Coca-Cola battening down the hatches

by Keith Nunes
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ATLANTA — The global macroeconomic environment is not improving and the Coca-Cola Co. is taking steps to address market challenges and improve performance.

“The consumer is challenged everywhere around the world,” said Muhtar Kent, chairman and chief executive officer of the company, in an Oct. 21 conference call with financial analysts. “It’s not just related to the Western developed markets of Europe and Japan and United States and Canada, but it’s also related to emerging markets. There’s a lot of volatility in the world when you look at the currencies, when you look at interest rates, when you look at the growth rates, and when you actually factor in all the different geopolitical issues around the world. There just is a lot of apprehension.

“Less people traveling because of disease, because of scares, because of other things; mobility is down and traffic is down and that all impacts, particularly, our immediate consumption business. So we’ve got to find newer, better ways to ensure that our products, our brands, our 3,000 products, 550 brands can meet up with consumers on different occasions, on better occasions, on newer occasions, and on more innovative ways to get our products in front of our consumers. Certainly, we recognize that, that is a challenging environment. We operate in that environment, but we have still one of the most dynamic consumer goods businesses in the world.”

Coca-Cola net income during the third quarter ended Sept. 26 fell 14% to $2,114 million, equal to 48c per share on the common stock. Sales for the quarter were $11,976 million and flat compared with the same period of the previous year when revenues totaled $12,030 million.

“Stepping back from our quarterly performance, we’ve taken a hard look at our progress to date, our strategies, and our actions and realized that, while the five strategic priorities we laid out at the beginning of the year are on the right track, we recognize that we must do more,” Mr. Kent said. “In some ways, we’ve already enhanced our business with strategic investments in Keurig Green Mountain and intend to further do so with our pending investment in Monster beverages, which underscore not only our ability to adapt to changing consumer trends, but also our commitment to further innovation.

“But these partnerships alone are not enough. That is why we’re laying out today a series of actions we firmly believe will drive the necessary changes to continue to deliver long-term shareholder value.”

New initiatives announced Oct. 21 include physical changes at the company, including streamlining and simplifying its operating model to speed decision making; targeting $3 billion in efficiencies by 2019 by restructuring the company’s supply chain, including manufacturing in North America; and refranchising company-owned bottling territories in North America.

Company executives declined to offer many specifics related to the new initiatives, but Irial Finan, president of Coca-Cola’s bottling investments group, said the supply chain efforts are a continuation of what was started a few years ago.

“We have a very substantial supply chain footprint and we believe have the plans to make sure we become truly efficient and that means by streamlining in many different ways,” he said.

In 2015, Coca-Cola also will be shifting to a “delayered” organizational structure that has fewer “touch points” that will allow faster decision making, Mr. Kent said.

During the year, the leaders of such consumer packaged goods companies as PepsiCo, Inc. and Campbell Soup Co. have discussed what they perceive as the “new normal.” On Oct. 21, Mr. Kent concurred when he said the Coca-Cola Co. is in a challenging environment anywhere you go around the world.

“Everyone is apprehensive, whether it's governments, whether it’s N.G.O.s, whether it’s businesses, local businesses and international businesses,” he said. “I don't see that improving overnight, but I think it's the new normal. In that new normal, we need to generate better growth.”
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