This in-depth article, first published on January 21, 2019, is the first paid article in the food venture capital insight. Some of it was previously pushed. The reason why it was completely re published is that the current ecological environment of China’s food consumer goods entrepreneurship and investment is gradually improving, and the experience of overseas giants in incubation, innovation and investment is worth learning.
This in-depth article analyzes in detail why Coca Cola should set up a risk and brand innovation department: veb, and what value the veb Department has played for Coca Cola’s all beverage strategy, and what other food companies want to learn from Coca Cola’s veb.
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Author: foodplus Haifeng
Group photo of core members of Coca Cola veb department, photo source: Coca Cola veb
Many food giants have set up venture capital departments and innovation or incubation departments, such as PepsiCo’s venture group and the hive Innovation Incubation Center, General Mill’s 301 Inc, Danone manifesto ventures and Tyson’s venture capital fund Fonterra ventures, an investment fund of Fonterra, snackfutures, a snack Innovation Incubation Center of Yizi international, ZX ventures, a venture capital Department of Budweiser InBev, etc.
However, it is the veb Department of Coca Cola that has been established for the longest time and has the highest strategic value to the whole company. This department not only makes investment, but also incubates new brands, which is different from the venture capital Department of most other food giants. That is to say, since its establishment, Coca Cola has different expectations for the veb department, especially Coca Cola The frontier market of Le’s Innovation: North America.
Coca Cola veb department, photo source: veb official website
The full name of veb is venturing & emerging Brands, a department set up by Coca Cola in order to cultivate young billion dollar beverage brands, has been established since 2007. It has cultivated several beverage brands with potential or has become billion dollar level for Coca Cola, including fuze tea, NOS energy beverage, Zico coconut water and honey instant tea. At present, these four brands have graduated from veb, and some have been included in the list In the Coca Cola business department, NOS energy drink has joined the monster invested by Coca Cola. It is particularly noteworthy that fuze tea has become one of the 21 Coca Cola brands with an annual revenue of 1 billion US dollars, reaching 1 billion US dollars in 2014.
It’s hard to imagine that the veb Department of Coca Cola, which is responsible for investment and emerging brands, has developed for more than ten years. In the past ten years or so, the veb Department has undertaken the exploration of innovation and growth outside the main business of Coca Cola. It is not only through investment, merger and acquisition, incubation and other means to reserve Coca Cola with the potential to become a billion US dollars The emerging brands of China will also bring these experiences to the global market, especially the brands acquired in other global markets, and share experience in how to endow the brand with new activities, more perfect and complete product structure, and large-scale growth of revenue.
The year 2019 is a turning point for the veb Department of Coca Cola. According to bevnet, the veb Department has been in a turbulent state for more than a year. Several important members of the team have left, and more attention will be paid to incubation in 2019. Among them, a non-alcoholic beverage brand bar n’one has been officially launched in January.
At the same time, it will accelerate the brands acquired by veb to be incorporated into Coca Cola’s business unit and bottler system. For example, TOPO Chico, a natural gas bubble water brand acquired at the end of 2017, will be merged into still business unit, Hansen’s and blue sky will be merged into carbonated drinks.
Scott uzzell, former president of Coca Cola’s veb Division
The most significant change in personnel is that Scott uzzell, the head of the Department, will join converse as its president and chief executive officer, leaving the company after 18 years of service.
Scott uzzell joined Coca Cola in 1993 and became a member of Minute Maid. He later worked in the strategy and planning department. During that time, he left Coca Cola and joined McDonald’s in the United States. Later, he returned to the Coca Cola group and worked in the global marketing department and Zico, the coconut water brand. He became the vice president and chief operating officer of veb in 2013, and became the second president and general manager of veb in 2014.
At present, Scott uzzell’s successor has not been announced, but judging from the core members of the Department in the past, it is very likely that they are still senior employees of Coca Cola. The president of the veb department is the link between the investment incubation sector and Coca Cola company. He not only needs to have the ability of investment, but also needs to have a deep understanding of the business of Coca Cola company. He also needs to know how to turn a brand from being verified into a scale with revenue reaching hundreds of millions of dollars, which may involve the overall development strategy, product planning and channel distribution Bureau and development, brand building, national marketing, etc.
1. Why Coca Cola set up veb department?
Around 2000, the top management of Coca Cola company thought that in the 21st century, one third of the beverage market may come from brands that do not exist today. However, Coca Cola’s organizational structure and business model make it difficult to find these brands or products through market research, which may cause the company to lose one of the big markets.
We need to solve this problem in a more market-oriented way, so we must go into the market, find these incremental categories or brands by observing and investing in brands that are still in small-scale revenue, and create some potential new brands by means of lean entrepreneurship.
This is the reason why Coca Cola set up the veb department. As the first president of the Department, Deryck van Rensburg joined Coca Cola in 1996. He started as the customer strategy director of the UK market, and gradually served as the regional manager of Austria and Romania. Later, he joined Coca Cola in Greece as the regional market president.
From 2003 to 2007, he served as the president of German market and Nordic market. In 2007, he became the president of veb department, which lasted until 2014. Later, he left the Department because he joined Coca Cola global investment department. At present, Deryck van Rensburg has left Coca Cola company to serve as president of Graziadio Business School of Pepperdine University in the United States.
In a Q & a article on Coca Cola’s official website, Deryck van Rensburg mentioned that Coca Cola’s veb department was not set up to invest in brands to learn and generate investment income, but to hope that the invested brands will become the next billion dollar brands.
How to find potential new brands, veb department is more from the perspective of consumers, combined with market data to determine what products or categories are worth paying attention to, and spend a lot of market on expositions, exhibitions, especially natural products expowest, as well as close communication and contact with dealers, retailers and entrepreneurs.
Only in this way can veb better achieve the goal of investing and incubating the next billion dollar revenue beverage brand.
2. The strategic significance of veb department for Coca Cola Company
Coca Cola’s global sales volume distribution in 2007 and 2017, source: foodplus
Except for a few brands, Coca Cola’s businesses in all regions of the world are basically originated from North America, and then expand its brands to all parts of the world. Therefore, the role of Coca Cola North America company is crucial for Coca Cola as a whole, although the North American market is not the highest in terms of sales volume and revenue share.
Coca Cola is gradually stripping off its bottler business and selling most of its own bottler business to its partners. What Coca Cola undertakes is brand, marketing, product research and development, selling raw materials, etc., while the filling production and distribution of products are all handed over to its partners. After the integration, Coca Cola has nearly 250 bottler partners around the world.
Coca Cola’s revenue share of major business units, photo source: foodplus
It can also be understood that Coca Cola is a franchised enterprise. Its revenue mainly comes from the authorization fees and raw material fees collected by its bottler partners, and the main revenue comes from the global bottler system. However, because the bottler system is operated on a large scale, that is, the brands entering the Coca Cola bottler system generally have a revenue scale of more than several hundred million dollars and are in the majority of the world Every market has its potential.
According to Coca Cola’s annual report, Coca Cola’s global bottler system currently accounts for about 20% of the world’s $580 billion non-alcoholic beverage market.
This is a huge and efficient beverage business system. From the perspective of the composition of beverage brands, it can be divided into two types. The first is the existing brands owned by Coca Cola, which seek to expand the market coverage and innovate these brands.
The second is new beverage brands. The sources of new beverage brands mainly include Coca Cola Global Investment Group’s acquisition, such as innocent justice, Costa coffee, smartwater, glac é Au vitamin water, del Valle, etc., and joint acquisition with bottlers, such as Coca Cola amatil’s acquisition of Australian beverage group made Group, by contrast, both of them are mainly engaged in large-scale acquisition, and there is another way to introduce new brands for bottler system, which is regarded by Coca Cola as the core strategy of future development, namely veb department.
Proportion of Coca Cola’s product categories in the company’s revenue in 2018, photo source: Coca Cola
At present, the proportion of Coca Cola’s carbonated beverage business has been gradually declining, while other categories are rapidly increasing, especially the functional beverage business. Through mergers and acquisitions and investment and acquisition of veb department, it has achieved a very good improvement. You should know that Coca Cola did not separately disclose the revenue of the functional beverage business before that. Among them, monster is Coca Cola’s strategic investment to achieve a larger layout in the functional beverage market, while NOS functional beverage is one of the earliest brands invested and acquired by veb department, and fuze tea is another.
The proportion of Coca Cola products in the whole company, photo: foodplus
As a comparison, the proportion of Coca Cola’s business lines in 2000, 2008 and 2017 respectively. It can be seen that in 2000, Coca Cola’s carbonated beverage business accounted for a very high proportion, and its sales volume was close to 90% of the company’s total sales volume.
In fact, when the veb department was established in 2007, Coca Cola observed the development trend of the non-alcoholic beverage market in the future, that is, carbonated drinks are no longer the dominant market. During this period, it acquired glac é Au vitamin water and glac é Au smart water, which have become Coca Cola’s billion dollar annual revenue brands.
In the category of tea products, in addition to the existing gold peak, Lingying tea and honey, nestea has also cooperated with Nestle, a brand operated by the then joint venture company of Coca Cola and Nestle, namely, beverage partners worldwide (hereinafter referred to as BPW). Nestea used to be one of Coca Cola’s $1 billion annual revenue brands, but after its business contracted, the two sides ended their cooperation in 2018, with Nestle taking back 50% of Coca Cola’s stake in BPW.
Changes in the number of Coca Cola’s $1 billion annual revenue brands, photo: foodplus
Food giants like to take the number of $1 billion brands as a proof of their product diversification. PepsiCo also presents $1 billion brands in its annual report. At present, there are 22 brands with annual revenue of $1 billion.
Coca Cola’s 21 billion dollar annual revenue brands in 2018, photo source: Coca Cola
Coca Cola’s 21 billion dollar brands are Coca Cola, zero degree Coca Cola, diet coke, Sprite, Fanta, glac é Au vitamin water, glac é Au smart water, gold peak, Lingying tea, Qiao Ya coffee, binglu, del Valle, fuze tea, meizhiyuan Guoli orange, simple juice, POWERRADE, Minute Maid, Dasani, Yiquan Schweppes, Aquarius, i LOHAS mineral water (いろはす).
Although Coca Cola’s $2.1 billion brand is growing, its revenue has been declining since 2012. The decline is mainly due to the lack of carbonated beverage category, which also accelerates the transformation of Coca Cola into a full range beverage company.
Coca Cola’s revenue growth from 2003 to 2017, photo source: foodplus
Coca Cola’s annual operating profit and net profit from 2003 to 2017, photo source: foodplus
If we calculate the scale of Coca Cola’s carbonated beverage business, the proportion in 2003 has not been disclosed. If we calculate by 85%, the revenue scale is about 17 billion US dollars, and it is about 24.5 billion US dollars in 2017, but the actual revenue may be smaller. According to this data, after 14 years, the growth rate of the carbonated beverage business is not big, but if we calculate the data in 2012, it should be higher.
In the process of carbonated drinks decline, the sales scale and brand number of non carbonated drinks are particularly critical. Although we have noticed that the future beverage incremental market comes from non carbonated drinks since about 2000, we have made several mergers and acquisitions of non carbonated drinks, and set up veb department in 2007 to reduce this risk, but the carbonated drinks business is too large In spite of all the layout, the decline of carbonated drinks has affected Coca Cola’s revenue scale and profit level.
The investment strategy of Coca Cola global ventures group can be regarded as improving the current business structure, and the veb department is to cultivate the core brand in the future, so it is very important to lay out for the future.
3. What is the position of veb in Coca Cola’s organizational structure?
At present, veb is not in the primary structure of Coca Cola, or even in the global Ventures Group established last year, but under Coca Cola North America.
Global senior management of Coca Cola, source: foodplus
As can be seen from the global senior management of Coca Cola company in the figure above, the global Ventures Group established last year is the first level Department of the headquarters of Coca Cola company, which is mainly responsible for global mergers and acquisitions, including large-scale mergers and acquisitions in North America, as well as management after mergers and acquisitions.
Coca Cola’s global business structure, photo source: foodplus
As can be seen from the global business structure of Coca Cola in the figure above, North American companies are different from companies in other regions. They are more divided by business segments, and each business department is responsible for the management and operation of its various brands.
Veb is not a primary department in the organizational structure of North American companies. It is integrated into the business department and is independent of the business department. One of the advantages of this is that the decision-making of the veb department is not interfered by the business department of the North American company, but reports directly to the president of the North American region. The potential disadvantage is that if the company level is not taken seriously, the value of this department in the development and strategic transformation of the whole company will be limited.
According to Matthew Mitchell, director of business development of veb department, the traditional enterprise venture capital department is an independent organization, while the senior management of Coca Cola company intends to create veb among North American companies. North American company is a business operation Department, which can ensure profit and loss responsibilities, milestones and results.
As mentioned above, Coca Cola set up veb department not to invest in brands to learn and generate investment income, but to hope that the invested brands will become the next billion dollar brands.
4. Organizational structure and operation logic of veb
Organizational structure of veb department, photo source: foodplus
The veb department is not a conventional enterprise venture capital department. In addition to investment, it also does incubation, and for brands joining the veb family, it will deeply participate in operation management and long-term development.
For example, former president Scott uzzell once held an important position in the Zico coconut water brand. He joined Coca Cola’s veb department after wholly acquiring Zico coconut water, and then joined the veb department as president. Steve Jones, the head of core power, was also the chief marketing officer of Coca Cola and the president of Minute Maid. Core power is a brand incubated by a joint venture between the veb Department of Coca Cola and milk producers select milk producers, and fairlife is also a brand of the joint venture.
When the brands invested, acquired or incubated by veb are not formally incorporated into the Coca Cola business department, they are managed by the veb department. This kind of management starts from a small investment, but at the beginning, it is more involved in the way of providing resources and experience guidance. In the later stage, once the veb Department wholly acquires the invested brands, it needs to intervene in the daily operation management Lizhong.
So we can see that many employees of Coca Cola North America company join the veb department and take charge of various positions of its brands, including regional manager, sales planning, on-site execution, etc.
Why deeply participate in the operation management and development strategy of investment and acquisition brand? It has to be mentioned that Coca Cola acquired glac é Au brand in 2007. At that time, there was no veb department. Glac é Au brand was founded around 2000. After 5-6 years, it has developed into a brand with annual revenue of hundreds of millions of dollars. However, Coca Cola did not discover this brand as soon as possible, so it spent a high price in the acquisition, with a total cost of 4.1 billion dollars Yuancai acquired the glac é Au brand under the company.
Although the purchase price is high, glac é Au Vitaminwater and glac é Au smartwater, two brands of glac é Au, have become Coca Cola’s $1 billion annual revenue brands.
In 2007, with the accumulation of M & A experience and the actual development and operation experience of veb department, veb is gradually forming a set of investment incubation and management logic to help Coca Cola find more beverage brands with annual revenue of hundreds of millions or even billions of dollars besides carbonated drinks.
Veb focuses on 5-10 years’ investment, and the beverage brands it invests in may lead the development of beverage market in the future. Therefore, even if the scale has not yet reached a large scale, the veb department can enter from an early stage. However, it is not a very early stage. Instead, the product needs to be preliminarily verified by the market and the revenue scale needs to exceed 10 million US dollars. This is from the perspective of investment.
However, Coca Cola is not totally not involved in the early brand investment, but indirectly involved in it. Coca Cola cooperates with two beverage incubators and early stage investment funds in North America, namely La libations and first beverage group, both of which are leading beverage investment institutions or incubators in North America. The veb Department indirectly holds shares of emerging beverage brands by injecting capital into the two institutions.
Compared with the two institutions, La libations participated in the early stage. Founded in 2009, the company’s team members are mainly Coca Cola company, providing products distribution services for incubated brands in the United States. The incubated brands include aloe gloe, konared, bru, just chill, forto coffee, etc. aloe gloe has been acquired by Coca Cola’s veb department and incorporated into Coca Cola’s business department.
In addition to early venture capital, first beverage group also provides investment banking services, focusing on the beverage industry. Its investment brand is health ade Kombucha, a famous Kombucha tea brand. This gives the veb Department of Coca Cola the opportunity to contact with some relatively mature beverage brands.
Back to the investment logic of the veb department, after years of observation and experience accumulation, the veb Department of Coca Cola has concluded that there are many challenges to successfully develop its brand. Only less than 3% of the brands can achieve a revenue scale of more than $10 million, while less than 1% of the brands can grow to a revenue scale of $100 million. Veb department regards the process of brand development and success as the combination of art and science, and each stage needs different emphasis and corresponding changes in product, supply chain, channel sales, marketing, development strategy, etc.
Coca Cola’s veb division divides beverage brands into five stages, four of them. Photo source: Coca Cola veb
For the growth of beverage brands, the veb Department of Coca Cola will be divided into five stages.
The first stage is the experimental stage. In the experimental stage, the veb Department of Coca Cola will indirectly hold a minority stake in the brand. This stage can be understood as polishing products and defining products, with an annual revenue of less than $10 million.
The second stage is the proof of concept stage. In this stage, veb will directly invest in the brand and hold a minority stake. It has shown that the product has been verified by the market, and the annual revenue is between us $10 million and US $50 million.
The third stage is the rapid growth stage. In this stage, veb will seek to control the brand, or even directly acquire it. That is to say, it basically proves that the brand has the strength to reach the annual revenue scale of US $100 million, and the annual revenue scale is generally between us $50 million and US $150 million.
The fourth stage is the scale winning stage, that is, to become the leading brand in the market, with annual revenue reaching several hundred million dollars, generally more than 150 million dollars to about 300-500 million dollars. At this time, the brand will graduate from the veb department, directly join the Coca Cola business department, and even enter the global bottler system. For example, honey tea has entered Coca Cola’s tea and coffee business and the Mexican bottler system.
The fifth stage is the mainstream brand, which has become a brand with annual revenue exceeding 1 billion US dollars.
5. The history of investment, M & A, incubation and management of Coca Cola’s veb department in the past 11 years
Since its establishment in 2007, it has acquired fuze tea beverage brand and NOS functional beverage brand. Up to now, more than 30 brands have been invested, merged and incubated, including the brands invested by two cooperative incubators & investment institutions.
Beverage brands invested, acquired and incubated by Coca Cola veb over the past 11 years
Among the beverage brands invested, acquired and incubated, in addition to Fuze tea beverage brand, honey tea and Zico are better cases of veb’s investment and re acquisition. In the early stage, they established cooperative relationship with brands through minority equity investment, and helped the brand develop rapidly. After the revenue scale increased to a certain stage, they were wholly acquired and incorporated into the veb department.
For example, before Coca Cola wholly acquired honey tea in 2011, Seth Goldman, its founder, expanded its channels to 15000 retail outlets. By 2014, under the management of veb, honey tea’s retail outlets had reached more than 100000.
In terms of incubation, Coca Cola’s veb department is more inclined to incubate in the form of cooperation, such as illy issimo’s ready to drink coffee and select milk Producers set up a joint venture to incubate fairlife and corepower, which gives Coca Cola a chance to enter the field of milk, but it is not ordinary milk with fierce competition. Fairlife mainly focuses on ultrafiltration milk and corepower mainly focuses on high protein milk, which is mainly aimed at fitness and sports fields.
Many of the investments and acquisitions of veb are not involved in Coca Cola’s main business. For example, after the investment and acquisition of Zico, the coconut water brand, Coca Cola has the opportunity to enter the coconut water field, and honey Tea is an organic tea beverage brand, which gives Coca Cola a chance to enter this field. Suja is a cold pressed fruit juice brand, which is also the leading cold pressed fruit and vegetable juice brand in the United States. In the past few years, it is a new product category with explosive growth in the North American market. After the acquisition of Topo Chico, Coca Cola has a layout in the field of natural gas soaking in water.
6. Innovation inspiration from Coca Cola’s veb Department
In fact, there are good cases within Coca Cola. Innocent is a famous British fruit juice and smoothie brand. Before the acquisition of Coca Cola, it was mainly in the British market and occupied the main share of juice drinks in the British market.
Business comparison before and after Coca Cola’s acquisition of innocent
Before the acquisition, innocent’s product line was relatively single, mainly fruit shakes and children’s fruit shakes. After the acquisition, Coca Cola started from the product structure and expanded its product line from three to eight, including super fruit shakes, fruit shakes, super juice, juice, plant protein, coconut water, bubble water and children’s fruit shakes.
In 2009, it ranked the first among the fruit juice brands in the UK market, and in 2018, it has become the first among the fruit juice categories in the European market, and the sales volume has tripled.
Coca Cola’s business comparison before and after its acquisition of del Valle in 2007
Del Valle is a fruit juice brand in Mexico. After Coca Cola acquired it in 2007, it took the company as a brand and business platform in Latin America, extending from the earliest juice business line to milk, plant-based drinks, tea drinks and other categories. The plant-based drinks ade was incorporated into the Del Valle business segment after Coca Cola acquired it from Unilever.
Impact of past product extension on sales growth of honey tea, photo source: Coca Cola
Through the expansion of product line, the company realized the growth of revenue, which is particularly reflected in honeytea. It has expanded from an organic tea beverage brand to a health beverage brand, and its products have also extended to Kombucha, children’s juice drinks, lemonade, etc. When coke was acquired in 2011, its revenue scale was $22 million. By 2016, it has become a brand with revenue scale of $218 million.
Investment and M & A are only a foundation. After M & A, operation management, product structure expansion and long-term development strategy are the core of M & A. only on this basis can we produce joint M & A and finally realize the purpose of expanding the main business.
7. Thoughts on venture capital, merger and incubation of food enterprises
① The exploration of potential market in the future, especially the direction of investment, M & A and incubation, should not only be independent of the business department and investment department, but also be integrated into the business operation in the core market.
② In terms of the organizational structure of the investment department, the two types of investment departments should be separated as far as possible: cultivating potential business in the future and improving existing business.
③ No matter what kind of investment department is, it has rich experience in business operation and management, which is far more valuable to the enterprise than the Department that only makes investment.
④ If a food enterprise wants to be an incubator and innovation department, it is not enough to only do product and business operation. It also needs to have investment vision, especially for the core team of this department.
⑤ If the departments of venture capital, M & A and incubation are established, but they are not valued by the top leadership of the enterprise, they will often be marginalized and will not play a great role in the future development of the enterprise.
⑥ Domestic food enterprises should focus on the future development, and have the opportunity to explore how to set up internal departments of venture capital, M & A and incubation as soon as possible. China’s future food market will certainly shift from marketing, channel orientation to consumer and product orientation, and layout ahead of time can save a lot of costs, especially opportunity costs. ) food venture capital insight by foodplus
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