The Breeze With Beverage Digest
The Breeze With Beverage Digest
Episode 13: Is Disney's Marvel the Answer for Coke?
In today's episode, industry expert John Sicher joins Beverage Digest Editor and Publisher Duane Stanford to explore the recent shift in Coca-Cola's and PepsiCo's soft drink marketing strategies, exemplified by platforms like Coke Creations. What's going on and will it work?
Hello and welcome again to the Breeze with Beverage Digest. I'm your host, dwayne Stanford. This is where we bring you into the kinds of industry conversations that we have every day at Beverage Digest. We dissect what's happening, connect the dots and ask the most important question what does this mean? With me today is our regular podcast contributor, john Sitcher. John has spent years following the beverage industry, including as a former publisher of Beverage Digest. John, in more recent years, has consulted for companies including Coca-Cola and Body Armor. He's also served as an expert witness in beverage-related court cases.
Speaker 2:John hello Dwayne good to be back. Happy to see you All. Well with you.
Speaker 1:Yeah, doing great. I was actually in New York recently and spent some time with Big Geyser. They did a trade show for some of the brands that they distribute Wrote about it in this past issue last week and also got a chance to do a market tour. Look at this insane Manhattan market that you talk about all the time. You know we've talked about this over the years but it's just incredible. Kind of you know what a battle that market is and just the things that they deal with up and down the street and just there's so many stores. You know all a battle that market is and just the things that they deal with up and down the street and just there's so many stores, you know, all over the place. I mean it must have been a fun market to kind of watch over the years.
Speaker 2:It's a fun market. It's a complicated market. It's got a very interesting history and you know there's no doubt that you know during the years that I covered this industry for Beverage Digest and in the years after that, big Geyser's strength and executional ability in New York City is very apparent.
Speaker 1:They do a very good job. Walk around with somebody, you really kind of get to know kind of what they're really about, you know, because you can only sort of put on the good face for so long. But I was very impressed with these guys. I mean, they really I don't know what they're doing over at Big Geyser, but they're somehow, you know, really inspiring these guys to just get into it like real competition and it's almost like a sporting event to them. It's pretty wild.
Speaker 2:You know there were, historically at least going back 20 or 30 years. There were two really great independent distributors that basically did a great job in building new brands. One was Big Geyser in New York and one was Haralambos in Southern California and they're really responsible for some of the beverages we see today getting off the ground and launching. Well, big guys are still going strong in new york and doing a great job no doubt you've got kalil out there in arizona as well.
Speaker 1:That's another one that just really kind of helped put some beverages on the map and in parts of this country, uh, amazing distributors. Um, so right now, john I, as we speak, I am sipping on what is called a k-wave limited edition flavor coca-cola, zero sugar, and this thing is billed on the can as being a fruity fantasy flavored Coca-Cola. And I've also got happy tears, drops of joy. And this is another Coca-Cola, it says on the can. It's got a touch of minerals, which sounds a little bit like Dasani. I think Dasani's package says that too, but indeed, happy tears taste a little bit like tears. You know, that's kind of the point. So these are part of the Coca-Cola Creations program that was launched by Coke in 2022. And here's how Coke describes this innovation platform by tapping into emerging technologies, collaborating with artists and designers and creating experiences across digital and physical worlds. Digital and physical worlds Coca-Cola Creations infuses the iconic Coca-Cola brand with new expressions of creativity and cultural connections, allowing fans to experience the real magic of Coca-Cola, real magic being, of course, the global Coca-Cola campaign marketing platform. Here now in the last couple of years. Platform, uh, here now in the last couple of years.
Speaker 1:Just last week, coke also launched a limited edition collaboration with disney, uh, and this is a collaboration with disney's marvel universe and this is, you know, a global series of films based on the marvel comic books uh, with all the characters from the comic books, and they've created these collectible, limited-time offering cans and they feature a few dozen Marvel Universe characters. And this is basically the stated play with the co-creations and the Marvel collaboration and some of the other things that they're doing is to reach young consumers and what they want to do is attach the brand to those young consumers' affinities. And, of course, this is more important than ever, because the battle for Coca-Cola and Pepsi these days is really more about keeping people in the category, as volume has declined for decades, as you and I have talked about. You know. I guess I'm wondering. Just to start.
Speaker 1:I kind of wanted to get into a conversation I mean we've had the conversation before. You know, it's always a very important conversation the extent to which Coca-Cola is marketing their products in a way to gain new consumers, to create brand love, etc. To gain new consumers, to create brand love, et cetera. I mean that's just been sort of this decades-long discussion when it comes to these soft drink companies. I'm wondering your take on that these days. What do you think about some of these marketing programs?
Speaker 2:You know I have a great deal of respect for both Coke and Pepsi and I worked with them for years and worked with their executives. So I hate to throw cold water or, in this case, cold soda on this discussion, but I think that if you'll allow me, I'd like to just and carbonated soft drink volume at Coke and Pepsi have declined double digit. Per capita consumption is down by about a third. It goes back Dwayne to the late 1990s and early 2000s. A couple of things happened.
Speaker 2:Couple of things happened. One was that in the late 90s, very late 1990s, early 2000s, the Coke and Pepsi, having not raised prices much for many years, decided they needed to raise some pricing in carbonated soft drinks. At the same time, bottled water started emerging in soft drink-like packaging and also at the same time, the concerns over sugar, diabetes, obesity and the artificial sweeteners started raising their ugly heads.
Speaker 2:The third thing that happened was PepsiCo completed its acquisition of Quaker Oats, including Gatorade, and put a huge push on marketing and grew that brand really strongly. So you had this perfect storm back in the late 1990s and early 2000s of the companies taking up carbonated soft drink pricing, concerns about sugar, artificial sweeteners raising their heads, bottled water started emerging as an alternative in convenient soft drink-like packaging. And then, of course, pepsico's huge and successful push in the early 2000s for Gatorade, which in my view definitely sucked some volume away from carbonated soft drinks. So I think today what Coke and Pepsi have and KDP is a product problem, not just a marketing problem. And in my view, dwayne, when you've got a product problem, the marketing has to address the product problem. And I certainly understand the strong appeal of these Marvel characters. I don't think that is going to basically address the problem of the continuing declines in volume and per caps.
Speaker 1:It has been pretty stunning. We did some analysis based on Beverage Digest data and if you look at the number of cases that were lost from 2001 to 2021, pepsi lost, you know, about 1.1 billion cases. Coke lost about 841 million cases. A lot of that went to other products they carry, of course, but that's what's happened with carbonated soft drinks. You know they've also shifted in recent years to this revenue growth management model where they're really, you know, paying. I mean and they've said this they most look at organic revenue growth.
Speaker 1:Volume has no longer the measure, or hasn't been for a number of years, the measure by which you know Wall Street even looks at the companies. But you know, as we've talked about in other podcasts, that which you know Wall Street even looks at the companies, but you know, as we've talked about in other podcasts, that's you know right now, with the pricing environment, with decelerated pricing growth, that's going to become more and more important in terms of how they manage volume. So far this year they seem to be relatively stable on volume. So I guess the concern is what happens in the coming quarters and maybe the next couple of years, and the extent to which these programs like Marvel and Co-Creations, which are clearly geared to recruit new consumers. The extent to which these work or not for Coca-Cola and, of course, pepsi's got similar efforts going on as well is going to be really key right.
Speaker 2:Yeah, look, in the last two decades they've lost about 25% of their volume, coke a little less. The category's been down about 25%. Coke's lost about 19%, pepsico's lost over 30%, and that's in the last 20 years. So now let's fast forward in the last 20 years. So now let's fast forward over the next 20, 40, 60 years. If they lose 25% of their volume each 20 years, as they did in the last 20 years, for the next several sets of 20 years, they're going to end up in 50 or 60 years.
Speaker 2:With these carbonated soft drinks being very niche products selling very small amounts of volume. There is no way that they're going to continue getting enough pricing to grow revenue as volume continues to decline. So I think that they've got a. When I said a product problem, I don't mean there's a problem with the product. What I mean is consumers seem to have less inclination to buy these big carbonated soft drink brands and I think that the marketing simply has to address that. And it has to address these big carbonated soft drink brands like Coke and Pepsi, mountain Dew Sprite, dr Pepper. They taste great, they're refreshing, they go well with food, they're wonderful products. But I think the marketing has to address that and basically recruit new users based upon those core attributes, have to basically keep people in those franchises based on those core attributes. If they don't do that, I think that, as popular as these Marvel figures are, they're not going to basically be able to turn around and basically get these products growing in volume again, and I think that's essential.
Speaker 1:But some of this is leveled off right, I mean in terms of these volume declines, potential, but, but some of this is leveled off right. I mean in terms of these volume declines. I mean surely, with all the trends that you, you know, noted in the beginning, which were all exactly spot on, there's going to be some sort of reset when you go through those kinds of seismic changes and I mean it seems to me there's some reason to believe that we are sort of resetting now. I mean, if you look at, you know, even just the first quarter trends this year, I mean the trends are up versus the end of last year. For Coke CSDs, You've got, they're up over, you know, 2023 levels. You know improving trends.
Speaker 1:You know, if you look at our fact book data soft drinks, you know grew Coca-Cola did pretty well, you know, in terms of just holding its own. Coke Classic was up just about. You know it was about flat up, about 0.1%. You got Coca-Cola Zero coming in it's up 13%. You've got Pepsi Zero Sugar they were up 17%. You know Coke Zero is about half the size of Diet Coke, but even Diet Coke was only down 0.2 of a percent. And this is all channel, including fountain, including retail. I mean, there's something to be said for that no, yes and no.
Speaker 2:I mean I think what we saw in the last two or three years, Dwayne has been an aberration because of the horrible declines from COVID and then the gains coming back out of COVID, my belief that carbonated soft drinks are going to decline again this year than they did last year, when the Nielsen data and the IRI data all has CSDs down for full year 2023. I suspect your channel data will show that when it comes in, but we won't know until you finish your data and get a look at the fact book. But I think that I do not see. I think some of the best marketing that's been done in recent years was share a Coke, which Coke did back, I think, basically in 2014, 15, and 16. And it was all about enjoying a Coke with your friends. It was share a Coke, and what share a Coke did was it lessened the rate of decline and as soon as it was over, the decline continued. So in the years 2014 to 2017, which were the share a Coke years, brand Coke was down 2% during those years. So share, even share a Coke, which I thought was a terrific marketing program, did not result in any kind of reversal of the volume decline and I think it's going to be tough.
Speaker 2:And you know, I think these companies have to basically look. I don't think I don't think Coke's the only the only company having this problem. Look, I don't think Coke's the only company having this problem. Apple is now faced with a dilemma of selling fewer smartphones, iPhones, and basically generating increasing revenue by basically raising the prices through rate and mix. So every a lot of companies have this problem. But, going back to carbonated soft drinks, I don't think that these companies are going to basically reverse the decline until they figure out a way to deal with what I call product problems, but maybe it's better called consumer resistance to the products.
Speaker 1:I do think you know Coke brand Coke's probably going to be down this year on an all-channel basis. Total Coke trademark probably going to be about flat because you've got the growth from Coke Zero and Sprite, of course, and CSDs overall for Coca-Cola will probably be about flat, perhaps maybe down a touch. So you are going to still have some volume erosion, although compared to some of the more previous, even before the pandemic, I mean that's still kind of moderated from where we saw a few years ago. So I still wonder if there's a bit of a reset. But if you look ahead, though, to what they're doing now from a marketing perspective, my question is whether you agree with it or not. Coke has made a very distinct shift in their marketing from how they used to market brand Coca-Cola and some of those products, and I think it's going to be a couple of years before we're really going to know if that works or not.
Speaker 2:Right, look, I want nothing more than for Coke and Pepsi to succeed. I have great affection for both companies. I have my doubts whether the Marvel program will create a volume lift and or sustain volume lift. I hope you're right, dwayne.
Speaker 1:Well, I don't know if it will or not, I do understand. I do feel like I understand where they're trying to go with it, and I feel like it's not an easy problem. It's one you got to tackle and it does make sense to me what they're doing. I mean, in essence, they basically said what they're focused. You know in the and you you can speak to this, of course, because you, you, you know, you covered this industry through this this time, but it used to be all about brand perception. It was all about brand love, and everything you did was trying to promote brand love, brand perception. It was all about brand love, and everything you did was trying to promote brand love, brand perception.
Speaker 1:What companies like Coca-Cola are saying now is that they can actually get beneath that better through all kinds of technology and just better ways of interacting with consumers to really understand what they do versus what they say.
Speaker 1:They may say they love a brand it doesn't necessarily mean that they're buying it, and so what they're trying to do now is pinpoint consumer behavior and they're trying to give young consumers a reason to take an action, to buy the soft drink, to potentially become repeat users, but they're also doing it in this really targeted way where they're saying, look, we're not going to worry about people who never are going to touch a soft drink, we're going to focus on the people that are open to it potentially and we're going to give them reasons to take an action and we're going to look at what their exact behaviors are and market to those behaviors.
Speaker 1:And, by the way, we're doing this at this time that we've got tremendous media disruption Young people don't watch TV You've got tremendous fragmentation when it comes to, you know, retail and marketing and how young people consume advertising. So what you end up with then is marketing to these very specific affinity groups. It reminds me a lot, frankly, of a political coalition who, if you want to win an election, you might not be able to get the mass audience to vote for you, but if you can go after specific voting blocks and cobble them together, then you could potentially win. It sort of seems like that kind of approach for Coke right now. Then you could potentially win.
Speaker 2:It sort of seems like that kind of approach for Coke right now. Look, I think consumers still do have a lot of love for brand Coke and brand Pepsi, and I think the Marvel campaign might even enhance that brand love. What I don't think it will do will be to spur people to drink more Coke, and the per caps have to be reversed. I mean, if you think about the numbers you were just talking about, brand Coke will be down a little bit this year. Maybe corporate Coke CSEs will be flat, but the population of the United States is growing, I think at about 1% a year. So if the companies can't even grow volume equal to population growth, they're losing ground.
Speaker 1:That's a real problem. Yeah, there is a problem because of this aging population too. People are aging out of these kinds of drinks. You have to recruit the next generation right. You have to do that.
Speaker 2:Right, and you and I have discussed this at great length. You and I both like these soft drink products, but a lot of young people don't and a lot of young parents are not basically letting their kids sample them. I personally do not think that the Marvel campaign will change that. I think that somehow, some way, these companies have to. Basically, it's like I think we've discussed this in a prior podcast.
Speaker 2:I admire the BMW advertising and marketing over the years where they basically promoted the ultimate driving machine.
Speaker 2:What they were saying was they were promoting the core attributes of a BMW it's beautiful, it drives well, it's fun to drive.
Speaker 2:To me, when you've got an issue with consumer acceptance of a problem that needs to be addressed directly, that needs to be addressed directly and I would hope, either with the Marvel program as it evolves or separately Coke does that, pepsi does that that they address the issues. Otherwise, volume is going to continue to decline and these products are going to risk becoming niche products in not that many years. I mean when I bought Beverage Digest back in the 90s Dwayne I took some trips around the world and there were signage you'd see almost everywhere and that was Kodak the yellow Kodak film signs and the red Coca-Cola beverage signs, and Kodak missed the paradigm change. They didn't see the transition to digital and today Kodak is all but gone. I fear that over the years to come, if Coke and Pepsi can't basically return to volume growth, they'll end up with their big brands becoming niche products and in some way they'll go the way of Eastman Kodak, which would be a terrible thing.
Speaker 1:You know, I actually think these programs, like Marvel, Co-Creations, I think they actually have a fighting chance here to counteract, which is just a huge challenge that they face right now. I mean, as you pointed to a minute ago, I mean, look, I'm 53 and I have kids that are in their early 20s. When we were raising our kids, I mean I'll be honest, soft drinks were almost seen as this. Really, there was a really negative stigma. I mean there was nothing you would ever serve, you know, to your kids at a sporting event or, you know, you were careful with it. Maybe at parties it could be a fun indulgence.
Speaker 2:But on a daily basis, dwayne, why was that?
Speaker 1:Because sugar, for one, this was in a period where people were very concerned about sugar intake, and especially with kids. These are periods when you had all of these somewhat true but somewhat mythical notions of sugar causes, hyperactivity and all those kinds of things. A lot of that stuff is understood well much better now than it was then. And also, you know, parents wanted their kids to just drink water. They wanted them to drink things that were perceived as healthier, and there was just a real stigma about everything from sugar to some people with artificial sweeteners, some people with just like empty calories. You know all those kinds of arguments, and you know Coke did a really good job, you know, a decade ago, changing their marketing, and the focus from you know, is consuming as much as possible. To you know, having it as an indulgence or having it as a refreshment, that wasn't necessarily part of your daily routine, or, in other words, you can mix other things in as well. You know, started talking about it from you know, smaller package sizes, which, of course, there's a lot of reasons to do that besides this as well, but they did that, to do that besides this as well, but they did that. And so you had this generation of kids you know of my kid's age who basically were no, don't drink that, don't drink that, don't drink that. Well, coke's job now is to figure out a way to get them to reconsider the brand, because, at the end of the day, kids love soft drinks. I mean, let's face it, kids would gravitate to things like soft drinks. People gravitate to sweetness. Sweetness is something that human beings gravitate to. Things like soft drinks, people gravitate to sweetness. Sweetness is something that human beings gravitate to. There's plenty of science on this, even now, and so they've got to get them to reconsider Coca-Cola as one of the things they drink. That it's like either, you know, if it's not just cool and doesn't have the badge idea that it did before, perhaps it's not so bad.
Speaker 1:Maybe I can give that a try. My parents said I couldn't, but maybe I can. Well, how do you do that right now? I think they have a fight. The reason I say I think they have a fighting chance is what they've done is they've done what they've done for decades, and that's look at what young people love and try to attach themselves to the things that young people love.
Speaker 1:For years, it was music and various parts of the culture, sports, etc. Well, these days you have video games. You have highly specialized musical tastes that go beyond just what you see on mass radio YouTube stars. When my daughter was coming up, her idols in music were people discovered on YouTube. They weren't people that I ever even heard of, and so you've got to attach yourself to these different affinity groups, and so the way you do that is you go right at those.
Speaker 1:You know people who love space, people who love video games, people who love Marvel, and you're doing this in this very fragmented digital environment where it's super targeted. They figure out where these people are, they get them direct messages, create products that are especially for them. You do it on a limited time basis and over time, you get them to go wow, that's pretty interesting. This brand actually pays attention to what I like, and if they do it right and I'm not saying Coke is executing this perfectly or not, I don't know, I'm not a marketing expert, so time will tell whether they execute this appropriately or not, but it makes sense what they're doing that if they can get to those people and give them something that's authentic and that they can relate to, that they could get them to consider the brand and go into the store and pick that up. That's the action. Get them to take an action, take a behavior and then ladder it up to the big brand and try to get them to create more of a habit, which might just be once a week versus nothing.
Speaker 2:Look A I think I've known you for a long time. I think your marketing instincts and skills are pretty good, actually, so I would say you're an expert. But let me ask you a question. You're now that young parent you talked about a few minutes ago with kids in the house. You know early teens, mid-teens, whatever age and you said that they did not. Carbonated soft drinks were not a big part of your pantry. Would the Marvel campaign change your mind? Were you in Laura's mind, wayne, on going into a grocery store and buying carbonated soft drinks because of the Marvel characters and allowing your kids to have it as opposed to not having it, which is what you did?
Speaker 1:It's a great question. I think there's two things going on there. To answer your question directly, I think for some parents, yes, the fact is, parents love to give their kids cool things that they like to collect. I remember it was Transformers at one point, pokemon, all of that. You know parents get into that because their kids, you know, find a lot of joy and happiness with that. So you know, just like we've seen with Prime, where you know kids went out and bought it just because it was cool, those kinds of programs could get someone to at least consider it and pick it up in the store.
Speaker 1:Now that's only one little piece of the puzzle, as we've seen with Prime. You can't live on that. You have to ladder that up to something, to a bigger idea, and I think there's evidence that Coke is doing that as part of this scheme, pepsi as well. But yes, I think you could potentially, but I don't think that's the ballgame.
Speaker 1:I think the ballgame is the people who are now out of their house, the young people who are out of their house. They're in college, they're in post-college. They have these affinities and they're the ones who have the buying power to make these decisions themselves. You're trying to get them to when they're in the store, to pay it, to consider Coke in a way that they haven't in years. And you're trying to do it in a way that you're competing with, you know, the poppies of the world and the water talks of the world and the various TikTok marketing for all these up and coming brands that are really capturing young people's attention. But you're trying to do it in a way to compete with those, in a way that speaks to them like those do, and you use the assets you have.
Speaker 2:Look, I hope you're right Again. I think that the Marvel campaign will certainly attract some attention, but Coke doesn't need to educate consumers about the existence of brand Coke. As you said, they've got to get consumers to buy more and drink more, and Coke has no problem with brand awareness. Their problem is with product acceptability and I think the Marvel campaign would have done, or would do, a great job on brand awareness, brand love. But I don't see, I don't understand, wayne, how it basically addresses the issue of product acceptance, consumer acceptance of these products, and I think Coke and Pepsi both have some big challenges ahead.
Speaker 2:I mean, they've lost a tremendous amount of carbonated soft drink volume over the last two decades. Sports drinks are now losing volume, which is another big part of Coke and Pepsi's portfolios. Where's all the volume going? Most of it's going, according to your data, to bottled water, and bottled water basically today is dominated by Private Label and Blue Triton, the former Nestle brands. So Coke and Pepsi are getting squeezed in the sense that they're losing volume on carbonated soft drinks and sports drinks right now, but they're not capturing the volume in other parts of their own portfolio, and that's the core of my worry.
Speaker 1:Yeah. So let's frame it up then, going forward, what do you think? What should Coke pay attention to now? What should Pepsi pay attention to now? Carbonated soft drinks. And the reason we're talking so much about carbonated soft drinks is this is a massive category. It spins off a lot of cash. There are still a lot of people that drink it and of course, I should mention we're talking about North America largely here Things like the Marvel program. That's a global platform and you've got some differences in Coca-Cola globally and international in terms of the growth trajectory and profile than you might have in North America. Different, some different challenges, some the same, some different markets overseas will catch up to where North America are eventually, so that whatever challenges you see here are presenting themselves in developed markets and will in developing markets eventually probably. But what do we? Where do you go? If you're Coke, then Um, but um, what? What do we? What? Where do you go if you're Coke, then? I mean what? Where if you're Coke and Pepsi and you need people to to stay?
Speaker 2:in these massive categories. What do you do? I think a lot of companies struggle with that. I think Apple is now struggling with what's next after the iPhone. Um, I think, in general, what Coke and Pepsi have to do basically is do two things Do the very best job they can in marketing their big core products Coke, sprite, powerade, pepsi Dew, gatorade and look for new channels where excuse me, new products where they can basically generate both volume and revenue growth. And for a while I believed and thought that might be bottled water, because Dasani and Aquafina came out of the starting gate very strongly. But I don't think water is going to be the answer to answer to their long-term volume and revenue growth needs. So I think they have to figure out ways, either within the beverage space or in adjacent space to that, to figure out how they can basically grow revenue and volume sustainably over the next couple of decades.
Speaker 1:So you know. To close, let me just say this If this turns out to be a strategy that works, it could only be that they are able to stem, you know, the bleeding on carbonated soft drinks. To hold the line on volume, hold the line on demand, to keep the people in the franchise and bring a few new people in to replace those that are going out. That may be success in this regard, just to be clear. And with that, you're then maximizing revenue. Again, you're maximizing your organic revenue. Success, maximizing profit to the extent that you can with your revenue growth management. That may be what success looks like, and that may be to bide time to be able to develop some of these other categories, whether it be sports drinks or value-added water, premium water products or value-added dairy things like Fairlife, so you can grow those businesses into some of the scale that could then help you create scaled growth.
Speaker 1:That may be what success looks like right now. At the end of the day, though, you've got to at least do that. I think we can both agree, and so you know, we'll see. We'll see if these programs work or not. The market's shifting really quick, consumers shift really quick. The strategy today, even if it works today. It may not work tomorrow, but we'll see. We'll give these companies a couple of years and see can they hold the line here, and the proof will be in the pudding right.
Speaker 2:You know closing where you opened, dwayne. I would invite as many people as possible to come to New York when they come to your conference. Go out and do a market tour and look at the products which are now dominating coolers in the small shops up and down the avenues in New York, largely distributed by Big Geyser, and I think some of those products may be the answer to exactly what you just said, and that is basically do the very best they can on their core products now and be open to the kind of innovation which has been difficult for them in the past but is necessary for the future.
Speaker 1:John, thank you so much for joining us, as always.
Speaker 2:My pleasure, Dwayne. Thank you.
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