Coca-Cola is 'exiting some zombie brands'

Coca-Cola plans on getting rid of what its CEO James Quincey referred to as "zombie brands."

On the company’s earnings call Tuesday (July 21) morning, Quincey noted that at the outset of the pandemic, Coca-Cola’s goal was to "ruthlessly prioritise" core brands and stock keeping units (SKUs) to "strengthen the resilience" of its supply chain.

"We are shifting to prioritising fewer but bigger and stronger brands across various consumer needs," said Quincey. "At the same time, we need to do a better job nurturing and growing smaller, more enduring propositions and exiting some zombie brands not just on the SKUs."

For example, more than half of Coca-Cola’s brands are single-country brands with little to no scale. The total combined revenue of those brands is approximately 2% of the company’s total, and they are growing slower than the company average. However, each one still requires resources and investments, Quincey explained.

"So in the case of a brand like Odwalla and its chilled direct store delivery, which has struggled over the last several years, we started to stop operations effective July 31," he said. "This gives us the flexibility to support our investments in brands such as Minute Maid and Simply and to continue to scale rising stars like Topo Chico."

Coca-Cola’s organic revenue dropped 26% in Q2. Net income fell to US$1.78 billion from $2.61 billion a year earlier. Sparkling soft drinks’ volume fell 12% in the quarter; Coke saw volumes decline by 7%; tea and coffee volume plunged 31%; and water and sports drinks saw volume decline by 24%. Meanwhile, volume of juice, dairy and plant-based beverages sank 20%.

Quincey added that Coca-Cola is prioritising a portfolio that combines strong global brands plus regional and scaled local brands to address critical age cohorts, need-based and drinking occasions. The company is also establishing "a new path forward" for increased marketing effectiveness and efficiency to ensure all investments have a future role.

"We are increasing our focus on the cut through quality of our messages, and they are aligned with in-market execution plans through purpose-driven occasion-based initiatives," explained Quincey.

The next phase of Coca-Cola’s global campaign Together Tastes Better, which started at the beginning of the pandemic, will kick off in the U.S. this month.

This campaign was "created for Coca-Cola teams around the world to tailor and localise their markets and platforms." On the efficiency side, the company is pushing on marketing ratios and reassessing its overall marketing return on investment on everything from ad viewership across traditional media to improving effectiveness in digital.

Commenting on social justice movements that have followed the death of George Floyd, Quincey noted there is no place for racism or institutionalised inequality in the world and Coca-Cola is "taking an active approach and focusing our efforts on listening, leading, investing and advocating."

The company, he added, is engaging stakeholders, employees and other business leaders.

Meanwhile, Coca-Cola paused all digital advertising on social media platforms globally for at least 30 days starting July 1 as part of the Stop Hate For Profit campaign, a broader boycott of Facebook and Instagram organized by the Anti-Defamation League, the NAACP and other organisations.

"We’ve paused social media for the time being while we review our policies to ensure a higher level of accountability and transparency," Quincey noted. "We recently committed to spend an incremental $500 million with Black-owned suppliers and are actively contributing to communities on this important issue."

Coca-Cola EVP and CFO John Murphy said on the call that the company has had considerable amounts of leverage during the quarter from cost management. But part of that, he said, is attributable to timing due to modifying the company’s full-year marketing spend forecast, which included an adjustment from Q1.

"While we do expect continued cost savings in the back half, the amount of leverage should moderate as we look to accelerate our marketing investments, given improving ROI characteristics in a number of markets," said Murphy. "I’d also add that if the top-line improves faster than expectations, we are prepared to reinvest more aggressively to further strengthen our position heading into 2021."