HOUSTON – A year after spending $12.3 billion to make the biggest acquisition in its history, Coca-Cola is in this Texas city to send a message — if its products seem to be in every nook in the nation, it wants to be in every cranny, too.
Being ubiquitous is not enough after the world’s largest soft-drink company bought the North American operations of its largest bottler, Coca-Cola Enterprises. To get the most out of the deal by revving up sales and becoming more efficient, Coke wants to flood the domestic marketplace with its broad spectrum of brands — from juices to energy drinks to the fizzy sugar water its named for.
The company has been gearing up in Houston and it will soon be doing so in its hometown and other cities, too, executives said.
There’s a lot riding on expanding the footprint. Coca-Cola has seen its North American sales turn around over the past year, but it wasn’t that long ago that business was down and some shareholders and analysts were wondering if the magic was lost.
Consumers have been drifting away from carbonated soft drinks, partly because of America’s obesity epidemic. And the beverage maker has had to push back against moves to add a sales tax on colas as a way to get the country to slim down.
Its biggest competitor, PepsiCo, has struggled lately. But Coke leaders know their arch-rival is just one move away from regaining its footing and picking up any market share Coke takes away.
Meanwhile, as in most mergers, the integration of CCE operations is no easy task, given the 59,000 employees Coke absorbed. Coke is trying to unwind a complex U.S. system that was fraught with issues.
“There were complications, there were duplications, there was time lost, there was red tape,” Coke CEO Muhtar Kent said when the merger closed.
Executives acknowledge issues remain, including mistakes in filling orders and shortages of some drinks.
Leading a group of analysts and journalists to customers throughout Houston — including gas stations, grocery stores, shopping centers and college campuses — Coke officials showed the direction the company is taking. The company chose Houston because officials said the city has moved quickest to the model it plans to deploy across the country.
At every stop, Coke products were highly visible. Dasani was next to the bananas, Vitaminwater held prominence in organics and tortillas were surrounded by giant 3-liter bottles of Coke. Special offers awaited Diet Coke fans in coolers at the CVS, while Fanta of every flavor packed the Family Dollar stores.
In many stores there were banners, outdoor placards and 25 or more displays of the company’s line of beverages.
“Coke products have been sold in almost ever retailer in the country for a while,” said John Sicher, editor of Beverage Digest. “They are trying to get them into more points of sale, to build auxiliary displays around the store.”
Julie Francis, chief commercial officer for Coca-Cola Refreshments and former vice president of sales and marketing at CCE, said the consumer is dictating the changes. Shoppers no longer follow a linear path in stores, making it unrealistic to rely solely on he beverage aisle for sales.
Coke wants to be in the deli department for the father grabbing a quick sandwich or near the pre-made dinners for the working mother picking up a meal in a dash at the end of the day, she said. The idea is to make it easy for a consumer to buy a Coke product — or to capitalize on an impulse.
The move is an attempt to replicate Coke’s strategy in Latin America, where avoiding the company’s products is difficult. Acquiring CCE was key to making that work, company officials said. Absorbing the bottler into Coke’s North American operations allowed it to streamline how and what it was delivering. As separate companies, for example, CCE delivered the company’s carbonated, energy and sport drinks while other products — juices and some teas and water — were handled by Coke North America.
Not only does the streamlining — which Pepsi also has been implementing in its system — simplify operations, it also can help the retailers that sell the drinks.
For instance, when CCE and Coke North America were separate, store operators had to deal with multiple people when supplies ran low. An operator running low on Minute Maid couldn’t ask for fresh stock from someone delivering Diet Coke. Today, a store’s Coke representative is responsible for all of the company’s brands. Coke has developed a checklist that each representative must complete and a district manager then gives a Right Execution Daily or “RED” score to determine whether goals are met.
Afroz Painter, owner of 10 convenience stores in metro Atlanta, said he has noticed the change. He said deliveries have been more timely and he is dealing with the same Coke representative, which makes solving issues more efficient.
“They are not out of products like they used to be,” he said. “It wasn’t a big problem before, but it’s nice not to have it at all now.”
The direction also has won approval of analysts. Shortly after the Houston trip, Credit Agricole Securities analyst Caroline Levy wrote: “Coke remains committed to its brands, where it has continued to invest via marketing and innovation. At its recent Analyst market tour, Coke highlighted how consumer segmentation is also a key piece of its brand building strategy, using brands, packaging, pricing and channel placement appropriate for its various consumers and their usage occasions, helping lift loyalty and pricing. We believe this is the right approach.”
Analyst Carlos LaBoy of Credit Suisse said: “The integration has gone faster and more smoothly than maybe we would have anticipated.”
That’s not to say there haven’t been issues. Coke officials admitted there are areas where improvement must be made. For example, the company ran a test to gauge the capabilities of its expansive network of more than 400 warehouses by asking each to complete an order without omitting an out-of-stock brand. Only eight warehouses in Pittsburgh had every drink in stock.
And while the numbers of orders filled without a mistake has risen from 67 percent in September 2010 to 76 percent today, it’s still far away from the company’s goal of the “zero defect mentality” leaders are trying to create.
LaBoy said its critical that Coke gets it right.
After betting $12.3 billion, Coke officials know that. In Houston, they repeatedly said the integration was a work in progress. For every plan they laid out, they said it would be enhanced as they move forward.
“What progress we have made is small in comparison to the opportunity for improvement that remains,” Sandy Douglas, Coke North America president, told the Houston visitors. “We don’t see anything that’s happened today or yesterday as any guarantee of tomorrow.”
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