The COVID-19 recovery has been good for Coca-Cola. Globally, last quarter the sparkling beverage giant saw net revenues expand 16% to $10.5 billion. Organic revenue (acquisitions/divestitures taken out) slightly outpaced overall growth, nearing 18%. Active in hundreds of international markets, Coke has maintained operating margins above 31% via price increases, advanced revenue growth management (RGM), and commodity hedges. Management signaled that the firm may continue to raise prices despite mid-single-digit commodity inflation. Their position is that it’s better to lose some consumers through high prices than to enter a “recession being behind the curve.”
Revenue Growth Management at Coca-Cola
One of the more interesting things this quarter was Coca-Cola management’s insight into its advanced RGM techniques. Like General Mills, the Atlanta-based beverage company is leveraging cross-functional teams to tailor product offerings and prices. The result is some pretty cool initiatives abroad.
The company recently rolled out refillable bottles in Latin America, where an ESG opportunity quickly becomes a comparative advantage. “The refillable, reusable packages tend to give you the opportunity, especially in larger sizes, to have a lower entry price point,” Coca-Cola CEO James Quincey told investors this week. The packaging and low price point caught on. Refillable bottles now account for 27% of sales in the region. In India, the company leveraged similar insights to add 500 million incremental transactions. According to the company’s press release, 70% of the transactions are attributable to “returnable glass bottles and affordable, single-serve PET packages.”
It’s doubtful that selling soda in reusable bottles will singlehandedly reverse climate change, but it’s still exciting to see a company introduce profitable and targeted sustainable changes at scale. However, those changes haven’t penetrated Coca-Cola’s most developed market, North America. The structure of Coke’s North American operations may be dictating the RGM possibilities.
In Q1 of 2022, North American operating revenue boomed to $3.6 billion, up nearly 22% from the previous year. Coca-Cola does not attribute the growth to any efficiency or sustainability program. Rather, management views smaller serving sizes (a higher per-ounce price) and pricing as primary drivers. According to internal estimates, mini can sales measured in retail dollars saw an increase of 45%. Hard to argue that this is as exciting and re-thinking the firm’s distribution.
Coca-Cola’s North American operations are potentially driving the strategy. Domestically, the firm owns very few bottling plants. Instead, it focuses on manufacturing syrup at approximately 30 facilities and relies on a network of 90+ third-party bottling operators to bring the finished goods to consumers. The problem for the world is that it seems any sustainability program in North America must balance the interest of the bottlers, whose modern existence is dependent on a steady stream of non-reusable finished products exiting their facilities.
It wasn’t always that way. In the 1960s, 94% of Coca-Cola products were sold in reusable containers. Eventually, the high production and transportation cost of glass ate too much into margins and the company transitioned to plastic bottles. Today, those same pressures may be limiting Coca-Cola’s RGM options. Pack size, promotions, and price seem to dictate strategy. Quincey appears to agree. “We work with our system, our bottling partners,” he told investors, “to make sure we protect and sustain the margin structure over time.”