In spite of the widespread vilification of sugary beverages in the U.S.—of which you couldn’t find a better example than a certain fizzy drink sold in a red can—Coca-Cola (KO) is not shying away from soda. In fact, it’s doubling down with an additional $1 billion in advertising through 2016. Even though Americans are drinking far less of the stuff these days, Coca-Cola’s big bet might not be a bad idea.
1. People around the world are drinking more soda. There’s no way for Coca-Cola to suddenly back away from its portfolio of sweet, bubbly beverages, which account for about three-fourths of its global sales by case volume. And while demand in North America and Europe has been shaky, Coca-Cola’s soda sales are growing in key markets such as Latin America and Asia Pacific. The company’s total soda sales increased by 1 percent as measured by volume last year, including an additional 100 million cases of the classic Coca-Cola.
2. Coke is in the right markets for sugary drinks. Although the U.S. represents 19 percent of the company’s worldwide unit case volume, Coca-Cola is selling most of its soda overseas, including in such key markets as Mexico, China, Brazil, and Japan. That’s important, since Latin America is now the largest market for soda in terms of dollar sales, according to Euromonitor International, and is forecast to grow 17.3 percent from 2013 to 2018.
3. The global ranks of middle-class teens, Coke’s core consumers, are growing. The company is betting on favorable demographic trends as the number of middle-class consumers, and teenagers in particular, expands worldwide. Coke’s chief financial officer, Gary Fayard, recently discussed the forecasts. From 2010 to 2020, he said, “You see a 50 percent increase in the middle class, 800 million people entering the middle class, and then with that a 70 percent increase in personal expenditures. And you see a billion teenagers today.” Fayard called the world’s 3.5 billion people in their teens and twenties “our core demographic.”
To woo these customers, Coca-Cola is sponsoring this year’s World Cup in Brazil and getting ready to pour another $1 billion into ads. “We’ve seen time and time again that marketing truly, truly works. In 2014 we’re going to improve our marketing game in terms of both quantity, but also importantly, in terms of quality,” said Chief Executive Officer Muhtar Kent at a conference in February.
Source: Coca-Cola CAGNY 2014 presentation
4. For the health conscious, new low-calorie sodas are coming. If it can get its marketing right, Coke expects forthcoming low-calorie products sold in smaller sizes and using new sweeteners will appeal to people who’ve been avoiding soda. The company is already selling a stevia-sweetened Coca-Cola Life, launched last year in Chile and Argentina. That might be enough to bring recent soda abstainers back to the vending machine.