How Coca-Cola Stays Relevant

Last week’s earnings report was strong enough to garner praise for The Coca-Cola Company. But how does the beverage conglomerate manage to keep from going flat?

Feb. 8, 2020

In business, safe bets are pretty hard to come by. The world is rapidly transforming along cultural, political, and technological lines, and a new generation of consumers is coming of age, complete with fresh habits and priorities. Still, some companies seem to have a knack for surviving the tectonic shifts of culture and commerce, and Coca-Cola (NYSE: KO) is evidently one of them. Since its founding in 1892, the beverage giant has managed not only to stay afloat but to soar, re-asserting itself for each generation as a company as American as baseball.

On Thursday, January 30th, Coke released better-than-expected Q4 earnings, with net sales jumping a remarkable 16% year-on-year to $9.07 billion. Though this is hardly a golden age for soft drinks, the company reported that its flagship product had seen its best quarterly sales performance in eight years, while shares reached an all-time high last Monday.

A key contributor to these triumphs was Coca-Cola’s bold new lineup of products, notably Coke Plus Coffee, which has been launched in several different markets since early last year, and Coke Energy — which slipped onto shelves without much fanfare last January. Outside of its signature product range, the company also reported major sales growth for smoothie brand Innocent, as well as Fuze Beverage, a subsidiary that specializes in teas and non-carbonated fruit drinks.

The report highlights two significant reasons why this 127-year-old behemoth retains such a powerful global presence.

First, the company continually innovates its flagship brand, displaying a keen eye in the process for which trends are worth investing in and which ones lead to dead-ends. For instance, the recently-released Coke Plus Coffee has been praised as the company’s boldest attempt since its 2018 Costa acquisition to benefit from the growing American obsession with their daily cup of Joe. But Coke Plus Coffee is not the first time the company pushed a core coffee product. Between 2006 and 2008, Coke fans could purchase something called Coca-Cola Blak, a coffee-flavored version of the flagship drink. The only problem was that they didn’t purchase it. The product quickly slipped off the shelf and out of memory. “I don’t think people were ready to have a coffee portfolio within the Coca-Cola brand,” commented current CTO Nancy Quan.

In the meantime, a sort of coffee mania — largely driven by the rise of Starbucks (NASDAQ: SBUX) — has taken over North America, Europe, and, increasingly, China. The new Coke product is much better positioned to gain some market share. Whereas Coca-Cola Blak, with its ambiguous name and sweet taste, came across as a hopelessly muddled hybrid, the success of Coke Plus Coffee — which boasts of its strong coffee flavor as well as its higher caffeine content — is riding on a far simpler and more direct approach.

The second reason for Coke’s continued relevance is the constant attention the company pays to its diverse and comprehensive portfolio of non-core brands, which includes everything from trendy vitamin drinks to flavored milk. A lot of fuss was made recently about the surprise appearance of Coke Energy, yet relatively little has been said about the company’s concurrent expansion of its Powerade portfolio. This includes the launch of two new zero-sugar sports drinks, Powerade Ultra and Powerade Power Water, and a commitment from executive Shane Grant to reposition Powerade as an all-purpose energy drink: “Hydration is no longer limited to sports – it’s a necessity for anyone living an active lifestyle,” he said last month.

Coke also recently acquired the remaining stake in high-protein milkshake brand Fairlife. This will make it a major player in the little-known but growing value-added dairy industry. More importantly, it represents yet another step in the company’s grand ambition to become what North America President Jim Dinkins last month called a “total beverage company.”

By constantly innovating and adapting its classic product — which, in the contest for world’s most popular drink, need only fear H2O itself — and by spreading its wider portfolio to cover almost anything that comes in liquid form, The Coca-Cola Company is likely to fulfill that ambition, perhaps sooner than we think.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in Coca-Cola. Read our full disclosure policy here.