Coca cola

Why Coca-Cola has lost its fizz
Unwillingness to innovate is blamed for Coke’s weakened position in the cola war

he 1980s and 1990s were Coca-Cola’s glory years. Under legendary CEO Roberto C. Goizueta Coke stock soared 3,500 percent over 16 years, with little real threat suggested from chief rival PepsiCo. Since Goizuata’s death in 1997, however, the drinks giant’s cup has not been quite sobountiful. In 2003, Coca-Cola’s value fell by 4 percent to $67.3bn (£37.7bn), sales of Coke Original in the UK fell by 5 percent, trust in the brand fell by 3 percent to 52 percent and shares plummeted. By contrast, Pepsi’s sales and earnings have increased notably and it is putting more pressure on its nemesis than ever before. But why this shift of fortunes in the so-called cola war?

TParalysis where others move
Coca-Cola analysts have pinpointed a variety of reasons why the company has lost its fizz, the most common being a suggestion of paralysis. Since Goizueta there have been no real changes to the company’s strategy at senior management level. This is partly, it is thought, because the former CEO was so successful that any alternative approach seems risky. ‘‘They’ve been theirown worst enemy, a casualty of their own success’’, explains long-term Coke analyst Emanual Goldman. What once worked so well for them no longer reflects constantly changing market conditions, namely increased competition from other key players and a more health-aware consumer base. Hence, Coca-Cola is frequently criticized for failing to innovate. Yet carbonated soda drinks still bring in 86percent of the firm’s turnover, and so Coca-Cola remains committed to this strategy. Pepsi, on the other hand, has successfully moved into snacks, energy drinks and bottled water – an admission, perhaps, that it is cola was failing to compete with Coke, but also demonstration of a strategy that was flexible to demands of the market. Sales of Diet Coke, now higher than Coke Original in the UK, are justone indication of the change in health-awareness of the average consumer, who are increasingly turning to low calorie, non-carbonated drinks. With sports drink Gatorade, Aquafina water and Tropicana fruit juices in its portfolio, PepsiCo has most bases covered. Further, it takes advantage of its move into snacks with its Frito-Lay product by arguing it can offer better margin and profit potential tolarge supermarkets, thereby demanding more shelf-space. Though it is resolutely a drinks-only company, Coca-Cola has in fact attempted some diversification into different products. For the most part, however, this success has arguably cannibalised some of the company’s own sales: there are now 11 types of Coke on sale, including vanilla, lemon and lime flavours, but these often achieve only morechoice for the same consumers. Coca-Cola’s attempt to launch a bottled water brand into the UK, which would have attracted a different demographic, was a disaster. The firm claimed that Dasini had the technology at its fingertips to transform tap water into a more preferable option than spring water. The discovery of illegal levels of the carcinogenic chemical bromate in 500,000

DOI10.1108/02580540610635898

VOL. 22 NO. 1 2006, pp. 19-21, Q Emerald Group Publishing Limited, ISSN 0258-0543

j

STRATEGIC DIRECTION

j

PAGE 19

bottles of the water, which was actually tap water from Kent, though, soon destroyed the brand’s credibility. In a slightly more successful launch, Coca-Cola introduced Powerade, to rival PepsiCo’s Gatorade, but it has claimed only 7.9 percent of themarket. If the company still remains convinced that diversifying into new areas is not the answer, then what is? According to current CEO Neville Isdell, ‘‘We are not talking about a radical change in strategy. We are talking about a dramatic change in execution.’’ Yet what exactly he means by this remains somewhat hazy. Among Coke’s commentators are many who have attacked inconsistent strategies, the...