Coke Is Still Sipping the Soda Strategy, Even as Sales Slide
You’d think that as soda sales in the U.S. and abroad drop off, Coca Cola Co. (NYSE:KO) would be coming up with an alternate game plan. The company derives almost 75 percent of its global sales volume from carbonated soft drinks, and according to The Wall Street Journal, Americans have been drinking less Coke now for 13 years running. With those kind of figures, some see disaster, but Coke sees opportunity.
According to the Journal, Coke is sticking with its plan of focusing on soda sales despite some analysts’ beliefs that the company should spend less on advertising carbonated beverages and more on diversifying through the acquisition of other companies that could expand Coke’s portfolio.
Considering that sales of Coke’s non-soda brands — including Minute Maid juice, Dasani water, and Powerade sports drinks — rose 5 percent last year in volume, it makes sense why onlookers would believe that Coke should focus more on those segments. However, Coke is still sticking to its guns and channeling most of its energy on soda. Chief Executive Muhtar Kent asserted at an investor meeting in February: “Coca-Cola remains magical. We need to work even harder to enhance the romance of the brand in every corner of the world.”
That’s why, The Wall Street Journal reports, Coke plans on increasing its global advertising by $1 billion over the next three years, most of which will be funneled to its soda business. In addition, Coke is concentrating on its sponsorship of the World Cup soccer tournament this year. The increased investment in marketing comes as Coke’s soda volume continues to maintain its direction of a downward spiral. Last year, volume declined 2 percent in the U.S., and investors and analysts are waiting until Tuesday to learn the latest damage.
Like Coke, PepsiCo (NYSE:PEP) executives have also been facing pressure from investors to somehow offset the losses of its soda business, but CEO Indra Nooyi has fielded different kinds of requests. Though investors want her to consider more acquisitions, what they really want her to do is split Pepsi’s snack and soda businesses — the former is still performing significantly well, while the latter isn’t. Activist investor Nelson Peltz has been especially vocal about his demands, but so far, Nooyi has shut him down and maintained her position that the company’s snack and soda divisions should stay united, much to Peltz’s chagrin.
Coke’s executives aren’t the only ones staying loyal to their soda business; Pepsi’s are, too, and now it’s just a question of whether that allegiance will pay off for the companies in the end — or sink them. Even though Coke isn’t focused on diversifying, it is giving itself a little extra padding and appeasing investors by orchestrating partnerships such as the one it penned with Keurig Green Mountain (NASDAQ:GMCR) in February. The two parties’ deal will allow Coke to sell soda through Keurig countertop machines, and that will hopefully put the company in a position to eventually realize its dream of streaming Coke soda from kitchen taps.
Now, we will have to wait and see how Coke continues to fare in the struggling soda industry. The Atlanta-based company is due to release its latest earnings on Tuesday, and investors will then be in a better position to predict whether Coke can meet its target for 3 to 4 percent annual volume growth, a benchmark highlighted by The Wall Street Journal.