The cuts will begin in the second half of 2017 and continue into 2018 with the majority of cost savings coming from corporate job reductions, the firm's supply chain, marketing, and changes to its operating model.
'Leaner corporate organization'
Commenting on the announcement during the company’s Q1 2017 operating results, James Quincey who will become CEO on May 1, said it is putting ‘in place a leaner corporate organization’.
“While this will clearly be difficult for those impacted, these changes are critical for us to create an environment where we can accelerate growth and become the consumer-centric, total beverage company we need to be in a fast-changing world,” he said.
“We do not take decisions about jobs lightly and we are committed to treating our people with dignity, fairness and respect throughout this process.”
Coca-Cola and rival PepsiCo's sales have taken a hit as consumers in North America and Europe have increasingly turned away from sugary drinks.
The firm said it was increasing its cost-cutting target by $800m in annualized savings, and now expects to save $3.8bn by 2019.
Coca-Cola added it expected its full-year adjusted profits to fall by between 1% and 3%, compared with the 1% to 4% decline it had forecast in February.
“In February, we shared with our people that we are in the process of designing a new operating model to support our growth strategy as we transform our business into a true total beverage company. And that this new operating model would anticipate our being a smaller company post-refranchizing, leverage new technologies and have a leaner, more focused corporate organization,” added Quincey.
“This new structure we are putting in place is also part of creating the culture and speed necessary to support our new growth strategy. While there will be savings and job reductions associated with these changes, our first goal is to reduce complexity, simplify processes and speed decision making.”
$800m annualized savings
The company said it will achieve an additional $800m in annualized productivity savings by finding new ways to achieve more output with less input for any task or activity, or deciding to no longer do it because business needs or priorities have changed.
“This is our objective, to free up resources to reinvest in growth as a consumer-centric total beverage company,” said Quincey.
As the firm transforms into a total beverage company it says it is shifting from a ‘category cluster’ model to focus on five beverage categories – sparkling soft drinks; energy; juice, dairy and plant-based drinks; water, enhanced water and sports drinks; and tea and coffee.
“While we’ve competed in each of these categories at various levels around the world for years, we are now being more disciplined about our investments across these categories globally to broaden our consumer-centric portfolio,” said Quincey.
“This work includes launching new products through innovation, changing recipes for existing products to reduce added sugar, and acquiring new, on-trend brands in categories like tea, coffee and plant-based drinks.
“Together, these efforts will build a portfolio for the long term that closely matches what our consumers and customers want.”