For Coke, Local Is It

The soda giant gives its Euro managers marketing freedom

A half-dozen beanbag chairs lie scattered around the floor. A Sony Playstation dominates one wall, and violet lights provide the feel of a discotheque. Only a refrigerator filled with soft drinks hints that this is Coca-Cola Co.'s Belgian headquarters. "We call it our brainstorm factory," says Philiep Dedrijvere, a khakis-clad marketing director.

Welcome to the new Coke. Since taking the helm of the global soda giant last December, Coke's new chief executive, Douglas N. Daft, has moved quickly to loosen up the company's buttoned-down bureaucracy. Eager to break Coke's two-year run of disappointing profits, which led to the ouster of his autocratic predecessor, M. Douglas Ivester, Daft is trying to free the muse in thousands of local managers, such as Dedrijvere. Decisions about advertising, packaging, even products, will no longer be dictated out of Atlanta. "We used to make TV commercials in Atlanta for China," Daft recalled in an interview earlier this year. "That's not appropriate."

CRISIS FALLOUT. Europe is the lab for Coke's experiments in localism. Daft, who made a name for himself at Coke, perfecting this local approach in Japan, is convinced the practice will work throughout the company. So far in Europe, localism has produced everything from fruit sodas to supermarket giveaways. But, observers say, while the local marketing efforts have improved Coke's reputation, sales are still not meeting expectations.

Truth is, localism was not necessarily designed to debut in Europe. But then came last summer's contamination scare in Belgium, which hammered sales as well as Coke's reputation with local consumers. "The crisis had taught us the need to get closer to local consumers," says Marc Mathieu, president of Coca-Cola's new Benelux and France division.

The changes already are evident across the key European division, which produces 20% of Coke's global volume and 28% of its profits. After long having been structured as a single division, Daft has now broken Europe into 10 different geographic groups. European management no longer is dominated by headquarters. Non-Americans now run 9 of Coke's 10 new European groups.

And while Ivester admonished his field generals to push the company's four core brands--Coca-Cola, Fanta, Sprite, and Diet Coke--the new teams are developing flavors with distinctly European appeal. The Turkish division has come out with a new pear-flavored drink while the German operation has launched a berry-flavored Fanta.

What's more, Coke's local managers wield newfound freedom in how they market these products. Under the old regime, headquarters blocked local divisions from setting up their own Web sites. "We could only use the corporate Internet home page, and it was horrible," recalls Benoit Beaufils, marketing director for Belgium and Luxembourg. Now, Beaufils has developed a Belgian Web site--trilingual in Dutch, French, and English--which draws more than 3 million hits a month.

But while local managers may revel in their new autonomy, the program has yet to produce sales gains. Polls show that European consumers are less angry at Coke over last year's contamination scare. Still, Coke's comparable sales slipped 1% in Europe in the first quarter.

Even so, Sanford C. Bernstein & Co. analyst Bill Pecoriello believes the new approach will pay off. He expects sales on the Continent to climb 4% this year. "This is the right strategy for Coke," says Pecoriello. But it won't be easy. Marketing experts note that it's hard for a multinational to truly go native. McDonald's Corp. has attempted to paint itself as a local company in France by using regional products, but angry French farmers have been unimpressed.

Coke has learned the hard way that once you break a bond with a consumer, it's hard to get it back. "I'm willing to taste other products now," says Belgian shopper Janine Laurent. That could be all the opening Coke's rivals need.

Before it's here, it's on the Bloomberg Terminal.