Dear Fellow Shareowners,
Tomorrow morning, about 2 billion households will wake up around the world, all of them thirsty and eager for refreshment. On average, each of these families will consume 26 drink servings throughout the day. And beverages of The Coca?Cola Company will account for about one and a half of those 26 servings.
That’s just one reason we believe in our growth potential. But we’re also keenly aware that we’re entitled to nothing. And the plain and simple truth is that capturing this opportunity for you and our Company will require us to perform at a higher level than we did in 2014.
Globally, families and individuals spent less on consumer goods in 2014, slowing growth in nonalcoholic beverages. And this had an impact on our performance.
Overall, The Coca?Cola Company gained global value share in our industry in 2014, increasing our share of the total amount spent by consumers on nonalcoholic beverages. On a structurally adjusted comparable currency neutral basis, we increased net revenues 3 percent and operating income 6 percent.1 We also grew unit case volume 2 percent. However, we were not satisfied with these numbers, even in a challenging year.
At the same time, we refused to let tough conditions determine our overall performance or set the course for our future. We knew we needed to move faster and execute faster, and we believed we could improve with the right changes. So we took action to reshape our organization and make the investments needed to return to our long-term growth targets.
While this transformation began early in 2014, we later accelerated the pace and broadened the scope of change. In October, we announced five strategic actions to put our business on the path to stronger growth.
First, we are making targeted, disciplined investments in our brands and our future. In 2014, this meant ramping up our spending to build our brands—including a double-digit increase in media spend—and focusing on our strongest, most promising opportunities.
We also announced strategic investments in Keurig Green Mountain, Inc. and Monster Beverage Corporation and expanded our venture with Select Milk Producers, Inc. With the first, we’re developing Keurig Kold,2 a revolutionary new pod-based system that will enable people to produce Coca?Cola and many of our other delicious beverages at home, starting in late 2015. Meanwhile, our expanded partnership with Monster will strengthen our position in the fast-growing energy drinks category. And we introduced fairlife3 ultra-filtered milk in select U.S.cities, preparing for a national rollout of the value-added dairy brand in early 2015.
Second, we brought an added emphasis to revenue and profit growth, starting with more distinct and clearly segmented roles for our markets. In emerging markets, we’re striving to grow mostly via greater volume to drive awareness and build our brands. In developing markets, we know ideal growth takes a balance of volume and pricing. In developed markets, we see price/mix as our most powerful growth lever. As part of our focus, we announced that revenue growth would be added as a metric in the Company’s incentive plans starting in 2015.
Third, we began to refocus on our core business model of building brands and leading an unmatched global system of bottling partners. For 2014, this meant accelerating the refranchising process in North America—transferring ownership of Company-owned bottling territories back into the hands of independent operators. By year-end, we had moved about 5 percent of U.S. bottler-delivered volume to new and existing bottling partners. We expect this pace to double in 2015 and double again in 2016.
In addition, we worked with bottling partners in key markets to position our system for more robust future growth. For 2014, this included announcing a significant new investment in Coca?Cola Amatil Indonesia as well as the formation of a next-generation operating model with Coca?Cola Beverages Africa. Both of these vibrant and populous markets will help fuel our growth.
Fourth, we aggressively stepped up our productivity efforts. While we had already announced a plan to deliver cost savings to invest in our brands and business, we took action in 2014 to increase this to $3 billion in incremental annualized savings by 2019.
About half of these savings will come from being more efficient in the way we make and distribute our beverages. Roughly a third will come from reducing operating expenses. The rest will come from marketing, where we’ve designed more effective and efficient global campaigns.
Fifth, we began streamlining and simplifying our operating model. This includes reducing the size of our group-level organizations around the world, standardizing our operating approach and key processes across business units and forming a single business unit in Western Europe, where we previously had three.
Overall, these steps will allow us to speed decision making and enhance our local market focus—both of which will help unlock growth. We’ll also have a more nimble organization, one better equipped to outpace the change in our industry.
Why are we taking these five strategic actions? Because we’re confident we can do more to help our Company capture a larger share of the growth across the nonalcoholic beverage industry.
Fact is, we’re competing in a historically strong and growing marketplace, one with enduring vibrancy and promise. Since 2009, the retail value of our industry—the total amount people spend on nonalcoholic beverages worldwide—has grown by nearly $200 billion. And the industry is projected to grow by another $300 billion between now and 2020.
Because of these and other decisive actions, our people delivered a number of big wins in 2014:
- We led the most extensive global marketing activation in our history in support of the 2014 FIFA World Cup Brazil,4 inspiring fans across 175 markets, presenting a trophy tour that visited 90 nations and connecting with shoppers through displays in more than 400,000 outlets.
- We introduced “Share a Coke” in additional markets including North America, delighting consumers and creating new brand love for Coca?Cola, Diet Coke and Coke Zero. Our fans showed their creativity on social media, using “Share a Coke” to make a uniquely refreshing marriage proposal and share news of an expected child.
- We rolled out Coca?Cola Life—a reduced-calorie cola sweetened with cane sugar and stevia leaf extract—in Great Britain, Mexico, the United States and other markets, building on our commitment to offer people a cola for every lifestyle and occasion. (Coca?Cola Life debuted in Argentina and Chile in 2013.)
- We shepherded three additional brands to billion-dollar status, bringing the total number to 20. The newcomers are FUZE TEA, a popular mainstream tea sold outside of North America; Gold Peak, a premium tea brand in the United States; and I LOHAS, a breakthrough water brand in Japan that returned to billion-dollar status.
- We created new value with Coca?Cola Freestyle as the fountain-of-the-future added more customer locations. We gained valuable brand insights with daily feedback from each unit, and we introduced three smaller versions of the dispenser to meet the needs of lower volume accounts.
- We sold more PlantBottle packages than ever in 2014—about 9 billion of the 30 billion made since the technology debuted in 2009. The world’s first fully recyclable drink bottle made partially from plants, PlantBottle was honored at the 2014 Sustainable Bio Awards in Amsterdam.
- We gained ground toward achieving our top sustainability goals in Women, Water and Well-Being. By year-end, we had helped economically empower more than 865,000 women through 5by20, our initiative to enable 5 million female entrepreneurs by 2020. We continued to advance our work in water replenishment around the world, including the expansion of our Replenish Africa Initiative to provide 6 million Africans with safe water access by 2020. We also introduced more than 100 reduced-, low- or no-calorie beverages while continuing to increase the availability of smaller bottles and cans.
- We connected with people and shared our stories through Coca?Cola Journey, our innovative online magazine. In 2014, the site attracted 1.4 million monthly visitors and won multiple honors and awards.
Today, we continue to see a beverage industry brimming with opportunity. This optimism is rooted in a host of demographic trends, including intensifying urbanization, a growing global middle class and a massive youth bulge in the developing world. Over the long term, we expect industry value growth to be in the mid single digits.
For our part, The Coca?Cola Company is positioned to grow ahead of our industry with our 20 billion-dollar brands—and more on the way. With our strong global system, we serve more than 23 million customer outlets a week. We’re number one in sparkling beverages, still beverages and our industry as a whole. And we’re number one in 25 of our top 32 markets.
And consider this—for the future, we see beverage brands being built in three ways: (1) as ready-to-drink beverages bought from store shelves, (2) as fountain drinks poured in restaurants and other outlets and (3) as beverages made at home. We intend to rigorously connect these three opportunities as we innovate and leverage technology to increase consumption occasions for our brands.
In each case, Coca?Cola is operating from a position of strength, with our vast global retail footprint, the power of Coca?Cola Freestyle and our dynamic new partnership with Keurig Green Mountain.
For 2015, we’ll continue to move forward with a strong focus on accelerating growth. We’ll make more tactical and strategic choices to strengthen the world’s leading beverage company, system and brand portfolio. And we’ll celebrate the specialness of Coca?Cola as we mark the 100th anniversary of that unmistakable icon of refreshment—the Coca?Cola Contour Bottle.
Thank you for your interest and your investment in The Coca?Cola Company. We have an exceptional team that’s getting up every day with a passionate commitment to our mission of refreshing the world, inspiring moments of optimism and happiness, creating value and making a difference.
I’m honored to work with these extraordinary men and women of the Coca?Cola system, and we are all honored to work for you, our shareowners.
Thank you for your interest and your
investment in The Coca?Cola Company.
Very best wishes,
Chairman of the Board of Directors
and Chief Executive Officer
April 1, 2015
1 See page 31 of the 2014 Annual Review for a reconciliation of non-GAAP financial measures to our results as reported under accounting principles generally accepted in the United States.
2 Keurig Kold is a trademark of Keurig Green Mountain, Inc.
3 fairlife is a trademark of Fairlife, LLC.
4 2014 FIFA World Cup Brazil is a trademark of FIFA.
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