Behemoth On A TearMaria Mallory
In the pecan-paneled boardroom of Coca-Cola Co.'s Atlanta headquarters, Chief Executive Roberto C. Goizueta dazzled his directors in late July with a fast-paced video scrapbook showcasing the past 202 days in the life of the 100-year-old company. The soft-drink behemoth had been working at a furious pace: It opened plants or reentered markets in seven nations, including India, Poland, Russia, South Africa, and Vietnam. It rolled out two new soft-drink lines, debuted a racy diet Coke campaign, and revived the trademark curvy Coke bottle, modernized in plastic.
The payoff came on Sept. 19, when the Coke marketing machine announced eye-popping third-quarter worldwide volume increases of 12%. Coke's stock jumped 11/4 points, to $49, on the news, though it has since dropped back a tad. Kidder, Peabody & Co. figures earnings in the third quarter will jump 26% vs. a year ago, to $730 million on sales of $4.2 billion. "What we are witnessing the world over is the consumer reconnecting himself and herself with Coca-Cola," says Goizueta.
PERSONAL QUEST. Goizueta has reason to crow. After years of marginal market share growth, languid product development, and stodgy marketing, Coca-Cola is revving up its fortunes. It's tweaking every aspect of global marketing, adding cutting-edge advertising, new packaging, product sampling, and high-profile sponsorships. It's also pushing new products out the door faster than ever before.
The rejuvenation of Coke has become a personal quest for Goizueta. Until April, the veteran executive was a candidate for retirement upon his 65th birthday in 1996. Celebrating his 40th anniversary with the company this year, Goizueta could easily have stepped aside. Despite his failure to establish the New Coke brand in 1985, he has dazzled Wall Street in the past five years with 18% average annual hikes in earnings. Thanks largely to him, Coca-Cola's market cap now stands at $63 billion.
Still, Goizueta knew Coke needed a radical tune-up. In recent years, Coca-Cola Classic, the nation's top cola brand, couldn't budge its market share above 20%, even as alternative beverages swallowed a full 12%. Worse, the U.S. cola market has shrunk from 63.6% of soft-drink sales in 1984 to 58.8% at yearend 1993, according to Beverage Digest--a loss of $2.4 billion in potential retail sales. The company's overseas volume was growing at only 6%; Coca-Cola had not reached its average annual growth target of 8% for three years.
Worse, Coke went nearly a decade without a new product in the U.S., while new-age rivals such as Snapple claimed $5.9 billion of the $49.1 billion U.S. beverage market last year. "The problem was that diet Coke was driving the engine and everybody was living off that," says one former executive. Agrees Goizueta: "We could have been quicker" in responding to challengers.
Wall Street has penalized Coke for its lethargy. Even as share buybacks, price hikes, and production efficiencies beefed up Coke's yearly operating earnings per share by 39% in the past two fiscal years combined, its stock budged only 11% in the period.
Now, Coke is charging back with new brands such as OK Soda, Fruitopia, and the sport drink PowerAde. The goal: to persuade retailers that Coke can be a one-stop shop for soft drinks--a company that can fill the shelves with a varied family of products backed by unmatched advertising and marketing. And it's coming out with new services rivals will be hard-pressed to match. For instance, Coke now analyzes a store's profitability on each beverage, its returns on its shelf-space allocations, and the sales impact of local demographics.
Behind the new offensive is M. Douglas Ivester, Coke's new president and chief operating officer. Ivester took on the challenge 18 months ago, when Goizueta assigned him to rejuvenate brand Coke. His key job, Ivester says, is to break through product clutter by refocusing on what makes Coke "special, different, and better." Coke also needed a cultural transformation to shake loose its stodgy past. "We had to sort of zero-base our thinking," Ivester says.
Ivester made two bold moves. First, he rocked Madison Avenue by giving Hollywood's Creative Artists Agency (CAA) carte blanche to revitalize the soft drink's advertising. Then, he rehired Sergio Zyman, who had left the company under a cloud after spearheading the New Coke reformulation.
BEST-KNOWN PACKAGE. CAA shattered Coke's longtime, "one sight, one sound, one agency" approach with its "Always Coca-Cola" campaign featuring images as diverse as Coke-chugging polar bears to punk rockers. "They took the creative handcuffs off," says CAA Chairman Michael Ovitz.
The ads are more than just glitz. CAA calculatedly jam-packs its messages with the brand's traditional symbols: the trademark red disk, the contour bottle, the classic Coca-Cola script--reinforcing to consumers the symbols that say Coke.
Anointing Zyman as Coke's new chief of marketing was equally shocking. He's far from a traditional Coke man. The hard-charging Zyman clashed with a culture he has called "frustrating and extremely tiring." Today, when managers stubbornly embody the closed-minded old Coke, Zyman makes them wear a shirt bearing the words, "I'm not the target audience."
Now, the public is starting to get a taste of the Ivester-Zyman chemistry in moves such as their resurrection of Coke's contour bottle. Coke surveys showed the contour is the world's best-known package. And consumers polled in test markets preferred it 5-to-1 over the generic plastic bottle. "Contour is a brand in and of itself," asserts Ivester.
Rival William C. Cobb, vice-president of marketing at Pepsi-Cola Co., says it's more like an irrelevant antique. "They're kinda resuscitating an old bottle and claiming that as an innovation," says Cobb. "But that was an innovation 80 years ago." Cobb counts Pepsi's new 24-pack, "The Cube," and its freshness-dating of Diet Pepsi as real innovations that have pushed up its supermarket sales by 8.2% over the last year.
Still, the impact of Coke's contour, rolled out in March, has been impressive. In Chicago, contour sales pushed up Coke Classic's sales in supermarkets and other stores by more than 62% through July. Overall, Coke brass estimate the bottle has increased Coke Classic's volume in markets where it's available by 25% to 75% in the same period.
Ivester also revived another Coke chestnut: consumer sampling. Under Ivester, this grassroots tactic goes gonzo. For example, on June 18, Coke gave thousands of gallons of free product to German consumers. With the help of such moves, Coke's European case sales were up 14% to 16% in the third quarter, Goizueta says.
Coke's product development labs are humming, too. Within the past year, the beverage giant has turned out a new product in each of three key markets. Its Fruitopia line of fruit-based drinks is angling for the alternative-beverage drinker with flavors such as Citrus Consciousness, Strawberry Passion Awareness, and Cranberry Lemonade Vision. Positioned as the hip, new sports elixir, Coke's PowerAde is challenging Gatorade's 79.5% share of that segment.
"TRULY DANGEROUS." Generation X-inspired OK Soda, with its stark silver can adorned with black-and-white graphics, shows just how far Coke's marketing approach has evolved. The lightly carbonated soda was rolled out in tests in May. As part of the introduction, thousands of high school students received quirky letters promoting "OK-ness." On the can, drinkers are invited to dial 1-800-I-FEEL-OK to relate their OK stories. So far, the company has logged 13 million calls, and OK is snagging up to 5% of Coke's volume where it's available, the company reports. "Coke is becoming truly dangerous because they are now taking risks," observes Tom Pirko, president of New York consultants Bevmark Inc.
Billionaire investor Warren E. Buffett, for one, really likes what he sees. In August, Buffett pushed his stake to more than 100 million shares--the largest of any shareholder. Buffett believes that Wall Street has overlooked a big improvement in the way Coca-Cola is pushing its product line. "I don't pay any attention to what the stock does," he explains. "If the business does well, the stock eventually follows." If Buffett is right, Goizueta, the ultimate Coke man, just may retire one day to the sound of champagne corks popping.