Between April and June, Coca-Cola’s revenue grew 3% to $12.4 billion – surpassing the $11.8 billion expected by analysts polled by FactSet, and earnings per share increased 7% year-over-year to 84 cents compared to 81 cents.
The increase reflects a combination of hefty price hikes, including an average increase globally of 9% in the quarter on top of an overall 13% increase in the previous quarter, and a 2% increase in unit case volume.
While this seesaw tipped in the other direction in North America, where volumes dropped 1% as the average price of products sold in the region increased 11%, company CEO James Quincey said he is optimistic about the company’s ability to “keep as many consumers in the franchise as possible” as “times get tougher” by using AI and other digital technologies to improve marketing, innovation and price-pack architecture.
“We are going to continue to press ahead with the marketing, with the innovation, with the price factor, with the execution. That is the way we earn the right to take a reasonable level of pricing,” he said.
Digital tools, including QR codes, enhance marketing to drive sales
For example, Quincey explained, The Coca-Cola Co. is driving volume despite price hikes in part thanks to its recently established Studio X, “which is our digital and organizational ecosystem that integrates marketing capabilities and connects them to our global network structure.”
He added, “We are producing tailored content at scale and with speed and are able to measure impact in real time.”
For example, in the second quarter, Coca-Cola partnered with Marvel to create nearly 40 limited edition collectible graphics and QR codes on packaging that offered consumers “unique augmented reality experiences,” Quincey said.
“As a result of this and other growth initiatives, Trademark Coca-Cola grew volume and won volume and value share during the quarter,” he said, adding, “Our marketing and innovation transformation journey contributed to Trademark Coke winning creative brand of the year for the first time ever at the Cannes Lions in June. We won 18 different awards at Cannes Lions.”
He added, Coca-Cola is particularly focused on marketing support for innovations launched just over a year ago.
“We know that innovations that grow in the second year have much greater odds of multi-year success and deliver far greater impact. So, we focused on sustaining investment and have consistently improved second year performance success rates in each of the past four years,” including for Sprite and Fanta reformulations and Minute Maid Zero Sugar in North America, he explained.
AI reinforces pricing through personalized messages
The company also is piloting an AI-based price pack channel optimization tool to “better tailor solutions to drive incremental volume and revenue,” said Quincey.
It also is using AI to reinforce sales despite price hikes through personalized messaging.
“Early results show that the tool helps improve both our offerings, and speed to market. Our system is also piloting an AI-driven initiative to push personalized messages, to retailers with suggested items based on previous orders and market data. Initial pilots indicate that retailers who receive the messages, are over 30% more likely to purchase recommended SKUs, which results in incremental sales for our retailers and the system. We're just scratching the surface of what's possible, and we're taking steps to seize opportunities down the road,” he explained.
Consumer landscape remains fraught, but Coca-Cola is optimistic
Coca-Cola’s experience is a sharp deviation from that of its longtime rival PepsiCo, which earlier this month reported lower-than-expected revenue due to volume declines of 4% and 3% in it is North American snack and beverage businesses, respectively.
Like Coca-Cola, PepsiCo reported declines in North America, although to a much higher degree with volumes dropping 4% in its beverage business.
Conagra, on the other hand, reported recovering volume sales, with snacks up 0.4% in its fourth quarter, and frozen down only 0.4% in the same period from a year ago, when volume sales were down 3% year-over-year.
Both Coca-Cola and Conagra attributed their recovery to merchandising, advertising and innovation that took into account lingering consumer concerns about inflation and ongoing value-hunting behavior.
Consumer hesitancy hit Coca-Cola hardest in foodservice and away from home, which Quincey said the company plans to offset going forward by offering more food and beverage combos.
The “softness” in Coca-Cola’s away from home business is not surprising, he added.
“We were already calling out some softness in away from home, in the back end of last year, and so I would characterize it more as there has been a slow build … rather than anything major or abrupt and it is not like it is accelerating off a cliff,” he said.
Despite struggles away from home, Coca-Cola is optimistic about the remainder of the year and raised its guidance accordingly. Now it expects organic revenue growth of 9% to 10%, compared to previous projections of 8% to 9%.
