Coca-Cola's focus on still beverage portfolio pays off in Q4, while soda sales slide
The company’s Q4 and full-year earnings report was “better-than-expected,” despite net revenues declining 6% for the quarter and dropping 5% for the full year, settling at $41.9bn.
Coca-Cola also experienced strong organic revenue growth in developed markets, such as North America.
James Quincey will be taking over as CEO for Coca-Cola this year, succeeding Muhtar Kent who will remain chairman of the company.
“Our flagship market of North America grew net revenues 8% for the quarter and 4% for the year, outperforming total retail value growth for both the North America nonalcoholic ready-to-drink beverage industry and US consumer packaged goods companies," Coca-Cola CEO Muhtar Kent said during the Q4 earnings call.
Still beverages outperform carbonated portfolio
Full year still beverage volume grew 3%, primarily driven by growth in water which included double-digit growth in Smartwater, and Vitaminwater grew mid-single digits.
Its non-carbonated drinks portfolio, which includes bottled water, juice, tea, and dairy beverages, rose 2% overall in the fourth quarter, helping offset the 2% decline in soda volume sales.
The company experienced a “successful” launch of Smartwater and Honest Tea in Western Europe and has plans to further expand market reach in 2017.
For the full year, sparkling beverage volume growth was slightly positive with a 1% growth in volume sales for soda including Sprite and Fanta, which offset a decline in Diet Coke and a 1% drop in global volume sales of soda in Latin America caused by high levels of inflation.
Volume in the dairy category grew double digits with the fairlife label performing particularly well, according to Coca-Cola.
“In the US, our investment in fairlife milk is paying-off,” James Quincey said during the recent earnings call.
“It captured over one-third of the retail bottler growth in value-added dairy during second year on the markets.”
Sugar-reduction and reformulation: key strategies for soda in 2017
Quincey said the sparkling soft drinks will remain a key focus for the company in 2017.
“Within our sparkling soft drink portfolio, we are reshaping our growth equations to continue to drive revenue growth,” Quincey said.
“We'll do this through a continued mix of great marketing, great execution combined with helping reducing over-consumption of added sugar.”
To achieve this, Coca-Cola will continue to reformulate products to reduce sugar content, emphasizing its one-brand strategy to expand zero sugar products, and drive up the availability of small packs for its soda portfolio.
The company has seen some success in sugar-reduction and reformulation strategies with Coca-Cola Zero seeing double-digit volume growth in Western Europe.
Preparing for headwinds against carbonated drinks
Coca-Cola management is anticipating a similar year as 2016 in terms of organic growth, predicting a 3% increase in organic revenue.
“We expect the global environment in 2017 to be roughly similar to that of 2016 with continued macroeconomic challenges in the emerging and developing world, and continued growth in the developed world,” Kent said.
The company is also bracing for continued headwinds for carbonated beverages, as the consumer trend for healthy still beverages continues to grow.
