Coca-Cola's Problems Reflect a Giant Losing Relevance

Coke has long been the iconic brand

I’m a “Boomer,” and my generation could have been called the Coke generation.  Our parents started every day with a cup of coffee, and they drank either coffee or water during the day.  Most meals were accompanied by either water, or iced tea.

But Boomers loved Coca-Cola.  Most of our parents limited our consumption, much to our frustration.  Even in progressive homes, as children we were usually only allowed one, or at most two, bottles per day.  We chafed at the controls, and when we left home we started drinking the sweet cola as often as we could.

It didn’t take long before we supplanted our parent’s morning coffee with a bottle of Coke (or Diet Coke in more modern times.)  We seemingly could not get enough of the product, as bottle size soared from 8 ounces to 12 to 16 and then quarts and eventually 2 liters!  Portion control was out the window as we created demand that seemed limitless.

Meanwhile, Americans exported their #1 drink around the world.  From 1970 onward Coke was the iconic brand standing for all things (mostly good) American.  We saw ads of people drinking Coke in every imaginable country.  International growth seemed boundless as people from China to India started consuming the irresistible brown beverage.

My how things have changed

Last week Coke announced third quarter earnings, and they were down 14%.  The CEO admitted he was struggling to find growth for the company as soda sales were flat.  U.S. sales of carbonated beverages have been declining for a decade, and Coke has not developed a successful new product line – or market – to replace those declines.

Coke is a victim of changing consumer preferences.  Once a company that helped define those preferences, and built the #1 brand globally, Coke’s leadership shifted from understanding customers and trends in order to build on those trends towards defending & extending sales of its historical product.  Instead of innovating, leadership has overly relied on promotion and tactics which helped the brand grow 30 years ago.  They kept to their old success formula as trends shifted markets in new directions.

Coke has begun losing its relevancy.  Trends have long been moving in new directions.  Healthfulness has led customers to decide they wanted a less calorie rich, nutritionally starved drink.  And as concerns grew over “artificial” products, such as sweeteners, customers have moved away from even low calorie “diet” colas.  What Coke once stood for – healthfulness, vitality, spirit, ingenuity, youthfulness – is no longer true.

Younger generations have started turning to their own new brands.  And not just drinks.  Instead of holding a Coke, increasingly they hold an iPhone.  Where once it was hip to hang out at the Coke machine, or the fountain stand, now people would rather hang out at a Starbucks or Peet’s Coffee.  Where once Coke matched the aspirations of a fast growing Boomer class, now it is replaced with a Prada handbag or other accessory from an LVMH branded luxury line.

Once holding a Coke was a sign of being part of all that was good, but now the product is mostly passe.  Trends have moved, and Coke didn’t.  Coke leadership relied too much on its past, and failed to recognize that market shifts could affect even the #1 global brand.  Coke leaders thought they would be forever relevant by just doing more of what worked before.  But they were wrong.

Current plans will hurt Coca-Cola more than help it

First, and foremost, like almost all CEOs facing an earnings problem, Muhtar Kent is planning to cut $3B in costs.  This is the most short-term of short-term actions, which will do nothing to help the company find its way back toward being a prominent brand-leading icon. Cost cuts will further create a “hunker-down” mindset, causing managers to reduce risk, rather than look for breakthrough products and markets which could help the company regain lost ground.  Cost cutting will only further cause remaining management to focus on defending the past business rather than finding a new future.

Second, Coca-Cola will sell off its bottlers.  In the 1980s CEO Roberto Goizueta famously bought up the distributorships, and made a fortune for the company doing so.  By the year 2000 he was honored, along with Jack Welch of GE, as being one of the top 2 CEOs of the century for his ability to create shareholder value.  But now the current CEO is selling the bottling operations – in order to raise cash.  Once again, when leadership can’t run a business that makes money the CEO sells assets to generate cash and make the company smaller – none of which benefits shareholders (or employees, vendors or communities.)

Third, fire the Chief Marketing Officer.  Of course, somebody has to be blamed!  The guy who has done the most to bring Coca-Cola’s brand out of traditional advertising and promote it in an integrated manner across all media, including managing successful programs for the Olympics and World Cup, has to be held accountable.  What’s missing in this action is recognizing that the big problem is the leadership team’s fixation with defending its Coke brand, rather than finding new growth businesses as the market moves away from carbonated soft drinks.  This  problem requires the CEO and his entire management team to step up their strategy efforts, not just fire the leader who has been updating the branding mechanisms.

Coca-Cola needs a significant strategy shift

Leadership focused too long on its aging brands, without putting enough energy into identifying trends and figuring out how to remain relevant.  Now, people care a lot less about Coke than they did.  They care more about other brands, like Apple.  Globally.  Unless there is a major shift in Coke’s strategy the company will continue to weaken along with its primary brand.  That market shift has already happened, and it won’t stop.

For Coke to regain growth it needs a far different future which aligns with new trends that now matter more to consumers. The company must bring to market products which excite people, and with which consumers identify. And Coke’s leaders must move much faster into understanding shifts in media consumption so they can make their new brands as visible to newer generations as TV made Coke visible to Boomers.

Coke is far from a failed company, but after a decade of sales declines in its “core” business it is time leadership realizes this earnings announcement is a key indicator of the need to change.  And not just simple things like costs.  It must fundamentally change its strategy and markets or in another decade things will look far worse than today.