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Coca-Cola Reduces Profit Targets
David Teather
The Guardian
November 12, 2004
World's largest soft drinks group admits to missing out on healthier
trends
Coca-Cola yesterday sharply reduced its long-term profit and sales
targets, reflecting the entrenched slump that the world's largest
soft drinks firm has found itself in.
The company cut profit growth targets for 2006 and beyond to 6% from
a previous range of 8% and 10%. Long-term sales growth forecasts have
been pared back to 3% to 4%.
In a lengthy presentation to investors in New York, chief executive
Neville Isdell struggled to explain the company's problems and offer
possible solutions. There are "no quick fixes" the 61-year-old Irishman
said. "We have under- performed since 1997."
Mr Isdell, who was hired in May, described the new targets as "realistic".
He admitted the company had been flat-footed in failing to respond
to changing consumer trends. He said the firm had been especially
slow in pushing into the bottled water, fruit juice and other non-fizzy
drinks that health-conscious consumers were demanding. "The emerging
consumer trend in health and wellness were missed," he said.
Coca-Cola suffered a public relations disaster when it launched its
Dasani water brand in Britain. First consumers balked when the press
realised it was just distilled tap water. A health scare then forced
the company to pull the product from shelves.
But the mistakes included the core business. "We stopped driving carbonated
soft drinks, and we're the world leader," Mr Isdell said.
The problems included the firm's advertising and marketing. The chief
marketing officer, Chuck Fruit, said: "Advertising has not been as
consistently effective as it needs to be in recent years." Since 2000,
he said there has been "too much local stuff" and "too little attention
paid to brand-building iconic advertising".
Mr Isdell referred to the "halo effect" of memorable advertising,
like the 1970s spots that used the song, I'd Like To Buy the World
a Coke.
The company is planning to spend an additional $350m to $400m on marketing
annually from next year, with most of it directed toward core brands.
Coca-Cola does not publish how much its total budget is. The firm
also makes Fanta and Sprite. "We can't save our way to prosperity,
we have to grow our way to prosperity," Mr Isdell said.
The company will also direct spending toward the rapidly emerging
markets in China and India, as well as training to address an apparent
lack of management depth. It expects weakness in core markets, including
north America and Germany, to continue next year.
Mr Isdell said the soft drinks business would fail to meet its restated
targets in 2005. It will not "deliver the kinds of returns that are
going to be acceptable to me, as a shareholder", he said, adding that
he remains confident there is still "strong growth ahead".
Shares in the company were down 51 cents in mid-day trade on Wall
Street, falling to $40.66. The shares were worth nearly $70 five years
ago. In the same time frame, PepsiCo shares have risen steadily from
the low 30s to $51.53.
PepsiCo has been more adept at managing consumer trends. It has the
No 1 bottled water brand in the US, Aquafina and the top energy drink,
Gatorade.
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