Coca-Cola Uses Boost Zones to Build U.S. Soda Sales (Update3)

Nov. 16 (Bloomberg) -- Coca-Cola Co., the world’s largest soft-drink maker, will saturate more U.S. urban areas with its red logos and banners next year in a strategy intended to reverse volume declines.

The company plans to double the number of so-called boost zones from 50 North American locations this year, Coca-Cola executives said in interviews last week. In these targeted areas, Coca-Cola and its biggest bottler work directly with retailers to make Coke brands more visible on everything from redesigned menus to visors worn by fast-food workers.

“We view this as a long-term, sustainable program without a completion date,” said Caren Pasquale Seckler, an assistant vice president in charge of the Coca-Cola brand and trademark strategy.

The joint marketing program with retailers is among topics Coca-Cola will discuss at a conference with analysts, investors and bottlers starting today in Atlanta, where the company is based. Executives declined to say how much the boost zones cost or to forecast their effect on sales.

Coca-Cola and PepsiCo Inc., the world’s second-largest soft-drink maker, both lost share of the U.S. soda market in 2008 as soft-drink sales fell for the fourth straight year, according to industry newsletter Beverage Digest. Coca-Cola’s total beverage sales volume in North America fell 2 percent during the first nine months of this year. Europe declined 1 percent, while Latin America grew 6 percent.

‘More Complicated’

“Years ago, the brands did so well you didn’t have to concern yourself to a certain degree to this level of detail because the growth was just easy,” Lauren Torres, an analyst with HSBC Holdings Plc in New York said in a Nov. 13 interview. “It’s a more complicated business than it used to be.”

Torres has one of three hold ratings on Coca-Cola stock among analysts tracked by Bloomberg. Fourteen others recommend buying the shares.

Coca-Cola, led by Chief Executive Officer Muhtar Kent, has risen 25 percent this year, compared with a 23 percent gain for the Standard & Poor’s 500 Index and 14 percent for PepsiCo. Coca-Cola advanced 28 cents to $56.74 at 4 p.m. in New York Stock Exchange composite trading.

Peter Land, a spokesman for Purchase, New York-based Pepsi, declined to comment.

Boost Zones

Coca-Cola and its biggest bottler, Coca-Cola Enterprises Inc., brought the boost zone idea from Europe, where the effort started five years ago and has grown to more than 300 districts on the continent and in Brazil. Boost zones surround the Arc de Triomphe in Paris and Windsor Castle west of London.

“Walk around Windsor Castle. It’s red,” Coca-Cola Enterprises CEO John Brock said at an investor conference in May. “And every account up and down the street, you’re going to see, is going to have our brands there.”

Boost zones can range in size from a few blocks in dense New York to roughly the three miles surrounding Lenox Square along Peachtree Road in Atlanta, said Bryan Smith, Coca-Cola North America’s director of multi-package sales operations.

Coca-Cola spent at least $5,000 to make over Hovan Mediterranean Gourmet, a walk-up food court counter at Lenox Mall, in its own image, said owner Ahmed Darrar. The soda maker spent several weeks helping Darrar develop a new menu, including combo meals with a sandwich, side and drink.

No More Shawarma

“My business increased 25 percent to 27 percent in the month after Coke did this,” said Darrar, 55, wearing a white Coke visor and a red Coke shirt with Hovan embroidered on one breast. “I’m happy to wear their logo if I get that increase.”

The boost zone managers convinced Darrar to change the name of his $5.99 pita-wrapped sandwich from the traditional shawarma to gyro, better known to Americans. They also added a side salad and medium drink for $2 more. The drink costs Darrar about 17 cents, syrup and cup included, and the side salad costs anywhere from 55 cents to 99 cents, he said.

The Lenox zone has 250 outlets, from vending machines to hotel bars. Annual volume sales at the mall itself grew 90 percent after the boost zone was put in place, said Brad Wagner, a Coca-Cola district sales manager who oversees Atlanta’s five boost zones.

Coca-Cola Enterprises, also based in Atlanta, said on a conference call last month that sales increased 15 percent to 20 percent when it introduced combination meals into boost zones in the U.K., Belgium and the Netherlands.

For Hui Ling Chang, co-owner of Cajun Supreme a couple shops down from Hovan, Coca-Cola’s help was not welcomed. She pulled down the Coca-Cola signs within a day of their placement because the store was cluttered enough, she said. She stuck to handmade combo meal signs and refused to give up the Pepsi-Cola and Gatorade she stocks along with Coca-Cola products.

“I don’t want to follow all their rules,” she said.

To contact the reporter on this story: Duane D. Stanford in Atlanta dstanford2@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag in New York at jsondag@bloomberg.net.