190 Part 2: Strategic Actions: Strategy Formulation
Coca-Cola’s Diversification to Deal with Its Reduced Growth in Soft Drinks
Strategic Focus
Many package good and food distribution companies have
been facing difficulties with the changing tastes among
consumers. As indicated in an earlier chapter, McDonald’s
has been facing healthy fast-food competitors like Chipotle
Mexican Grill. Likewise, companies such as Campbell’s Soup
and General Mills have also been experiencing more health
conscious consumers both from millennials and baby boom-
ers. Coca-Cola also has experienced a drop in demand for its
dominant soft drink business. Coca-Cola had promised a 3–4
percent annual growth volume to investors for 2014 and that
“this would be the year of execution” declared CEO Muhtar
Kent. However, by 2015 Coca-Cola had fallen short of this
volume goal. Its revenue slipped 2 percent to $46 billion, and
profits fell 17 percent to $7.1 billion from the prior year (2013).
Because consumers’ tastes are changing, Coca-Cola has
chosen to “polish the diamond” by improving its marketing
and execution in soft drinks. However, its efforts through
advertising and execution to realize its revenue and profit
goals were not sufficient.
Seeing this decline over time, Coca-Cola has been diver-
sifying, as well as trying to improve execution, to deal with
depressed volumes in its dominant soft drink business. Sixty-
three percent of Americans told a Gallop poll in 2014 that they
were avoiding soft drinks. In fact, soft drink sales have been
falling for 10 straight years and, as a result, Coca-Cola sales are
slowing or shrinking around the world. In fact, supermarket
firm Whole Foods will not carry the product. It seems that
today’s consumers want “healthier, tastier, more unique, and
less mass market” products. This trend has impacted Kellogg
Company, Kraft Foods Group, McDonald’s, and others that
have focused on general consumers. In fact, Heinz was taken
private by 3G Capital Partners LP and was recently combined
with Kraft Foods Group to form the Kraft Heinz Company.
This deal is supported by Warren Buffet’s Berkshire
Hathaway & Co. because these are high cash flow businesses
that fit the Berkshire Hathaway unrelated diversification
approach of investing. Businesses which are still independent,
such as Coca-Cola, have been pursuing diversification to deal
with the future risks of consumers’ changing tastes.
In 2007, Coca-Cola commissioned a study focused on
nonalcoholic drink concepts. It launched its “Venture &
Emerging Brands” (VEB) unit to cultivate relationships and
to ultimately purchase small start-ups. Through this process,
it now owns Fuze Tea, Zico coconut water, and the organic
brand Honest Tea. In fact, soft drinks have decreased in
consumption almost 90 percent between 2003 and 2013,
while sports drinks and bottled water have increased nearly
40 percent during the same period. Coca-Cola partnered with
Monster, the leader in energy drinks, which have become
very popular, and in 2015 Coca-Cola took ownership of
Monster’s non-energy drink business. In the “water” market,
Coca-Cola owns Glacéau and Fruitwater, which it launched in- In “juices,” it owns Odwalla, Simply, and Fuze, in addition
to its long standing brand, Minute Maid. Finally, Coca-Cola
is trying to adjust its marketing strategy and advertise new
products along with its standard, more-healthy products such
as Caffeine-free Coke, Coke Zero, and others. However, no
one wants to repeat the “new Coke” marketing disaster that
occurred previously, so they are very cautious about product
proliferation where there could be potential for a huge
mistake that damages the brand.
Coca-Cola has also tinkered with other approaches such
as its Freestyle soda fountain machine “that offers more than
100 different drink choices; some, such as Orange Coke, aren’t
available in cans.” It now has these drink machines in fast food
chains such as Five Guys and Burger King. This approach has
consistently raised drink sales by double-digits every year,
mostly because the volume for these drink machines is higher;
“the largest fountain drink is 40 ounces versus 16 ounces for a
standard Coca-Cola can product.”
Freestyle Soda Fountain.PNG
The photo illustrates a Freestyle soda machine
that Coca-Cola and other firms have been using to
dispense and mix their various drink products.