A classic brand, a cultural icon–but there’s more than meets the eye.
Coca-Cola (NYSE: KO) is one of the most recognizable brands in the world. Synonymous with American culture, the term Coke has used the world over. Behind the beverage, though, is a corporation with annual revenue of $37.3 billion in 2019, generating a $2.11 EPS in 2019.
Decentralized production model
Central to Coca-Cola’s success is its production model. Coca-Cola is present in every country in the world except for Cuba and North Korea. You would be forgiven, then, for thinking that they must have a huge production presence internationally. However, the reality is that most Coke is bottled by international partners, who operate by and large independently from the Coca-Cola corporation. The corporation owns a minority share in some of its largest franchises, but more than half are entirely independent. The Coca-Cola company itself only actually produces a syrup concentrate which is then used locally to create the finished product.
Aside from the production of Coke itself, and its international franchise operations, Coca Cola’s wealth is also built on the corporation’s portfolio of brands. Some are recognizable within the Coke universe, such as Sprite ($1.45 billion annual revenue) and Fanta ($1.37 billion), but several are very distant from the brand identity which Coca-Cola has carefully cultivated for coke.
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This is useful in allowing its brands to escape common criticisms of Coca-Cola, both in terms of allegations against them and perceptions such as that they are too high in sugar. Some smaller brands include bottled water brands, such as Deep River Rock, Ciel, and Dansai, a mineral enhanced brand of purified water. They also have a strong portfolio of juice brands including Minute Maid, Simply Orange and Del Valle, a popular brand in Latin American markets. Coca-Cola has also invested in ready-to-drink iced tea brands, such as Fuze and Honest Tea. Honest Tea is a particularly interesting one, as it brands itself as the synthesis of a healthy, organic, environmentally and ethically sound beverage, which are precisely some of the concerns held by the vocal critics of Coca-Cola. Indeed, the British health drink Innocent was acquired by the corporation in 2013.
This diversified portfolio of brands operating globally effectively insulates the corporation from local market fluctuations and losses incurred by any one brand. For example, according to the Q4 Earnings release in 2019 strong performance by Chi in West Africa and Innocent Juices in Europe was offset by a decline in Rani in the Middle East in the corporation’s portfolio of Juice, dairy, and plant-based beverages. In the water, enhanced water and sports drinks category, the corporation saw 2% growth in the last quarter and 3% for the year, led by Ciel and Cristal in Latin America and strong global growth in the sports drinks portfolio, partially offset by the impact of deprioritization of low-margin water brands in key markets, particularly China and Japan.
In total, the corporation’s portfolio encompasses more than 500 individual brands, 21 of which generate more than $1 billion dollars in annual retail sales. Through their formidable bottling and distribution network, they are in a position to acquire a brand and to fast-forward its growth. Fuze is an example of an emergent brand that was acquired by Coca-Cola and turned into a billion-dollar brand in a decade. Currently, Coca-Cola touches approximately $1 of every $4 people spend on nonalcoholic ready-to-drink beverages around the world. As per their investor relations page, Coca-Cola expects to deliver approximately 5% growth in organic revenues (non-GAAP) and approximately 8% growth in comparable currency neutral operating income (non-GAAP) in 2020.
Positioning & corporate responsibility
Whilst Coca-Cola has a seemingly entrenched brand position, which comes with its cons as well as its pros, the acquisition of outlier brands has allowed the corporation to revitalize its overall identity, and position itself as an ethical leader. For example, since 2015, the corporation has returned more than 100% of the water they have used, per volume, in the production of their beverages to nature and the communities that rely on it. Worldwide, through its World Without Waste initiative, the corporation is pushing to reduce waste and increase the use of recycled packaging.
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