200 products, and in the UK the number of brands has risen in the past five years from four to 23.
That said, the core Coke brand, which is now available in 11 variants, accounts for more than half the company's total sales, with carbonated drinks representing about 82%. With so much of Coca-Cola's business dependent on this category, there are doubts as to whether its latest initiatives can boost the company in the long term.
Health focus
Analysts believe Coca-Cola has been slow to respond to consumer demand for healthier products, concentrating much of its product development on variants of Coke, many of which cannibalise existing drinks. 'The company's heavy reliance on carbonates - one of the weakest performing soft-drink sectors because of consumers' growing health consciousness - has undermined recent financial performance,' says Jeanette Bengtsson, soft-drinks analyst at Euromonitor.
Arch-rival PepsiCo has been quicker to adapt its portfolio to changing consumer needs, building its range of alternative beverages and innovating in its Frito-Lay snacks business. Pepsi's purified Aquafina water was off the blocks sooner than Coca-Cola's Dasani, and is now the top-selling bottled water in the US. Pepsi launched its mid-calorie cola Pepsi Edge before Coca-Cola's C2 this summer, and quickly established a lead in the power-drink segment by acquiring Gatorade. Euromonitor estimates that Gatorade had about a 42% share of the volume retail market for global sports drinks in 2002, compared with Powerade's 7.9%.
Speaking in September to global staff and analysts about Coca-Cola's failings and the considerable challenges it faces, chairman and chief executive Neville Isdell explained that the execution had fallen short of the goals which the company had set for itself. 'To say there is room for improvement would be an understatement,' he continued. 'Want it or not, the game is tough right now, and we are being challenged as never before.'
Isdell argues that lack of accountability, aversion to risk, internal politics and poor management succession strategies have compromised innovation, marketing, execution and relationships with bottlers. He admitted the company had a long way to go before it is the world's most consumer-centric, innovative consumer goods company.
While agreeing that Coca-Cola has to capitalise on health and convenience trends, Isdell believes expansion will be led by 'revitalised growth in carbonated soft drinks', albeit through a 'dramatically changed' portfolio, with added flavours and a greater proportion of diet or mid-calorie brands.
Isdell offers no suggestion that the much-vaunted 'think global, act local' approach to marketing conceived by predecessor Douglas Daft might be reversed, but he stresses that Coca-Cola needs to get more bang from its marketing buck, in terms of both efficiency and effectiveness.
He points out that Coca-Cola made 52 different commercials for the 2002 World Cup finals, in which 40 teams took part, adding: 'We need to continue improving (our marketing) so that we always build upon a really deep understanding of our consumers and strengthen our relationships with them.'
While Isdell is expected to be more hands-on than Daft, whom he succeeded in June, many fear the veteran Coca-Cola executive, who was hauled out of retirement after a painfully public search for a chief executive, may not be radical enough.
His appointment resulted in the departure, on 1 September, of president and chief operating officer Steve Heyer. Heyer was passed over for the top job in part, it is said, because of his blunt management style. 'His departure leaves a big hole in Coca-Cola's organisation in terms of marketing strategy and planning,' says Bill Pecoriello, beverage analyst at Morgan Stanley in the US. 'The key question is whether Neville Isdell can be a change agent, which the company desperately needs.'
Marketing revival
Heyer won respect both from Wall Street and bottlers for helping the company differentiate its vast product lines, improving operations and changing the focus from volume to value growth. He is also credited with reviving Coca-Cola's lacklustre marketing, replacing syrupy ads with edgier executions designed to appeal to the all-important youth market.
In 2003 he helped create the 'Real' campaign for Coke Original. Created by Berlin-Cameron/Red Cell, this featured celebrities such as Penelope Cruz and Friends star Courtney Cox Arquette behaving 'normally'. Cruz, for example, downed a bottle of Coke in one, before belching, while Arquette filled her husband's glass with ice, saving most of the Coke for herself.
Earlier this year, Mother's 'I wish' ad in the UK offered a fresh take on the 'Real' campaign. The slot featured 25-year-old UK singer Sharlene Hector walking down the street handing out bottles of Coke, while singing the track I wish. Shot in South Africa for the UK market, the ad is now running in 20 countries, including the US. The Mother campaign was cited by Isdell as a good example of the kind of efficient, iconic advertising to which Coca-Cola now aspires.
Despite these successes, Heyer also presided over some high-profile embarrassments - not least the botched introduction of Dasani bottled water in the UK earlier this year. For a company that prides itself on its local knowledge as well as the accuracy and thoroughness of its market research, the Dasani debacle was extraordinary.
Coca-Cola claimed its 'NASA-approved reverse-osmosis multi-barrier filtration system' could transform tap water into something more wholesome than natural spring water. When consumers realised they were actually getting tap water from the Kent town of Sidcup, they begged to differ. Such cynicism scuppered any chance of the product being reintroduced after 500,000 bottles containing illegal levels of carcinogenic chemical bromate, were recalled.
Constance Hays, author of the recent book Pop: Truth and Power at the Coca-Cola Company, writes: 'The Dasani crisis is a case of a giant that is so desperate for growth that it appears things are being overlooked.
Coca-Cola is a master marketer, so it can sell pretty much anything - even tap water in the right market - but sometimes it gets so caught up in the marketing that it loses touch with reality.'
Failed trust
The company's reputation has not been enhanced by government investigations into sharp practices, including allegations of 'channel stuffing' - shipping exaggerated amounts of concentrate to some bottling clients in order to meet quarterly financial targets. In September it agreed to alter sales practices in some European markets after a five-year investigation by the European Commission into whether it was stifling competition by offering incentives to retailers to bar rival products.
Such issues, dangerous for any company, are particularly damaging for a corporate brand such as Coca-Cola, which is all about youth, vigour, community and authenticity. 'For years we have held Coca-Cola up as an icon of marketing and management best practice, but recent events have shaken our trust and faith in the brand,' says Allyson Stewart-Allen, director of consultancy International Marketing Partners.
Coca-Cola also has a reputation for being highly secretive. Recent stories have talked of campaign ideas, expenditure proposals and other initiatives that died or became irrelevant during the company's long process of authorisation and approval. Marketing approached various roster and non-roster agencies to discuss the rumoured pitches for 'iconic' advertising outside the 'Real' campaign and suggestions that Coca-Cola will now revive its dormant relationship with Interpublic at the expense of WPP. None would talk; seemingly silenced by an edict from Atlanta.
This management style is at odds with a company that wants to be seen as hip and groovy, says Interbrand chief executive Rita Clifton. 'These days there is no cordon sanitaire in any business between the corporation and its consumer face,' she says.
Clifton believes Coca-Cola's greatest strength - the Coke brand - is also its greatest weakness. The brand is so important that most of the company's innovation has been restricted to the cola market. 'There is a very profound discussion to be had around what Coca-Cola actually is,' she says. 'How much of its brand is anchored in the Coke drink itself and to what extent can it extend into other areas?'
In the US there are Coke Red Lounges, seating areas in shopping malls designed to attract teenagers. The company has also experimented with clothing over the years. Some analysts wonder whether it may be time to diversify into a wider snacks and beverages company, as PepsiCo has done.
But Julia Goldin, marketing director at Coca-Cola GB, insists: 'We are a total beverage company.' She argues that the strong growth of Diet Coke shows 'the taste is still there'. As far as Goldin is concerned the focus will continue to be on 'more innovation'.
Richard Hall, chairman of food and drink consultancy Zenith International, believes this might prove a sensible strategy. 'Given increased competition, successful innovation is not only about longevity or non-cannibalisation, but also about launching things that will sustain interest, even if they only last a season,' he says. Hall adds that Coca-Cola has extended far further in the past three years than many expected.
However, as Euromonitor points out, teenagers remain the company's prime target, and 'forging long-lasting relationships with these increasingly sophisticated and often fickle young consumers is one of the greatest marketing challenges facing the company'.The launch in January of music download service myCokemusic.com continues Coca-Cola GB's relationship with the music industry and should help woo the youth market. Similarly, its sponsorship of the Football League will keep it highly visible to young men.
John Mathers, chief executive of brand consultancy Enterprise IG, believes growing consumer cynicism makes such health initiatives treacherous ground for consumer brands. 'The danger is that they will be perceived as peripheral initiatives to divert attention away from the main issues,' he says.
For all Heyer's focus on non-traditional media , Isdell seems to believe there is no substitute for the classic 'hilltop' advertising which wooed consumers more than 30 years ago, and agencies competing for new 'icon' work have been briefed to restore the brand's waning image among 12- to 24-year-olds.
Where Coca-Cola goes from here is difficult to say. But its problems should be seen in perspective, says Clifton. 'Is it going through an identity crisis? Probably. But it is still worth $67bn - so don't write it off yet.'
COCA-COLA'S TOP-SELLING PRODUCTS IN UK MULTIPLES (2003)
Pounds
Diet Coke 235,191,223
Coca-Cola 205,093,136
Fanta 66,298,750
Schweppes Mixers 30,531,414
Sprite 22,824,618
Dr Pepper 22,556,654
Schweppes Lemonade 20,113,024
TIMELINE - COCA-COLA
1886: Coca-Cola is invented in Atlanta, Georgia.
1900: The drink is sold in the UK for the first time.
1915: The Coca-Cola glass contour bottle is introduced.
1928: Coke sponsors its first Olympic Games.
1941: Chief executive Robert Woodruff says 'every man in uniform is to
get a Coca-Cola for five cents, wherever he is and whatever it costs
us'.
1971: Coke airs its famous 'hilltop' ('I'd like to buy the world a
Coke') ad.
1982: Diet Coke launched.
1985: Coke becomes the first soft drink in space.
2002: Vanilla Coke is launched.
2003: Sales of Diet Coke outstrip Coke's in the UK.
2004: Coca-Cola C2 launched in the US.