What does innovation look like in a coronavirus era? Coca-Cola reveals its strategy
Coca-Cola – like many other companies – has been streamlining SKUs and focusing on its biggest, established and trusted brands as a result of the coronavirus pandemic.
But innovation will continue to be key: it’s just the way it is executed will be done in a different, more selective and disciplined fashion.
Back to the big brands
In an age of coronavirus, consumers are no longer spending so much time searching out something new and different: instead, they’re looking for something they know and trust. With many countries still observing some sort of social distancing, consumers are getting in and out of the supermarket as quickly as possible – or simply taking their shopping online.
As a result, Coca-Cola has been reshaping its innovation pipeline to eliminate a longer tail of smaller projects and allocate resources to fewer, larger, more scalable and more relevant solutions.
And while that often means focusing on the big brands there's still room for new innovations. For example, Coca-Cola champions AHA sparkling water – a new launch which hit shelves in the US in March just as the pandemic took grip – is an example of a new innovation that is doing well despite the broader move towards established brands.
Explorers and challengers
John Murphy, CFO and executive vice president, Coca-Cola, believes more structured and more disciplined innovation will be the biggest change in a coronavirus era.
Explorers and challengers
Explorer brands are those with ‘entrepreneurial audacity and the ability to disrupt markets where they are not the leader’ – think Honest Tea or Powerade.
Challengers are those with the ‘endurance of a marathoner’ – brands which, over time, can amplify a competitive edge in a particular market.
Leaders are well-known big brands such as the flagship Coca-Cola brand.
“First of all, what I don't think is going to change is that innovation will continue to be a source of future growth,” he said speaking at the Deutsche Bank Global Consumer Conference this month.
“Secondly, I don't think you should stop the experimentation that is being embedded into how we're operating, but I do think it is the right time to do that in a much more disciplined fashion. So more scalable initiatives - that can be launched across multiple markets at a faster rate - is one area that I think will feature more.
“And then, I don't think the concept of explorers or challengers is going to go away, but I do think it's important to learn from what we have done over the last couple of years.
"And the reality is it's a lot harder to bring an explorer through to being a leader that I think many times we like to acknowledge.
"And so, I think we need to be - and we are becoming - a lot more disciplined, and making the tougher decisions to prune back; while we allow the ones that have the opportunity to grow to get the attention that they deserve.”
Three tips for picking out a good innovation
So how do you pick out a good innovation in these times?
Firstly, take your lead from the consumer, says Murphy. That's always been the case: but with the unprecendented nature of the pandemic it's even more important.
“It’s so important to remain consumer-centric, to remain close to the consumer, understand how the consumer is adapting and behaving through the crisis, and what behaviors are short-term versus those that may stick,” he said.
"Building touchless solutions in the away-from-home channel is a big opportunity we need to tap into.
"And there will be some new motivations in the functional arena that we need to bring into our portfolio faster."
And this could include identifying new consumer needs or desires.
“Everybody needs to stay very close to the consumer and to detect, at the earliest possible, signals relative to new trends that may sprout as a result of COVID,” said Murphy. “So, the area of hygiene, for example, is one that I think is going to be very much on the consumers' minds going forward.
“Building touchless solutions therefore in the away-from-home channel is I think a big opportunity that we need to tap into. I think there will be some new motivations in the functional arena that we need to bring into our portfolio faster than perhaps we have been thinking. So a lot to think about in that area and really important to stay very attuned to how the consumer is adapting and evolving.”
In Australia and New Zealand, for example, Coca-Cola vending machines have started to accept bitcoin to reduce the number of contacts consumers need with the machine.
Secondly, remember that different markets are at different stages of the crisis. “I think it’s really important to keep very close to our local markets, winning locally is something that should not change through this type of period,” said Murphy.
And thirdly, be agile and able to change with developments. “The plan for the year has changed and there has been, I think, a tremendous effort to rethink how to operate during the different phases," he added.
“So, the lockdown period… is one where we have paused and suspended a lot of investment because we, first of all, don't think it would generate a great return. And then secondly, I don't think it's necessary for us to make the kind of progress that we need to during this phase.
"But that's not to say that that's not a longer-term perspective as we go into the second half of the year and 2021. We're keenly focused now on the pivots needed to both establish the right levels of investment, the investment mix and the prioritization across markets. And so, that's something that we'll talk further about as we go through the year.”
The effect of coronavirus on two Coca-Cola brands
AHA: Sparkling water AHA launched in North America in March 2020. “AHA is doing very well in the US, given the context, it's the top 15 growing trademark in retail dollars in the month of April and it continues to demonstrate a lot of momentum as we go into the rest of the quarter,” said Murphy. He added it’s an example of a good scalable innovation – a proposition that can resonate around the world.
Costa Coffee: Coca-Cola bought Costa Coffee, the world's second largest coffee chain, last year. "Our business in Costa in the UK has been really shut for a good chunk of the second quarter on the retail side and the Express machines, while doing well, have had some limited uptick due to the shelter-in-place restrictions there. So, we expect that business to be challenged."
Coca-Cola HBC, however, launched a new range of Costa Coffee products for consumption at-home, on-the-go or at-work last month.
Long term project
It was back in 2018 that Coca-Cola embarked on a mission to ‘kill the zombies’ in its portfolio: taking a ruthless approach to projects that are not doing as well as expected.
This is only going to be exacerbated under coronavirus: not only does it cut off projects that are draining the coffers, but it also means that all parties – from ingredient suppliers to retailers – can benefit from a simplified supply chain.
The trick, of course, is to find the right balance between cutting off dead wood and identifying the next billion dollar brand.
“As we reflected back on the last couple of years, we've seen a tremendous expansion to the portfolio and a lot of which has been good, a lot of experimentation, a lot of learning, but the pipeline has become rather busy and clogged, said Murphy.
“And so we had embarked on a program to streamline our brand portfolio and to rethink the prioritization of initiatives within our innovation pipeline and that's work that's accelerating as we speak, so that we will I think have an opportunity to prune back on some of the portfolio in the number of markets.
“And then, with respect to the innovation pipeline, as we get a better balance between initiatives that can scale across multiple markets, because they're ultimately the ones that can create the most value, but at the same time stay entrepreneurial, stay local and empower people to continue to build and nurture initiatives that ultimately can scale.”