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4 Challenges for Coca-Cola Ahead of Q4

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Addressing uncertainty in low-calorie CSD strategy

Governments all over the world are publicizing obesity concerns, and the sugar content of soft drinks has come under increasing scrutiny. The Coca-Cola Co has already developed low and zero calorie drinks that are the top ranked brands within their categories.

However, the low calorie cola category is anemic in the US, reflecting consumer concerns over alternative sweeteners in CSD. The company should continue to research low-calorie alternative CSDs – in particular natural low-calorie options and low-calorie soft drink options outside the traditional CSD category.

To that end, one key question for quarterly reporting next week will be the performance of Coca-Cola Life – the company’s stevia sweetened cola, first launched in Latin America and then rolled out to the UK and US last year.

Emerging market performance: are they slowing down?

Coca-Cola has already established itself in emerging markets, dominating the carbonates category and often the entire soft drinks market. However, the company cannot rest on its laurels, and it will see increasing competition from domestic players, while global competitors – notably PepsiCo – will be eager to take Coca-Cola’s market share in growth regions. If the company is to come anywhere near its 2020 targets, then BRIC growth and the development of major secondary markets such as Indonesia and Vietnam are essential.

Is share performance in these vital growth markets holding up, or is the company losing ground to domestic players, particularly brands with value positioning?

Capitalise on the wider health and wellness trend in soft drinks

Areas such as ‘better-for-you’, ‘naturally healthy’ and ‘fortified/functional’ are the opportunity areas within existing soft drinks categories. Coca-Cola already has a wide range of juice brands and waters that could prove to be winners for the company, but it must continue to develop and innovate new health and wellness angles within its brands. A key growth area could be fortified/functional drinks and energy drinks, where opportunities to add new functional ingredients are continually being discovered.

How will Coca-Cola expand its presence in this space? The company’s Monster Energy equity investment late last year was an important step to shore up market share in the energy category, but growth rates in this space show signs of slowing slightly. What are the company’s innovation plans in healthier and functional beverages?

Spread risk from carbonates – look to push other drinks categories

The popularity of carbonates has waned in traditional high consumption markets. Public pressure to reduce sugar consumption via soft drinks will remain high. Coca-Cola is looking to expand sales of other beverages and diversify its soft drinks category portfolio, including functional beverages and dairy. Categories in which the company is not dominant globally include RTD tea. Pushing development in these categories could provide more holistic growth opportunities in China and greater Asia.

Core Power is one dairy based brand opportunity, as the company looks for high-value opportunities in this space. Fairlife – the company’s new US milk product – emerges from this same division (Venture and Emerging Brands). Fairlife boasts 50% more protein and calcium with 30% less sugar (due to an ultra-filtration process, no Stevia).  It also has a longer shelf life than regular milk. Fairlife aims to get a big share of the $20 billion US drinking milk products market, up 5% in 2014. Another question management may seek to address during quarterly reporting next week is the strategic direction for the Fairlife brand – what do they think is the size of this opportunity?

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