The Coca-Cola Company at Morgan Stanley Global Consumer Conference 2014 (Transcript)

Sandy Douglas, SVP, Global Chief Customer Officer and President, Coca-Cola North America Presents at Morgan Stanley Global Consumer Conference on November 19, 2014. Below is the webcast audio and the associated transcript of the event…

The Coca-Cola Company at Morgan Stanley Global Consumer Conference – Webcast Audio



Dara Mohsenian – Analyst, Morgan Stanley

I’m Dara Mohsenian, Morgan Stanley’s beverage and household products analyst. We’re very excited to have Coca-Cola with us here today. Sandy Douglas will be presenting, the Senior Vice President at Coke, and Global Chief Customer Officer and President of Coca-Cola North America. It’s a great time to have Sandy here.

Clearly, Coke has a very successful long-term track record, but recent trends have been a bit more difficult the last couple of years and the company has responded in our minds with very significant positive changes announced recently. And North America is really on the forefront of a lot of those changes in terms of a pricing focus and mix focus under Sandy’s leadership recently, marketing boost and pending bottler refranchise.

In terms of format today, Sandy’s going to present for about half of the time, and then we’re going to move to a fireside chat. So, thanks for coming, Sandy.

Sandy Douglas – President, Coca-Cola North America

Good morning, everybody. I’m happy to be here this morning with you to tell you the progress that we’re making in the North America business, the company’s oldest market. And I think the best way to summarize the presentation — well actually I’ve got to start with this. Obviously, you’re cautioned by our forward-looking statement that can be found on our investor website.

The best way to describe it, is to say this. Our focus in North America, playing our role in the Coke global jigsaw puzzle, is to focus on driving economic profit and value creation for the company, and to do that with three main levers: accelerating top-line growth, margin expansion, and capital efficiency. That is our role in North America, and we’re going to do that. The action agenda is driving brand growth through an improving quantity and quality of all types of marketing, but led by great advertising.

Second, focusing on an insight-driven and refreshment-oriented value price pack architecture, and I’m going to get into the specifics of that.

Next is continuing our significant momentum that we’ve achieved over the last four or five years in the still categories. Through acquisition and organic brand development, we’ve become a powerful participant in the non-carbonated beverage business. And then finally, the sort of ultimate enabler of this, both at the top line but also in operating margin expansion and significant economic profit improvement, is the re-franchising of the bottling assets that we acquired from CCE. That we’ve been working together with our bottlers over the past few years to completely re-architect the U.S. bottling system for growth in the modern market that we’re competing in, in a differentiated way, but in a way that would allow the Coca-Cola Company to return to its more fundamental and basic concentrate model.

So, let me start with the core pillars, and this strategy is really not changed. The thing I want to emphasize, though, is that the Coca-Cola Company’s business is driven by its brands. The penetration, the frequency, the amount per serving, the consumer spend, with our brands, is the core value driver of our growth and our business.

The second one is our ability to turn that value into value for customers, and to focus on — and particularly in the United States, where it’s a tremendous number of the customers including the one that just presented in here, are deep and long-term partners of ours. And we do this business with them, and for them, and our ability to create value with them is a core lever in the value that we’re able to capture from our brands.

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And then finally, capability. Capability of our total system to sustain and repeat our success. So, let me start on the brands, and I’ll give you a little headline on sparkling and then I’ll get into some results. I would describe our sparkling strategy as a very massive and intense return to the fundamentals. The basics of brand building. What you see on the left of the slide is an outdoor board that’s up around the country now that focuses on the intrinsic, delicious, amazing taste of an ice-cold Coke.

The basic marketing is a key element, because Coke has a mysterious taste. And the ability to romance it, to celebrate it, to attract it, to sell it, to invite with it, is what makes Coke grow. It has been always that way, and in a contemporary, modern, digital way today, it is no less significant, and I’ll show you the results we’re starting to achieve.

Importantly though, the packaging architecture is important, and we talked a lot about packing over the years. But in this case we’ve actually sharpened our focus, and we have some key insights that are trend-based, that are based on the health and wellness trends, that suggest consumers’ strong desire for smaller packages, for premium packages that don’t give them too much liquid. They give them the ability to refresh and enjoy, but not necessarily to over-consume. And we’re well-set-up to take advantage of that trend, because of our proprietary packaging. And I’ll show you how that’s starting to work.

And then finally, we are building a one-to-one relationship. You’ll hear that from a lot of marketers now, is the capability of data and the ability of loyalty programs gives you the ability to communicate and understand, almost on a one-on-one basis, what consumers want, where they want it, and how you can incentivize, purchase and build your relationship with them.

But we’re also building relationships in a different way. Our industry has come together in a pre-competitive way. We sit on the same boards, we are working together to address the significant issues that are public policy issues that impact our industry. The Healthy Weight Commitment Foundation, the NGO that was made up of retailers and consumer products companies that work together to take 1.5 trillion calories out of the American diet, was built and led — the chair of the board is Indra Nooyi from PepsiCo, and I’m the treasurer of the Board. And we’re committed to work together with NGOs and government to help bring solutions to key issues, whether they be recycling or health and wellness. And our industry sees this pre-competitive cooperation as a critical element in building and sustaining a sustainable and healthy business going forward.

So, that’s our strategy. It’s quality and quantity of marketing, excellent package price, pack execution, intimate relationship with consumers, and pre-competitive energy with our industry to tackle the core issues that we face.

So, we put this in place very fast this year at the beginning of the year, with a lot of intensity, but we said it would take a little while. We said that this kind of change would not drive results right away, and that’s a theme of companies that are getting back to their basics. So, here are the results — and I want to spend probably the most of my time I’m going to spend, on this slide.

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The data on the left of the slide is Nielsen data through the month of October. It’s publicly-available. And what you see here is, retail sales change, all Nielsen-measured channels. The top one is for Brand Coca-Cola, the middle one is for the Coca-Cola Companies, carbonated soft drink portfolio, our sparkling portfolio, and then the bottom one is the industry with us in it.

So, you get a sense of this, and the strategy was put in place at the beginning of the year. We invested in marketing, used productivity to accelerate marketing, and what you can see is a pretty dramatic increase in the sales takeaway for Coca-Cola.

Now, that’s come through the full engagement of the strategy I discussed on the previous page, but it’s strong. In fact, it’s stronger than it really needs to be for Coke USA to play its role in the global jigsaw puzzle. But the marketing is beginning to work. We ran a promotion that many of you know in the third quarter called Share-a-Coke, that was very effective, but what you can see is in October, well after Share-a-Coke was over, the results accelerated further.

Now, gas is cheaper, the weather’s been better, marketers always talk about marketing in good weather and weather when the marketing’s not working. But nonetheless, you see the relationship of the brand to the industry and even to the total Coca-Cola Company. The 3% sales growth for our sparkling beverages since the middle part of the year, and sustaining and accelerating slightly, is an algorithm that works for us.

The package piece is probably the most kind of exciting refinement of our strategy that we’ve put in place. If you’ve listened to any of our earnings calls, Irial and I have said on each call that we have made a change in North America, and it’s an operating strategic change which is, that we’re going to capture price wherever we can see it in partnership with our customers. That no commodity increase will go unmet by a pricing action. You see that in our juice business today.

Our juice commodity picture, as all of you know, has been very, very rough, and we took price. We led price immediately, and we’ve done a good job of capturing it.

Well, similarly, in sparkling, we’re taking price. But I really want to push on this slide a little bit, because it’ll give you an understanding of the details of the strategy.

On the left, our 2-liters and 12-ounce cans. For the last three decades, those packages have been the massively-promoted, somewhat deflationary, almost commodity-oriented part of this category. It’s had itself in kind of a knot of price promotion and growth, and price elasticity, and if you get price you can’t get volume, and it’s been a pretty tough picture.

In the middle is where the consumer trend is happening. It’s where the special Coca-Cola packaging is happening. And on the right — and the right is a little misleading – the immediate consumption package is a 20-ounce, but we actually include our 16-ounce packages which have been a true engine of explosive growth in convenience stores and other immediate consumption channels.

But what I’ve given you below is, the price per occasion, and this is really important. Because this is going to help you understand the road to success in North America.

Look at the 12-ounce can. The 12-ounce can is $0.31, that’s year-to-date, what it costs at retail, in all the retail channels. Now, it’s usually sold in a 12-pack or 24-pack, so you don’t recognize that price, but that’s the per-can price.

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