Stung by a drop in both profit and revenue at the end of last year, the Coca-Cola Co. says it will redirect $1 billion into marketing in the next two years.
The Atlanta-based beverage giant, like other big players in the non-alcoholic beverage industry, is struggling to stem declines in sugary-drink consumption in North America — the cornerstone market for the industry.
On Tuesday, Coca-Cola reported that fourth-quarter profit fell 8 percent while revenue dropped 4 percent. For the year, profit fell 5 percent on a 2 percent revenue decline.
Coca-Cola Chief Executive Officer and Chairman Muhtar Kent said the company will turn things around through innovation, improved distribution and more advertising.
Adding $1 billion to Coca-Cola’s budget is important because the company is already said to spend that much annually, though the beverage maker declines to discuss its marketing budget. Coca-Cola said it will get the money from an expanded internal “productivity and reinvestment” program.
Americans increasingly blame soft drinks such as Coca-Cola as a contributor to their expanding waistlines and are drinking them less than they have in the past.
In turn sales have slid, especially for diet products, which the industry has traditionally offered as an alternative to full-caloried drinks. Smaller can sizes and different calorie configurations with mid-cals have offered more choice, but failed to stem the downward momentum for sodas.
In North America, volume for carbonated beverages, which make up the biggest share of sales, fell 3 percent in the fourth quarter. Volume for non-soda drinks such as water and juices improved 4 percent.
There was some good news. Global volume rose 2 percent for the full year and 1 percent for the fourth quarter.
And Kent emphasized that all but two of Coca-Cola’s last 15 quarters have been positive. He also said the beverage giant has weathered and survived tough environments before.
“The U.S. is not going to grow at the same rate as other markets,” he said. “But it can grow on a sustainable basis.”
Still, he acknowledged that the company will need to be better at exploring market niches. He cited a recent partnership Coca-Cola signed with Green Mountain, owner of Keurig coffee. That deal is expected to help Coca-Cola create a machine people can use to make its products at home.
Greg Charleston, a financial adviser at Conway MacKenzie, praised the Green Mountain deal as the kind of outside-the-box thinking Coca-Cola needs.
“The idea of mixing your own drink at home is a very exciting concept,” he said.
But Coca-Cola’s soul-searching should not be limited to sales, he said.
“Supply and demand can change over time and companies like Coke generally have found ways to keep growing,” he said. “However, it is important for any company to continuously re-evaluate the cost structure of the organization to maximize profits for shareholders.”
Coca-Cola shares fell 3.75 percent in Tuesday trading.
Source: MCT Information Services