Changing consumer tastes, demand for more efficient water usage and plastic waste management solutions have spurred global beverages company Coca-Cola to revise its operating model.
General Manager for Coca-Cola's South African franchise, Luis Avellar told a GIBS Forum the company has made a concerted effort to listen to consumers and respond in a more agile way: “We have worked hard to diversify our product offering. By providing more choice we have reactivated our connection with consumers,” Avellar said.
Coca-Cola’s transition into “a total beverage company” is in part a response to consumer demand in an effort to remain relevant by providing people with the drinks they want. Recent product developments include Coca Cola’s entry into new categories such as coffee through its acquisition of Costa, a change in formulas to allow for less sugar, as well as different sizes, packaging architectures, and price points to match different serving occasions.
“Coke has evolved in the way it listens to its consumers and leverages technology to get the pulse of the consumers quicker. We are more integrated globally and deal with our customers and consumers on a more regular basis by encouraging staff to get out from behind their desks.”
This change in company culture to become more agile has meant becoming clear about the behaviours that are behind learning and growth: “We lost a lot of time in trying to replicate Coke’s success in everything that we do. It took too long to launch new products, but now we have to try new things,” Avellar said.
A changing market and new product development
Shifts in the non-alcoholic ready to drink beverage market, including smaller family sizes, increased personalisation and more consumption at home has impacted margins. 425 000 tons of sugar were removed from Coca-Cola’s products in 2017 and 2018 due to consumer demand through changes in recipes, smaller packs, and a broader portfolio.
While the majority of the group’s revenue comes from its soft drink division, it has accelerated its diversification into new categories such as juice, dairy, and plant, hydration and tea and coffee.
Coca-Cola completed its acquisition of Costa coffee in Europe and Asia earlier in 2019, providing an entrance into what Avellar called “a very large retail value category with multiple revenue streams in the value chain.” Costa’s combination of stores, self serve, packaged and ready to drink coffee aimed to provide choice and solutions to customers.
“A disciplined approach to mergers and acquisitions is the result of listening to consumers in order to see if something is missing in certain markets,” Avellar said.
“We aren’t moving into new categories due to a lack of growth in sparkling beverages,” he added, citing the examples of recently launched Coca-Cola Energy and Coca-Cola Coffee. “There is a big consumer need in the energy category, as consumers simply didn’t connect to the current proposition of the established brands.”
Avellar explained the company has been able to leverage its existing brands between geographies, as they have found numerous similarities between global consumers.
“We have reason to believe in our growth trajectory going forward,” he added, as the non-alcoholic ready to drink beverages category grew at 4,2% compound annual growth rate between 2014 and 2017, compared to a packaged foods CAGR of 3,9% and household products of 3,3%.
Future growth would be underpinned by reacting to consumer needs, disciplined portfolio growth and a “constant search for shared opportunities,” Avellar added.
Coca-Cola has been water neutral since 2015 and had a 58% waste collection rate in 2018. The group’s aim is to make 100% of its products from recyclable material 2025, and for 100% of its packaging to be recycled by 2030.
“100% recyclables is not a target, it is a commitment,” Avellar said. The economics of recycling have to be factored into the value chain.
South Africa is at the forefront of Coca-Cola’s recycling initiative through its partnerships with collectors, the recycling industry and through the introduction of returnables.
Developed and emerging market growth
Coca Cola has 2,1% of the cold beverage and 1% of the hot beverage market in developed countries; and 11% of the cold beverage and 0,3% of the hot beverage market in emerging markets.
Avellar said the group anticipates growth in both regions, with margin growth from developed economies and volume growth from emerging countries. “There is growth in both markets, but it comes from different plays.”
While macro trends such as an aging population in Europe and Latin America have changed consumption patterns, portfolio diversification into new categories including dairy, water, coffee, and tea have offset a reduction in the consumption of sparkling drinks.
The focus in emerging markets is on affordable packs and returnables, including glass and PET refillable plastic. “South Africa is one of the top ten markets for Coke globally, and remains an important business unit and market,” Avellar said. South Africa and Africa still have room for growth, and the sparkling category is growing faster than in other regions.
“The answer is amplifying your portfolio of brands,” Avellar said. “The best way to compete is by providing affordability in your core brands, which consumers view as best value.”