Why Coca-Cola Still Dominates The Beverage Market

With more than 1.9 billion drinks served each day, Coca Cola is one of the largest

beverage

companies in the world. From humble beginnings selling a single product in a drugstore for five cents a glass, the company now boasts a roster of 200 brands including Coca-Cola, Fanta and Sprite. But with U.S. soda consumption on the decline, the soft drink maker has been forced to pivot. In 2021, Coca-Cola launched Topo Chico hard seltzer, the company's first move into alcoholic

beverage

s in the U.S. in nearly four decades. The company has also made recent investments in the sports performance drinks category with Body Armor and the purchase of British coffee maker Costa.

And although the pandemic has caused significant disruption in the first quarter of 2021, Coca-Cola reported that its net income increased 5% to $9 billion. We were very focused over the last 12 months on focusing on really improving our

market

ing, we halved the brand portfolio. We're very focused on our innovation process, working with our bottlers to really support customers in new and different ways when they're open. And the sum of all that, along with a new organization that we have kept away, has allowed us, as you say, to return to pre-pandemic levels. Coca-Cola is eagerly anticipating some reopenings and vaccine rollouts.

In the meantime, it faces a number of challenges, including new COVID-19 disruptions and ongoing tax litigation with the IRS. In November 2020, a US tax court said Coca Cola had to pay most of its $3.4 billion tax bill. Coca-Cola said it would ultimately prevail in litigation with the IRS, but that its potential liability could be as high as $12 billion. So after 135 years in business, can the soft drink giant stay on top? And what will the secular decline of sugary drinks in the United States mean for Coca Cola's future? Coca Cola has its history in a soda fountain in Atlanta, Georgia.

In 1886, pharmacist John Pemberton created a caramel-colored syrup and took the mixture to a nearby pharmacy, where carbonated water was added and the drink was sold for five cents a glass. According to author Mark Pendergrast, the mixture contained caffeine, a lot of sugar, and, for the first few years, a small amount of

coca

leaf extract, i.e.

coca

ine. And at first, the ads for it promoted it primarily as a medicine. He was supposed to cure morphine addiction on the one hand, which unfortunately was not the case in Pemberton's case, but he was supposed to be an aphrodisiac.

He was supposed to cure basically anything that ails you. In 1888, Pemberton began selling the recipe to a well-capitalized businessman named Asa Candler, and by 1895 Coca Cola was available in every state in the United States. At the turn of the century, Coca Cola advertisements appeared on clocks, trays and posters and the drink moved from soda fountains to bottles. The company's advertising budget reached $1 million in 1911, the equivalent of about $27 million today, and it became a huge success. Between 1900 and 1910, there were Coca Cola bottling plants in every small town, no only in the south, but throughout the country. By the 1920s and 1930s, Coca Cola had reinvented itself as a uniquely American soft drink and was entering new

market

s abroad.

Exempt from sugar rationing during World War II and in support of GIs, the company has 64 portable bottling plants around the world, distributing more than 5 billion bottles of Coca Cola. And it's not just Americans who are addicted to sugary drinks. According to Pendergrast's book for 'God Country and Coca Cola', in Germany, with the supply of key ingredients restricted due to the war, local operators invented a new Fanta drink. The flavored drink, the company's first new product, finally arrived in the U.S. in 1960. Coca-Cola also produced many other innovations. In 1960, 12-ounce steel cans were introduced, in 1963 Tab, the company's first diet drink was launched in 1971.

The "I'd Like to Buy the World of Coca-Cola" commercial aired and in 1982 the debut of Diet Coke. In 1985, in an attempt to boost sales and compete with rival Pepsi in the soda wars, the company reformulated its classic soft drink and launched New Coke. The move was a major misstep, with widespread disapproval from fans and pundits alike. Just 79 days after the soft drink's launch, the company changed course and the original formula was restored. And while consumption of sugary drinks in the United States increased during the 1990s, the company was about to face an even greater threat. In the early 2000s, health and wellness concerns were high on the agenda of most consumers.

Soft drink consumption began to decline. The peak occurred in the early 2000s from a consumption point of view, if you look at per capita consumption, and it has been declining since then. At the same time that we started to see a decrease in the consumption of carbonated soft drinks, it was around the same time that we started to see an increased concern about sugars and simple carbohydrates. But despite that decline, Americans and people everywhere were

still

addicted to soda. Between 2011 and 2014, almost half of us adults drank at least one sugary drink a day. The US soft drink market is a $38.5 billion business according to IBISWorld and includes companies like PepsiCo, Keurig Dr.

Pepper and, of course, Coca Cola. With consumers mostly stuck at home, foregoing restaurants, concerts and sporting events, the pandemic has been a mixed bag for soda makers. PepsiCo announced that first-quarter 2021 net sales reached more than $14.8 billion, up nearly 7% from a year earlier, driven by pandemic snacks in its Frito Lay division and higher sales of beverages like Bubly sparkling water. and ready-to-drink coffees from Starbucks. With more people getting a caffeine fix while working from their home office, Keurig Dr. Pepper's coffee business also received a jolt. The company announced first-quarter 2021 net sales of $2.9 billion, up more than 11% from a year ago.

And although Coca Cola saw an 11% drop in net income in 2020, the soft drink maker rebounded with first-quarter 2021 net income of $9 billion, up 5% from a year earlier. Coca Cola has really been hit hard by the pandemic and is definitely not out of the woods yet. While there is uncertainty and volatility, especially in the near term, we feel confident in the corridors we are establishing for revenue and results guidance, and believe we will be able to emerge stronger from this crisis. A major problem for the soft drink giant. According to one analyst, Coca-Cola has more exposure to restaurants like McDonald's and sports venues than peers PepsiCo or Keurig Dr.

Pepper. What that means is that they had a lot of market share to lose on those channels. And so when those channels were shut down, they obviously had a disproportionate impact in terms of their revenue and their market share. To make up for that loss, the soda maker cut its global workforce in 2020 by about 11% and reduced its list of brands from 400 to 200. Tab, the company's first diet soda, was eliminated. But Coca Cola has several key advantages that will allow the company to revitalize its business according to analysts. For starters, Coca-Cola's diverse geographic position should provide the company with a steady stream of growth.

Coca Cola products are sold in more than 200 countries and territories around the world. Coca-Cola also has one of the largest non-alcoholic beverage distribution systems in the world, sourcing more than 40% of its sales from developing and emerging economies with a growing middle class. In 2020, Coca Cola had net operating income of $33 billion, almost 66% of which came from outside the United States. In developed markets where Coca-Cola is firmly established and competition is rife. The company has proven innovation-driven profit growth strategies. Even in the United States, as soft drink consumption has declined, the value of the category has continued to rise.

According to Johnson, one strategy Coke uses is packaging pricing architecture, which generally refers to consumers' willingness to pay more for packaging innovations. In the case of Coca-Cola, he found that consumers not only preferred smaller beverage sizes, but were also willing to pay more for each ounce. Another key advantage: Coca-Cola has positioned itself in an area of ​​the supply chain that is less capital-intensive and requires less labor and overhead than rival beverage companies like Pepsi. Most Coca-Cola trademarked beverages are not packaged or delivered by the company. Generally, Coca-Cola focuses its operations on producing the concentrate for its beverages and sends those blends to bottlers for processing, packaging and distribution.

In 2020, environmental group Break Free From Plastic conducted a global audit of plastic trash, working with nearly 15,000 volunteers in 55 countries collecting plastic bottles, coffee cup lids, shampoo bottles and surgical masks in a two-month cleanup. The group said that for the third year in a row soft drink giant Coca Cola emerged as one of the world's top polluters with almost 14,000 Coca Cola brand plastics collected in 51 countries. According to Greenpeace, as of 2018, Coca Cola has produced more than 110 billion single-use plastic bottles. The environmental group estimates that in the decade leading up to 2018, Coca Cola increased the number of single-use plastic bottles by about a third, representing almost 70% of Coca-Cola packaging globally.

While Coca Cola is not the only multinational corporation that relies on plastic packaging, the size of the company illustrates the magnitude of the problem. Other big polluters according to Break Free From Plastic include PepsiCo, Nestlé, Unilever, Mondelez International and Mars. According to a report by the World Economic Forum, at least 8 million tons of plastic end up in the ocean each year, the equivalent of dumping the contents of an entire garbage truck into the ocean every minute; Plastic packaging accounts for most of this problem. . To do its part in 2018, Coca Cola announced that it would use at least 50% recycled material in its bottles and cans by 2030.

And by the same date, it would collect or recycle one bottle or can for every one it sold. The company also launched a plastic bottle made up of 30% plant materials in 2009. And in 2020, Coca Cola partnered with Danish startup Pabaco to develop a 100% paper bottle; that project is in its infancy, but the Critics argue that because of the high costs associated with recycling, and with less than 30% of plastic bottles recycled in the US, those efforts might not be enough. Another criticism that Coca Cola faces is for its water use: approximately a third of Coca Cola bottling plants operate in water-stressed areas and more than 73% of the water used by the company goes to growing ingredients such as cane sugar. , oranges and apples.

To improve water efficiency, the company reduced or eliminated water through its manufacturing process. In 2004, Coca-Cola used 2.7 liters of water to make one liter of product. In 2018, it used 1.92 liters of water to make one liter of product. The company also announced in 2016 that by replenishing watersheds and partnering with organizations, it would return 100% of the water used in its beverages to the environment and local communities. With the pandemic slowing its fountain business in North America and its out-of-home channels in Western Europe, Coca-Cola saw a 4% drop in sparkling soft drink sales in 2020. Clearly, consumers have adapted and those who I think it is very likely that they will stay.

They are clearly a big uptick in e-commerce. And obviously e-commerce is much more important for other sectors; has really started to accelerate in terms of groceries and beverages. I think that will last and I'm not just talking about e-commerce in terms of what you buy, having it delivered to your home but also in out-of-home channels. The amount of takeout is the amount of delivery, but it may be the new product offerings that have the biggest impact for the soft drink maker. About 25% of Coca Cola's revenue was generated from new or reformulated products such as Coke Zero and Coke Energy in 2020, compared to about 15% two years ago, according to Morningstar.

In 2021, Cok launched Topo Chico hard seltze, the company's first step towardsalcoholic beverages in its territory in almost four decades. In 2019, hard seltzer volume more than tripled in the early days of Bery for Topo Chico hard seltzer in certain countries in Latin America and also Europe, but we are very exciting. Good consumer reaction, good customer action, good sales rates, very soon and very soon in the US. The company is also investing in other categories. In 2018, Coca Cola acquired a minority stake in sports drink maker Body Armor and in 2019, Coca Cola completed its $4.9 billion acquisition of Costa. Costa has more than 4,000 cafes across Europe, Asia and the Middle East, offering everything from vending machines to ready-to-drink products.

The coffee segment worldwide is growing 6% annually. And with health and wellness concerns at the top of most people's agenda, it could be soft drink makers' innovations in the traditional soda business that generate some of the biggest profits. There are consumers who are shifting toward low-calorie beverages and we are certainly behind that trend. Coke Zero Sugar is not only growing in 2021 in the first quarter, but it actually grew in 2020. And while Coke may not recover as quickly as its peers, because much of its business is outside the US ., where the vaccine rollout and economic conditions remain uncertain, analysts say the company can expect a strong recovery.

Globally, the vaccination rate, the reopening rate, all of that will vary by country, it will translate heavily into Coca-Cola's business and therefore it will definitely not be a linear recovery for Coca Cola, but We expect a strong recovery anyway. in 2021.