Muhtar Kent may be losing a little bit of his swagger.
When he took the reins of Coca-Cola in 2008, Kent seemed poised to take the beverage giant to the next level. He turned the company’s dismal sales in North America around in 18 months, began laying the groundwork to buy the nation’s largest soft-drink bottler for more than $12 billion — Coke’s biggest acquisition ever — and vowed, with much pomp and circumstance, to double the company’s revenues by 2020.
But now, that Midas touch is starting to show signs of tarnish.
International case sales are slowing. Coke’s carbonated beverages in North America remain under sustained attack by health advocates and changing consumer tastes. And last quarter for the first time, North American case sales for the company’s non-fizzy sector of waters, juices and teas fell 1 percent.
What’s more, Coca-Cola says it expects to announce job cuts — analysts speculate it could amount to about 2,000 workers globally — by early next year. It’s part of a broader effort to cut $3 billion in costs annually.
In a recent conference call with industry analysts, the usually ebullient Kent was more subdued as he acknowledged that the goal of doubling revenue, outlined in the company’s “2020 Vision,” is getting a little blurry.
“Importantly, the goal of doubling system revenues is one our system can always aspire towards. But it is not a goal to be pursued at any cost over a fixed time frame, and we are realigning our expectations based on where we are today and the outlook for our industry,” he said.
In other words, Coke is in reset. And how Kent, 61, guides the company during this period could be pivotal for his future.
“Change is hard, the coming year will be complicated, but Muhtar gets what has to be done,” said John Sicher, editor and publisher of Beverage Digest.
That means more people could lose their jobs in Atlanta — Coke’s headquarters — which has already been hard hit by 975 job cuts at Turner Broadcasting.
Coke said last week it did not know how many positions could be cut or in what cities the trims will be made. The company employs 130,600 people globally and nearly 8,900 in metro Atlanta.
“There will be job impacts, including job losses, and we will be as thoughtful and compassionate as possible with our associates as we make these difficult decisions,” spokeswoman Ann Moore said in an e-mail.
Despite the troubles, Kent’s challenges need to be put in context. Coke’s sales, earnings and profit margins are still strong and the power of its brand consistently ranks among the highest in the world. Even in this tough year so far, revenue for the first nine months was $35 billion, which produced $6.3 billion in profit.
But in the beverage business, slowing growth in the number of cases sold around the world raises alarm bells. Coke has not been able to hit its long-term target of 3 percent to 4 percent annual growth in case sales since 2012, driven down, in part, by a lackluster performance in North America.
Sandy Douglas, leader of Coke North America, said the company is adjusting to the new realities while ramping up innovation and marketing.
The company has been adapting to consumers, Douglas said, by increasing the variety of can and bottle sizes, such as the 8-ounce soda for those who are calorie conscious.
Over the long haul, Coke believes it will be able to raise prices with the right product and packaging mix to grow profits — even in the face of stalled case volume. That’s why it’s focusing more these days on achieving revenue growth in the mid-single digits, instead of on case volume alone.
On the innovation front, Douglas cited Coke Life, a new mid-calorie drink made with natural sugar instead of high-fructose corn syrup, which began hitting shelves nationally this month after being in limited release in select stores. And the Share-A-Coke program, which allowed consumers to have their name put on bottles, was a big hit over the summer, and the company plans to bring it back early next year.
Under Kent’s leadership, Coke launched the popular Freestyle machine that dispenses more than 100 brands at restaurants, theaters and fast-food eateries.
And Kent isn’t afraid to follow new trends. After startup SodaStream, which allows consumers to make carbonated beverages at home, became a hit, Coke bought a stake in Keurig owner Green Mountain Coffee Roasters that offers a similar product.
But there are many thorny issues remaining for Kent to confront.
Sodas sales, which peaked in the 1990s, continue to decline or flatten as consumers eschew high calorie drinks and their diet alternatives. Meanwhile health advocates have successfully linked the country’s expanding waistlines to sugary drinks in the minds of many consumers.
And in a blow to the industry, Berkeley, Calif-residents on Tuesday passed the nation’s first voter-approved tax on sugary drinks. The beverage industry, calling the taxes regressive, has fought hard against such initiatives, which have been popping up around the nation in the past few years. The reason for the industry’s worries: sales nosedived in Mexico after the country, one of the globe’s biggest consumers of sugary drinks, began enforcing a similar measure this past January.
Additionally, like some of the major beer companies that are struggling because of the growth of craft beers, non-alcoholic beverage makers are facing an avalanche of products that give consumers unparalleled choices. And the more options consumers have, the more they try something other than what they traditionally drink.
Coca-Cola’s legendary marketing muscle also hasn’t been able to stem the slide in volume growth. While its current “Open Happiness” campaign won the prestigious Cannes Creative Marketer of the Year, Kent said after its disappointing third-quarter earnings that marketing needs to be more effective. Two days later, Chief Marketing Officer Joe Tripodi announced his retirement, a push that came from the top, industry observers said. Tripodi will be replaced by Marcos De Quinto.
Not all of Kent’s challenges are a result of changing consumer tastes. A heavily criticized executive compensation plan at this year’s annual meeting was a self-inflicted wound, industry watchers said. The package, which billionaire Warren Buffett complained about privately to Kent and other Coke leaders, allowed the company to issue roughly 40 million shares and 300 million stock options over the next four to 10 years to management.
Initially, Coke tried to defend the plan with a series of emails to the press, but eventually walked it back and revised it.
David Winters, CEO of investment firm Wintergreen Advisers and one of the most vocal leaders of the revolt against the compensation strategy, thinks it may be time for new leadership at Coke’s helm.
“We think Muhtar is very personable, but has not done a very good job,” Winters said. “We think significant change must come to Coke. We don’t think he is the person to be sitting in that seat at Coke any more.”
But most analysts and company observers think Kent can right the ship.
“Muhtar is very aware of the growth challenges facing the company and the need to make changes,” Beverage Digest’s Sicher said. “The company has a new productivity program. It just appointed a new chief marketing officer. It is reorganizing its field structure in the U.S. It has made investments in Keurig Green Mountain and Monster. It is pursuing innovation research.”
Joseph Agnese, an analyst with S&P Capital IQ, said those changes won’t happen over night. Coke sells its products in every country in the world but North Korea and Cuba. A company with that much territory can’t change direction on a whim.
“It takes time,” Agnese said. “It’s a large company with embedded drinks. It’s a multi-year strategy.”
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