Coke Ups The Cola Wars Ante
by Thom Forbes,
If you’re not the type enamored of March Madness or fisticuffs on ice, the doldrums between the Super Bowl and Opening Day is usually a good time to catch up on your reading or viewing of refined television series. This year may be different, however, as it looks like one of America’s favorite spectator sports –- The Cola Wars — may be reviving after a period of relative quiescence.
Coca-Cola will be “ratcheting up the pressure on PepsiCo and other beverage companies with plans to plow up to $650 million in new, annual cost savings back into supporting growth for its brands, which continued to grow sales and volume in the fourth quarter that saw actual earnings fall” due to a large gain last year related to the purchase of bottling operations, Paul Ziobro writes in the Wall Street Journal.
But PepsiCo –- “under pressure from investors due to lackluster beverage sales” — is expected to announce an increase in its own marketing budget tomorrow, Ziobro reports. Reuters’ Martinne Geller recounts that Pepsi CEO Indra Nooyi’s plan “comes after an in-depth business review, and is likely to include more advertising but could also include discounts at retail,” according to analysts and other observers.
Nooyi has been criticized for taking her eye off the ball of money-minting brands such as Pepsi-Cola while building up the company’s portfolio of good-for-you-but-not-so-much-for-the-bottom-line offerings. But sales of both company’s flagship brands have been slipping in recent years, as Sarah Morgan reports in her SmartMoney blog.
“Regular soda sales held up a little better than diet soda sales through the recession, but declined by 20% from 2005 to 2010,” according to Mintel, Morgan reports. “Key demographics like teens and young adults have also been cutting back.”
But Harry Balzer, chief industry analyst for the NPD Group, points out that 75% of Americans will drink at least one carbonated soft drink in the next two weeks and, although that is down from 80% 10 years ago, “you won’t find any other beverage like that.” And that means that more than ever, the battle is over market share.
During a conference call discussing its fourth-quarter results, Coke CEO Muhtar Kent “repeatedly emphasized that Coca-Cola places brands first, calling brand Coca-Cola ‘the very oxygen of our business,’” Ad Age’s Natalie Zmuda points out. It has more than 500 brands in all, from Dasani to Minute Maid, across the populated universe.
“The key component of how we strengthen our global brand portfolio is through innovative consumer engagement,” Kent said. He offered as proof the company’s Super Bowl effort, Zmuda reports, as well as its selection as Advertising Age’s “Marketer of the Year.”
“Great advertising and marketing can probably move the needle in a two- to three-year time frame,” Beverage Digest publisher John Sicher tells Reuter’s Geller. “The only thing that moves the needle quickly is pricing, and in a commodity environment we’re in now, using pricing to move the needle is very tricky.”
Coca-Cola, in fact, is very proud of the fact that full-year global volume -– “led by brand Coca-Cola, up 3% for both the full year and the quarter” — rose 5% despite a 4% uptick in fourth-quarter prices. Kent, who was coy about any competition with Pepsi, told analysts that North American soda prices are likely to continue to rise.
“I think it will be right to assume that this kind of rational pricing would continue in terms of rates for 2012,” he said. “There is no room in business for irrationality over the long term.”
Coke is, of course, just passing along the increases it is experiencing in commodities such as sweeteners, juices, metals and plastics, CFO Gary Fayard said during the call. “Costs will increase between $350 million and $450 million, compared with a rise of $800 million in 2011,” Bloomberg’s Marvin G. Perez reports.
Global prospects are rosy. “The company, like many, also has turned overseas for growth, particularly emerging markets like India and China,” as AP reports in USA Today. But don’t think for a minute that Coke’s heart isn’t back here in the good, old USA. It sells 394 units per capita in this country as opposed to a “world” average of 89, a Wall Street Journal chart accompanying Spencer Jakab’s analysis of its currency exposure reveals. (Still, there’s room for improvement here; in Mexico, they gulp down 625 “units” every year.)
Then again, if all this forthcoming hoopla about sugar –- er, HFCS water — leaves you frigid, you can always do what Coke’s polar bears did when the Pepsi spot featuring Elton John and “The X Factor” winner Melanie Amaro came on during their Facebook and Twitter livestream commentary on the Super Bowl Sunday.
Just walk away from the set.