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Coca-Cola's Market Challenges and Strategies

General Report November 7, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Recent Product Launches
  3. Market Performance
  4. Discontinuation of Products
  5. Consumer Trends and Preferences
  6. Competitive Landscape
  7. Sustainability Initiatives
  8. Social and Economic Impact
  9. Conclusion

1. Summary

  • Coca-Cola's recent endeavors illustrate its commitment to staying competitive amidst shifting market dynamics and consumer preferences. Significant developments include the collaboration with Bacardi to launch a ready-to-drink cocktail in international markets and a temporary partnership with Oreo to create novel, limited-edition products. These moves highlight Coca-Cola's strategy to adapt its product portfolio to emerging consumer trends, particularly in the beverage sector's growing interest in unique flavors and health-oriented products. However, the company has also faced challenges, primarily from changing consumer tastes leading to the discontinuation of products like Diet Coke with Splenda and Coca-Cola Cherry Vanilla, triggering a notable consumer backlash. Additionally, Coca-Cola's competitive landscape remains stiff with rivals like PepsiCo and Dr. Pepper, both vying for greater market share through innovative product offerings and strategic marketing. The sustainability initiatives in Africa, aiming to improve water access, demonstrate Coca-Cola's ongoing commitment to corporate social responsibility amid geopolitical conflicts negatively impacting sales in regions such as the Middle East.

2. Recent Product Launches

  • 2-1. BACARDÍ & Coca-Cola Ready-To-Drink Cocktail

  • On September 17, 2024, The Coca-Cola Company and Bacardi Limited announced plans to debut the BACARDÍ Mixed with Coca-Cola as a ready-to-drink (RTD) cocktail. This pre-mixed cocktail will initially launch in select European markets and Mexico in 2025. The Coca-Cola Company aims to enhance its portfolio as a total beverage company, particularly in the growing alcohol RTD market. Both companies emphasize the combination of their iconic brands, aiming to provide a high-quality and convenient offering to consumers. The product will feature responsible marketing practices and will be packaged to indicate that it is intended for consumers of legal drinking age. The global alcohol beverage volume (ABV) is set at 5%, although this may vary by market.

  • 2-2. Coca-Cola and Oreo Collaboration

  • Coca-Cola and Oreo have partnered to introduce two new products: Coca-Cola Oreo Zero Sugar drink and Oreo Coca-Cola Sandwich Cookies. The Coca-Cola Oreo Zero Sugar drink is designed to have the classic Coca-Cola flavor with an added hint of Oreo. The Oreo Coca-Cola Sandwich Cookies consist of a classic Oreo cookie design combined with a Coca-Cola flavored cream filling. The cookies also include edible glitter and popping candy to simulate the fizzy sensation of the drink. Both products are offered for a limited time, with availability starting from September 9, 2024, in markets including the US and Brazil. The Coca-Cola Oreo Zero Sugar drink is available for purchase online, signaling a unique fusion of two popular brands.

3. Market Performance

  • 3-1. Coca-Cola Stock Performance Analysis

  • Coca-Cola (KO) closed the latest trading session at $72.10, reflecting a +0.97% change from the previous session's close. This performance surpassed the S&P 500, which experienced a 0.13% gain, while the Dow increased by 0.55%, and the Nasdaq dropped by 0.52%. Over the past month, Coca-Cola shares have grown by 3.22%, but this is less than the Consumer Staples sector's 4.49% and the S&P 500's 3.67% increases. The upcoming earnings report is expected to show an EPS of $0.75, marking a 1.35% increase compared to the same quarter last year. Revenue is anticipated to be $11.65 billion, representing a 2.56% decline from the prior year's corresponding quarter. For the fiscal year, Zacks Consensus Estimates project earnings of $2.85 per share and revenue of $46.03 billion, reflecting increases of +5.95% and +0.61% respectively from the previous year. Additionally, analysts have recently revised their estimates for Coca-Cola, indicating a direct correlation between these changes and stock performance. Coca-Cola currently holds a Zacks Rank of #2 (Buy), and its valuation metrics include a Forward P/E ratio of 25.07, compared to the industry average of 19.44. The PEG ratio stands at 3.95, while the industry average is 2.95.

  • 3-2. Comparison with Pepsi and Dr. Pepper Stocks

  • In the latest trading, Coca-Cola (KO) ended at $71.80, down by -0.42% from the previous close, in contrast to the S&P 500's gain of 0.03%. In the prior month, Coca-Cola shares saw a 4.52% increase, which outperformed the Consumer Staples sector's 4.12% and the S&P 500's 1.54%. As Coca-Cola prepares to release earnings, it is anticipated to report an EPS of $0.75, which is a 1.35% uplift from the same period last year. The consensus estimate is for quarterly revenues to decline by 2.56% to $11.65 billion. The full-year Zacks Consensus Estimates foresee earnings of $2.85 per share, and revenues at $46.03 billion, demonstrating increases of +5.95% and +0.61% respectively. Analysts are observing shifts in estimates, which show a potential link with stock performance, indicating a Zacks Rank of #2 (Buy). Presently, Coca-Cola shares have a Forward P/E ratio of 25.31, indicating a premium compared to the industry average Forward P/E of 19.41. Furthermore, Coca-Cola's PEG ratio is at 3.99, while the industry average is at 2.93.

4. Discontinuation of Products

  • 4-1. Diet Coke with Splenda and Coca-Cola Cherry Vanilla Discontinuation

  • Coca-Cola has officially confirmed the discontinuation of two popular products: Diet Coke with Splenda and Coca-Cola Cherry Vanilla. This decision was announced in September 2024 and is attributed to changing consumer taste preferences. The discontinuation has sparked disappointment among customers, particularly those who preferred Diet Coke with Splenda as an alternative to aspartame-sweetened drinks. Users on social media expressed their discontent and nostalgia for these beverages. Coca-Cola responded to inquiries, explaining that they are continually evolving their product offerings to align with consumer demands.

  • 4-2. Consumer Reactions to Discontinued Products

  • The consumer reactions to the discontinuation of Diet Coke with Splenda and Coca-Cola Cherry Vanilla have been notably emotional. Many fans took to social media platforms, particularly X (formerly Twitter), to voice their disappointment. Comments from customers highlighted a strong preference for Diet Coke with Splenda, with one user stating it was 'the best soda on the planet.' Other reactions included regret over the loss of Coca-Cola Cherry Vanilla, with fans labeling it as 'the best coke' they had experienced. Online forums, such as Reddit, were filled with sentiments of longing for these beverages, indicating a significant fan base and affection for the products.

5. Consumer Trends and Preferences

  • 5-1. Shift in Consumer Taste Preferences

  • Recent data points to a substantial shift in consumer taste preferences impacting the soft drink market. The increasing awareness around health issues has led to changing tastes, often resulting in consumers opting for beverages marketed as healthier alternatives. This trend has contributed to a decline in traditional soft drink sales, as consumers become more selective about their beverage choices.

  • 5-2. Impact of Health Trends on Soft Drink Sales

  • Health trends are significantly affecting soft drink sales, with a notable decline in the consumption of carbonated beverages. Nielsen Scantrack data indicates that soda and diet soda sales are in terminal decline, with a reported drop of more than 7 percent. Coca-Cola and other leading brands, including PepsiCo and Dr Pepper, are facing pressure to alter their product offerings. In contrast, the energy drink segment is experiencing rapid growth, suggesting that healthier, lower-calorie alternatives may be gaining traction among health-conscious consumers.

6. Competitive Landscape

  • 6-1. Coca-Cola vs. Pepsi Market Share

  • Coca-Cola and Pepsi are principal competitors in the beverage industry, with market share being a critical measure of their ongoing rivalry. The competitive dynamics between these two brands are shaped by their respective product offerings, marketing strategies, and consumer preferences.

  • 6-2. Dr. Pepper's Rising Popularity

  • Dr. Pepper has seen an increase in popularity, challenging the traditional dominance of Coca-Cola and Pepsi. This emerging trend indicates shifting consumer preferences in the soft drink category, with more customers exploring diverse flavors and choices. The competitive landscape is further complicated by innovative product introductions, such as the recent Oreo-flavored Coke, which highlights Coca-Cola's strategy to attract new customers and retain existing ones.

7. Sustainability Initiatives

  • 7-1. Coca-Cola's Water Stewardship Initiative in Africa

  • In September 2024, The Coca-Cola Company, alongside its bottling partners in Africa—including Coca-Cola Beverages Africa (CCBA), Equatorial Coca-Cola Bottling Company (ECCBC), and Coca-Cola HBC—announced an investment of nearly USD 25 million dedicated to tackling critical water-related challenges in local communities across 20 African countries. This initiative, termed 'The Coca-Cola System’s Africa Water Stewardship Initiative', was introduced during an event in Cape Town, South Africa. It involves a partnership with organizations like the Global Water Challenge (GWC), The Nature Conservancy (TNC), The International Union for Conservation of Nature (IUCN), and the World Wildlife Fund (WWF). Karyn Harrington, VP of Public Affairs, Communications and Sustainability, emphasized the importance of water, stating that Coca-Cola recognizes water as essential to life and community resilience, especially amidst increasing global water insecurity. Therefore, the initiative aims to enhance water security and improve access to sanitation services in several African nations including Algeria, Botswana, and Uganda, among others. This program is a continuation of Coca-Cola's broader commitment to water sustainability, aiming to protect watersheds and advance community health and climate resilience.

  • 7-2. Sustainability Goals and Marketing Practices

  • The Coca-Cola Company is actively engaged in promoting sustainability through its marketing practices. It supports initiatives that target the UN Sustainable Development Goal 6, which is focused on ensuring the availability and sustainable management of water and sanitation for all. The recent announcement of the investment aimed at improving water access follows a successful Replenish Africa Initiative (RAIN), which between 2009 and 2019 positively impacted over 6 million people's access to clean water in more than 4,000 communities. Coca-Cola articulates its sustainability goals not only through direct action and investment but also by collaborating with various stakeholders—including governments and local communities—to create long-term sustainable solutions. The company's efforts reflect an ongoing commitment to address consumer concerns regarding health and environmental issues while navigating the complex dynamics of the beverage market.

8. Social and Economic Impact

  • 8-1. Consumer Boycotts Related to Political Issues

  • Consumer boycotts against Coca-Cola and Pepsi in the Middle East have emerged due to the perception that these companies support the Israeli military. This belief is fueled by allegations that both corporations provide financial assistance to Israel, which they have denied. The boycotts are seen as a political statement by many individuals in the Arab world, where drinking these beverages has become intertwined with their stance on the Palestinian cause. Alternatives to these global brands, such as locally made colas, have gained traction in markets like Egypt, where former Coca-Cola executives have launched new products like V-7 Cola. Sales of locally produced beverages have surged, with reports indicating a 40% increase in local market acceptance and a 300-350% rise in exports for such beverages. Notably, in the first half of 2024, western beverage brands, including Coca-Cola and Pepsi, faced a 7% sales decline in the Middle East, according to NielsenIQ. The ongoing conflict has fostered a shift in consumer preferences, with many choosing local products instead of imported options that are perceived as aligned with U.S. policies.

  • 8-2. Economic Impact of Middle Eastern Conflicts on Coca-Cola

  • The recent conflicts in the Middle East have severely impacted Coca-Cola's market performance. In specific regions like Egypt, Coca-Cola sales decreased by at least 10% in the six-month period ending June 28, 2024. Overall, western beverage brands experienced a 7% decline in sales across the Middle East during the same timeframe. The socio-political tensions have led to a decline in Coca-Cola's volumes sold, with other local brands like Kinza and Cola Next capturing significant market share. The competitive landscape shifted markedly, with some local brands overtaking Coca-Cola in sales within regional markets. This indicates that geopolitical issues are not only affecting consumer sentiment but are also translating into tangible losses for large corporations like Coca-Cola as consumers seek alternatives that resonate more with their political beliefs and align with nationalist sentiments.

Conclusion

  • Coca-Cola’s proactive measures to diversify its product lines highlight strategic attempts to secure its standing in the rapidly evolving soft drink market. While partnerships with renowned brands like Bacardi and Oreo underscore Coca-Cola's innovative spirit, these initiatives are crucial in countering the slowdown caused by shifts in consumer preferences towards healthier alternatives. Facing robust competition from both PepsiCo and Dr. Pepper, Coca-Cola's approach includes maintaining market relevance and leadership through tailored product engagements and sustainability efforts, such as significant water stewardship projects in Africa, which align the company’s operational goals with global sustainability agendas. Despite these efforts, Coca-Cola faces limitations, such as the potential risk of alienating core consumers with product discontinuations, as seen with Diet Coke with Splenda and Coca-Cola Cherry Vanilla. To mitigate this, Coca-Cola should continuously engage with consumer feedback to balance innovation with consumer expectations, ensuring robust market growth. Future prospects for Coca-Cola involve further leveraging its brand strength and exploring emerging markets while working on improving regional sensitivities affected by socio-political issues. Adapting to these complexities not only aligns with Coca-Cola's sustainability ambitions but also enhances its practical applicability in real-world scenarios. As consumer behavior continues to shift towards diverse and health-conscious choices, Coca-Cola must remain agile, investing in research and development to sustain its competitive edge.

Glossary

  • Coca-Cola [Company]: Coca-Cola is one of the largest beverage corporations globally, known for its flagship soft drink and a diverse portfolio of products. Founded in 1892, it has maintained a significant market share in the beverage industry and continuously innovates to meet changing consumer demands.
  • PepsiCo [Company]: PepsiCo is Coca-Cola's primary competitor in the soft drink market, offering a wide range of beverages and snacks. The company has consistently positioned itself as a challenger to Coca-Cola's dominance in the sector.
  • Dr. Pepper [Company]: Dr. Pepper, known for its unique flavor profile, has gained market share in recent years, becoming a significant player in the soft drink industry. Its growth presents a competitive challenge to both Coca-Cola and Pepsi.

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