In the hushed halls of the executive suites on the 25th floor of its headquarters, a framed copy of a 1993 Fortune magazine cover proclaims Coca-Cola “the World’s Best Brand.” An Olympic torch, a reminder of the company’s vast marketing reach, hangs on the opposite wall.
Muhtar Kent, nearly three years into his job as chief executive of the world’s biggest drinks company, sees it as his job to make sure nobody at Coca-Cola Co. is satisfied with accolades as the company marks its 125th anniversary this week.
“Tension is not a bad thing,” Kent said in a wide-ranging conversation with The Atlanta Journal-Constitution. “We have a huge amount of work to do to get this company right and get this system functioning really well.”
Kent, 58, said Coca-Cola’s biggest internal threat is arrogance. And out in the market, consumers’ desires are changing, stretching Coca-Cola’s ability to stay close.
Coca-Cola is posting some of the best financial results in years. The company’s stock has risen more than 25 percent in the past 52 weeks. Last week, bolstered by allied brands such as Dr Pepper, Coca-Cola posted its fourth straight quarter of growth in North America, which not long ago was a consistently shrinking market.
The company’s research shows its brands, including Coca-Cola, Coke Zero, Diet Coke, Powerade and Vitaminwater, are healthier than they have been in years in the United States, based on intent to purchase, “favorite brand” rankings and other brand metrics.
Wall Street has taken notice. Despite slightly missing analysts’ profit expectations in the first quarter, the company demonstrated solid growth in key emerging markets, UBS analyst Kaumil Gajrawala said. Coca-Cola gets about 80 percent of its earnings before interest and taxes outside the United States.
“We continue to see the fruit of sustained investments that Coke began several years ago,” analyst Caroline Levy said.
Coca-Cola still needs to eliminate duplication and waste and has “a long way to go before we can be proud of all our brands, about our innovation, our speed of innovation, our speed of commercializing things,” Kent said.
It’s a good tactic for a CEO to push his staff to avoid complacency, said David Touve, assistant professor of business at Washington and Lee University.
“You don’t see that a lot; it’s more often that people get surprised when things go wrong,” he said.
There are lingering fears that soft drinks will become less accessible over time as consumers and regulators fence off potential markets. Proposals for soda taxes have popped up and been beaten down, but other challenges remain. Boston plans to phase out sugary drinks from all city property to help curb obesity, for example.
“We are not the problem,” Kent said of well-publicized worries about obesity. “However, we need to be part of the solution because we need to have better information for the consumer, better understanding of metabolisms and the energy balance for the consumer.”
Despite the company’s worldwide growth, per capita consumption of soft drinks in the United States has fallen to the same level as in 1988. The overall category has shrunk to the size it was in 1996, according to trade journal Beverage Digest. Americans’ long love affair with carbonated soft drinks has dimmed even as new beverages — energy drinks, “enhanced” water, sports drinks — have spread.
In January, a coalition of state and municipal agencies and nutritionists asked the U.S. Food and Drug Administration to require a rotating series of messages on labels of sugary drinks, warning about weight gain, obesity and diabetes. “In light of the overwhelming evidence linking consumption of soft drinks to serious diseases, consumers deserve to know — and soft drink labels should disclose — the health risks,” the groups wrote in a letter to the FDA
In the U.S., consumers are increasingly suspicious of high fructose corn syrup, the main sweetener in Coca-Cola and dozens of other soft drink brands. More than 50 percent of consumers avoid products that list corn syrup as a major ingredient, according to research firm Mintel.
Coca-Cola argues corn syrup is basically identical to sugar. But the backlash against anything smacking of artificiality is powerful, and it’s not clear how much it will affect the soft drinks industry.
The beverage industry cut its calorie production by 21 percent in the U.S. between 1998 and 2008, according to Beverage Marketing Corp. The average calories per serving in a Coca-Cola beverage have fallen as consumers shift to diet drinks, smaller packages and new sweeteners. Nearly 25 percent of the company’s global sales are low- or no-calorie drinks.
Coca-Cola is gradually becoming less of a soft drink company. In 2010, carbonated beverages accounted for 76 percent of its case sales, down from 77 percent in 2009 and 78 percent in 2008. More than a third of Coca-Cola’s beverages are juices or juice drinks.
Consumers want choice “between products that have normal calories, medium calories, no calories, low calories, bubbles, light bubbles, no bubbles, stills, juices, nutritional, non-nutritional,” Kent said.
Coca-Cola’s roster of about 3,500 beverages is three times larger than 10 years ago.
It also has cultivated one of the world’s biggest social media operations, with more than 25 million fans on the Coca-Cola brand’s Facebook page.
Rather than controlling and impressing its message upon consumers, Coca-Cola is figuring out “how to get invited into the discourse,” said Carlos Laboy, a veteran beverage analyst with Credit Suisse.
Coca-Cola, PepsiCo and Dr Pepper Snapple are trying to stay ahead of a demanding public that wants to know what companies stand for, not just what they make.
Coca-Cola tightened its marketing policy to end advertising directly targeted at audiences that are more than 35 percent children under 12. It aims to meet that standard by the end of 2013. It promises to have a physical activity program, such as a soccer program in Mexico, in each of its markets by 2015.
Voluntary action is meant to preserve perhaps Coca-Cola’s most valuable asset after the secret formula: the ability to operate widely and be seen as a force for good, something Kent calls its “social license.” Losing touch with a complicated consumer can burn that up.
“Every time I speak to our employees, every single time, I talk about constructive discontent that they need,” Kent said. “It’s so important to remain discontent and to remain vigilant.”
Inside Coca-Cola, “That, to me, is our single biggest Achilles heel.”
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Key dates in Coca-Cola history
1886: Coca-Cola debuts in Jacobs’ Pharmacy in Atlanta. It sells for 5 cents a glass at the soda fountain.
1894: Coca-Cola is put in bottles for the first time.
1916: Root Glass Co. of Terre Haute, Ind., designs the contour bottle.
1923: Robert Woodruff becomes president of Coca-Cola Co. He would lead the company for more than 60 years.
1943: Gen. Dwight D. Eisenhower sends a cable to Coca-Cola, requesting materials for 10 bottling plants. Coca-Cola spreads around the world as a result of World War II.
1960: Coca-Cola buys the Minute Maid Co., adding juices to its portfolio.
1985: Coca-Cola changes its formulation to what was commonly called “new Coke.” Outraged consumers rebel, and the original formula is returned to the market as Coca-Cola Classic.
1986: Numerous U.S. bottling operations are organized into a new public company, Coca-Cola Enterprises Inc.
2000: In a period of turbulence, Coca-Cola lays off 5,200 employees.
2004: Coca-Cola announces plans for Chairman and Chief Executive Doug Daft to retire at the end of the year. Coke’s directors pick a retired Coke executive, E. Neville Isdell, as his successor.
2008: Muhtar Kent becomes chief executive.
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How we got the story
Reporter Jeremiah McWilliams studied sustainability and financial reports from Coca-Cola, interviewed executives and read research from beverage analysts, trade journalists and consumer pollsters. He attended Coca-Cola’s annual meeting, listened to conference calls and read history books on Coca-Cola and PepsiCo.
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