Coke to focus on still drinks

- Last updated on GMT

Related tags: Cent, Coca-cola

Substantial increases in volumes sales for its non-carbonated
brands mark the start of a new era for Coca-Cola.

The high profile launch of brands such as Mecca Cola and Qibla Cola - created as 'ethical' alternatives to the giant US cola brands - appears, on the surface at least, to have done little to dent consumer enthusiasm for the brand which perhaps typifies more than any other the American marketing ideal - Coca-Cola.

The company this week reported a 5 per cent increase in global volume sales for 2002 to a record 18.7 billion unit cases, but the underlying figures show that much of this increase came not from higher sales of the core brand but from new distribution deals or acquisitions - such as Evian, the bottled water brand owned by Danone, and the mixers business of Canadian company Seagram - or from strong sales of non-carbonated drinks.

Doug Daft, chairman and chief executive officer of Coca-Cola, said: "Over the past year, The Coca-Cola Company made considerable progress by delivering strong financial results, growing its brands, strengthening bottler relationships and enhancing its corporate governance practices. In 2002, we began expensing stock options for the first time, resulting in an additional $373 million of expenses in our financial results. Even after considering this, we generated operating income at the highest levels in our company's history.

"Throughout the year, we outpaced the rest of the industry in each of the major beverage categories. We grew our carbonated soft drinks by 2 per cent during the year and non-carbonated beverages by 28 per cent. In the juices and juice drinks category, our growth of 21 per cent was well ahead of the industry's 4 per cent growth. Across 70 countries, Powerade [the company's main energy drink brand] grew 25 per cent and was ahead of the industry average, while our water business grew by 68 per cent, well above the global industry's 8 per cent rate."

Operating income for the year was $5.5 billion (€5bn) on total sales up 12 per cent to $19.6 billion. In volume terms, US growth was 5 per cent, while international sales increased by 5 per cent. Tellingly, however, carbonated soft drink sales were up by a more modest 2 per cent (although this was ahead of the market as a whole, the company stressed), despite the recent launch of new products such as Vanilla Coke.

Still drink sales in the US were the top performers, however, showing double-digit growth to reach 1.2 billion cases, led by water brand Dasani, Powerade, Minute Maid Lemonade and Simply Orange. Coca-Cola has been expanding into the non-carbonated drinks market extremely rapidly, and the 40 per cent volume increase for Dasani alone last year shows just what an impact even a relatively low value brand (Dasani is a purified water brand, not a natural mineral water) can make when backed by the marketing might of a company such as Coca-Cola.

As with most companies doing business on a global scale, Coke's results were impacted by the effect of currency exchange rates, not least in Latin America, where a strong rise in Mexico and Brazil was offset by very challenging economic conditions in Argentina and Venezuela.

Further afield, European sales grew by 5 per cent in volume terms during the year, although again the main driver was the non-carbonated business, which showed 36 per cent growth, compared to just 3 per cent for the fizzy drinks brands. Much of this latter figure was due to the expansion of Diet Coke/Coca-Cola Light with Lemon into 11 countries including the key markets of the UK, France and Belgium, resulting in 11 per cent growth for the brand.

Powerade was also rolled out in 11 European countries during the year, while there was also growth in the water and Nestea businesses. Spain and the UK were the best-performing markets, but there was also double-digit growth in the important emerging markets of eastern Europe and Russia. Germany was the only under-performer, with the impact of new regulations on returnable packaging taking its toll in the final quarter.

Clearly, non-carbonated drinks are going to play an increasingly large role in the development of Coca-Cola, despite the company's continued effort to revamp its core brand with new flavours or packaging. Bad news, perhaps, for European water producers in particularly, many of whom have already expressed their concern at the likely impact of the Atlanta-based giant turning its full marketing might to their particular segment of the soft drinks market.

The shift towards still drinks is indicative of a number of things - a general consumer shift towards drinks such as juice or water which are perceived as being healthier or the sheer fact that there is little room for growth in the carbonated market, for example - but perhaps there is also the feeling that the growing wave of antagonism towards American brands, which has given rise to the likes of Mecca Cola, could continue to grow, and increasing sales from products which are not so clearly American (as a product name, Powerade or Dasani, for example, have lower profiles than Coca-Cola) could be a shrewd move.

Coca-Cola itself would never dream of suggesting that this was a reason for such a move - and indeed it is probably more of an added bonus than a prime motivator - but the success of the non-carbonated business does suggest that this will be a continued area of growth for years to come.

Related topics: Carlsberg

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