Coca-Cola Tacks Aggressively Toward Acquisitions and New Products

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Coca-Cola is going boldly where the company hasn’t gone before, finally pivoting away strategically from its lifelong dependence on a product and brand that, while iconic, seem to have shifted into inevitable long-term decline.

The company is still tweaking the Coca-Cola and Diet Coke propositions with changes such as an emphasis on low- and zero-sugar varieties, vending and packaging innovations, and trials of new hybrid beverages such as Coke combined with coffee. Coke has been unifying the packaging look for Zero Sugar and regular varieties, for example. Such initiatives gave Coke products a global volume bump of about 2% through the first half of the year.

But the company’s clear strategy under new CEO James Quincey—at the helm since May 2017—is to dig for new sources of growth under the broad umbrella of refreshment, and to shed underperforming brands and products that don’t fit its new vision. It’s what the Wall Street Journal called a new culture in which the company is “shed[ding] its culture of cautiousness, expand[ing] into new categories and bring[ing] products to market faster.”

There will always be Coke and Diet Coke, for sure, but just about every other beverage brand could be targeted if it doesn’t perform.

“We’re expanding our portfolio through innovations, acquisitions, and lifting, shifting, and sustaining successful brands across markets,” Quincey recently told investors. “But disciplined growth also requires that our existing brands retain and sharpen their edge by connecting better with consumers’ needs.”

A line of Zero Sugar varieties of Coke has done exactly that, delivering 7% retail-value growth in the most recent quarter, along with a recently restaged Diet Coke franchise. Meanwhile, existing Coke-owned brands Powerade Zero, Dasani Sparkling water and its coffee portfolio also demonstrated double-digit growth in the period, underscoring the fact that there’s plenty of life in the Coca-Cola lineup and brands that just needs to be better accessed.

On the other hand, under Quincey, the company has been moving with dispatch to get rid of what they call “zombie” brands and SKUs to reduce complexity of the business and free resources to back vibrant brands and potential new winners. In the Middle East and North Africa, for example, the company identified more than 125 underperforming SKUs to eliminate, and has already discontinued 60%, Quincey told a summer investor gathering.

At the same time, Coca-Cola has been launching more original new drinks, particularly through global subsidiaries: It introduced more than 500 new products and variants in 2017, an increase of 25%, including a cucumber-flavored Sprite in Russia and a line of whey shakes in Brazil.

But one of the biggest shifts under Quincey already has been Coca-Cola’s appetite for big “bolt-on” brand acquisitions. These include a new strategic relationship with Body Armor, to go after PepsiCo’s Gatorade business, and its plans to pay $5.1 billon to acquire Costa Coffee, a chain of British coffee shops. Quincey told analysts that Coca-Cola plans to leave Costa’s retail operation in place and to focus on creating canned and bottled coffees bearing the Costa brand to plug into Coke’s mammoth global distribution and marketing capabilities.

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