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Coke confronts its big fat problem

 Americans may not have figured out the answer to the obesity epidemic, but for years they’ve pointed to Coca-Cola and other soda as one of the causes. Coke has tried fighting against this. It’s tried ignoring it. Now it accepts this as a reality. This is the problem that Sandy Douglas, president of Coca-Cola North America, has to confront. He has to persuade people to drink Coca-Cola again, even if they don’t guzzle it like water the way they did before.

Sandy Douglas drinks one Coca-Cola every day. He likes it early, before noon, sometimes accompanied by a cup of coffee. “You get an espresso, you get your caffeine and have this for lunch, and you’re ahead,” he says between sips from Coke’s old-fashioned 8-ounce glass bottle. When it’s over, he doesn’t allow himself a second. “I will probably have a Coke Zero in the afternoon at some point,” he concedes, but not another regular one because it has too many calories. “That’s approximately my daily regimen.”

For anyone else this is unremarkable, but Douglas is president of Coca-Cola North America, which means it’s his job to sell as much of the fizzy, sugary soda as possible, and admitting that he limits himself to less than a can of Coke a day for health reasons might not seem the best way to go about it. At 52, Douglas has been with Coca-Cola (KO) for 26 years and is very much the company man. He dresses in dark suits. He looks golf-course tan. He carries himself like someone who’s always ready to lecture on the benefits of the product he’s selling. He talks in a form of Coke-speak—”the pause that refreshes,” “our job is to refresh the world”—that would have any public-relations manager giddy with delight.

Sandy-Douglas---Coke-North-AmericaCoca-Cola Chairman and CEO Muhtar Kent gave Douglas (right) the North America job in January, essentially asking him to turn around a decade-long decline in American soda sales. Most days since then, Douglas has walked the hallways of the company’s Atlanta headquarters, past the polished wood walls adorned with vintage Coca-Cola ads and display cases full of knickknacks and long-expired coupons for 5¢ Cokes, thinking about the nearly impossible task ahead of him. There are 41 bottles of Coca-Cola in the conference room where he’s holding a meeting—2-litres and tallboys, plastics of all sizes, aluminum bottles, and the classic red can. They speak to a specific type of American culture where bigger is better, one that exists outside of foodie-ism and Michelle Obama’s nutrition campaign and the general explosion in health consciousness that has lately put Coke on the wrong side of just about every consumer lifestyle trend. Douglas believes Coca-Cola needs to refocus on the one thing it does best: sell bottles of Coke. This is the beginning, he says, of “what I might call the phased relaunch of Coca-Cola in the US.”

Given all the choices out there, people just aren’t drinking as much Coke. Douglas has watched this happen from his perch at headquarters, checking numbers reports and meeting with the company’s vast network of bottlers. And you don’t need inside access to the data to detect the trend. Just ask Joe Davis, a self-described “frontline stocking grunt” at a Walmart in Spokane, Wash. “Coke doesn’t move as much as we’ve seen it move in the past,” he says.

Across the country, Sevan Curukcu, who owns and runs a BP station in Lodi, NJ, has noticed the same thing. When Curukcu moved his family to the US from Turkey in 2001, he opened the BP franchise and quickly found that all anyone ever wanted to buy was a Coke or maybe a Snapple. Today? “It’s all Red Bull or water.” In his gas station, Curukcu has relegated Coca-Cola and its carbonated competitors (Pepsi, Dr Pepper, and all the decaffeinated, low-calorie iterations thereof) to one refrigerator in the corner. The rest of the store is stocked with iced tea, juices, and lots of water and energy drinks. “See what I mean?” he asks as a 20-year-old waitress walks up to his counter and purchases two litres of water and two 20-ounce cans of Red Bull.

Her name is Anna Antonova. A few years ago she gave up her two-litre-a-week Coca-Cola habit and dropped seven pounds. She’s never returned to soda. Coca-Cola desperately needs to get her back, and everyone like her. “But soda is so bad for me, I feel so much better without it,” Antonova says.

Americans may not have figured out the answer to the obesity epidemic, but for years they’ve pointed to Coca-Cola and other soda as one of the causes. Coke has tried fighting against this. It’s tried ignoring it. Now it accepts this as a reality. This is the problem Douglas has to confront. He has to persuade people to drink Coca-Cola again, even if they don’t guzzle it like water the way they did before.

Cultural shifts don’t happen overnight. They build slowly—a sip of coconut water here, a quinoa purchase there, and suddenly the American diet looks drastically different than it did 10 years ago. Nowhere is this more pronounced than in the $75 billion soda industry. For decades, soft-drink companies saw consumption rise. During the 1970s, the average person doubled the amount of soda they drank; by the 1980s it had overtaken tap water. In 1998, Americans were downing 56 gallons of the stuff every year—that’s 1.3 oil barrels’ worth of soda for every person in the country.

And then we weren’t as thirsty for soda anymore, and there were so many new drink options that we could easily swap it out for something else. Soft-drink sales stabilized for a few years; in 2005 they started dropping, and they haven’t stopped. Americans are now drinking about 450 cans of soda a year, according to Beverage Digest, roughly the same amount they did in 1986.

“We actually believe that if you let this go too long, another three or five years, the consumer will walk away from carbonated soft drinks,” Indra Nooyi, the CEO of PepsiCo told investors last year, in a shockingly blunt assessment of soda’s future. This is a real problem for her, but at least PepsiCo has the Frito-Lay food business to cushion some of the blow. Coke doesn’t have that. Soda still makes up 74 percent of its business worldwide and about 68 percent in the US. Sales of Coca-Cola’s carbonated sodas fell 2 percent in the U.S. last year, according to Beverage Digest, the ninth straight year of decline. Diet Coke tumbled especially hard, dropping 7 percent, almost entirely the result of the growing unpopularity of aspartame amid persistent rumors that it’s a health risk. Coca-Cola made $46.8 billion last year, down from $48 billion in 2012. That’s what Douglas is worried about.

It’s strange to think about now, but Coca-Cola actually started in response to a health trend. In 1886 an Atlanta pharmacist named John Pemberton, reacting to the local temperance movement, removed the alcohol from his medicinal French Wine Coca tonic and refashioned it as Coca-Cola. Today it’s the world’s largest beverage company. Coca-Cola has 130,600 employees and makes 500 different beverages that people around the world drink two billion servings of every day. A quarter of all carbonated beverages consumed globally are made by Coke; Pepsi is far behind at 11 percent. “Coca-Cola is the soda industry,” says Mike Weinstein, a former president of A&W Brands who made his fortune turning around the once-ailing Snapple and now runs his own beverage consultant firm. “Whatever Coke does, it’s seen as what the soda industry does. What happens to Coke eventually happens to everyone.”

Ask anyone in the soda industry to explain the consumption decline, and they’ll point to the 1980s. That’s when Coke and Pepsi, during the height of the soda wars, started selling the stuff in bigger and bigger sizes to get people to drink more—which meant they sold more product…..

Bloomberg BusinessWeek: Read the full article


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