A few days ago, the snack generation introduced the latest information about Coca Cola’s low-key test of cold tea drinks in the mainland, which caused industry discussion. In fact, from selling wine to selling herbal tea, there is an invisible “baton” behind Coca Cola’s all category strategy. Why should we intensively test various new products, and how to choose which new products to spend money on
Xiaoshidai noticed that James Quincey received a series of sharp questions at the 38th annual strategic decision-making meeting of Bernstein held recently. In this regard, the leader recently dismantled the ideas behind Coca Cola’s overall category layout and the logic of entering new categories.
James Quincey, chairman and CEO of Coca Cola
We might as well listen to him.
Why cross the border?
When explaining why he entered into alcoholic beverages, Zhan kunjie cited the example of “lemon Dou”.
“We have launched a hard lemon sparkling wine (hard drink refers to the beverage containing alcohol, and non-alcoholic beverage is called soft drink), which is called lemonade.” He said. As introduced by the snack generation, the Coca Cola company’s alcoholic beverage lemondao (called “lemontang” in the Japanese market) was first sold in Kyushu, Japan, in May, 2018. In September last year, this low flavor liquor product also entered the Chinese market.
Zhan kunjie said at the meeting that Coca Cola was inspired by the Japanese market when it launched this product to test the water. “There, many of our local competitors have other flavor alcoholic beverages, beer, wine and spirits while operating a variety of soft drinks.”
“Although we may not be able to compete head-on in the bar, in places like convenience stores, this is our home (which means that our channel advantage is not lost). When you look at the most popular alcoholic beverages, unlike wine or many other types of wine, they can basically be manufactured relatively directly in the soft drink factory (which means that our supply chain is also feasible).” He said.
In his opinion, if Coca Cola sells alcoholic beverages, “we will face the same competitors, go to the same retailers, and can use the same production lines. Most of the raw materials are the same. We will still purchase aluminum cans, water and lemons. The only difference is that we want to purchase alcohol.”
“So, if consumers are interested in trying new things and it has attractive profits, why don’t we take advantage of these (existing) advantages? Others do the same. So we launched lemonade in Japan.” Zhan kunjie said.
The new product test was successful.
“Lemonade has performed very well in Japan, gaining a good sales rate, a good market share and a good profit. So we thought, well, although not everything will be popular from Japan to other places, since it can succeed in Japan, we might as well try it in other places. Therefore, we tested the water in the Philippines, and it is also selling very well in the Philippines.” Zhankunjie.
Obviously, this soft drink giant is not a whim to open up new wine business. Zhan kunjie believes that Coca Cola’s success in selling wine across the border is due to the fact that the consumer knowledge and business operation system required behind these new beverage categories are “close enough” to the one Coca Cola and its bottlers have been good at for many years, so they can compete effectively.
Logic of the whole category
Speaking of the logic for Coca Cola to enter the new track, Zhan kunjie said that the products need to have large-scale market potential.
“We are not interested in simply dabbling in a certain category, which is of little significance to Coca Cola’s figures (Note: here refers to revenue, profit, etc.). When we test the waters of these new products, we need to have such a perspective: once they are successful, we can scale up, which will be related to Coca Cola; only in this way can we have something worth discussing.” He said.
He stressed that Coca Cola would not expand in order to expand its categories.
“We don’t need to put pictures on the PPT to say that we have laid out each category, which is useless. What we need is (new category) that can have an impact on our total number after success. All these experiments are based on this idea. We don’t want to sell a few cans of water because it (if the scale potential in the future is small) will not have any impact on us or bottlers in the end.”
Take alcoholic beverages as an example.
Zhan kunjie said that the flavored alcoholic beverages can be divided into three categories: 1) hard seltzer, which is an alcoholic beverage with air, usually has different flavors, such as TOPO Chico with strawberry guava flavor, which has been listed in China; 2) Alcohol + hard something, hard lemon or hard tea with alcohol, such as lemon channel; 3) Pre mixed cocktail.
“All these (new product actions) need to start with a deep insight into consumers. You can’t say I can do it, I will launch it.” He said, “we also need to learn from and accumulate experience in different markets to think about. We still need to consider whether these three categories of alcoholic beverages are a big enough idea (with large-scale potential) worth pursuing by Coca Cola.”
When talking about how to promote the growth of these new categories, Zhan kunjie said that different markets will face different situations. “We can clearly see that hard soda sparkling wine accounts for a very large proportion in the United States, while the other two categories are relatively inferior. In Japan, hard lemon sparkling wine accounts for the largest proportion among the three, so different markets will be very different.” He said.
“When we launched TOPO Chico hard soda sparkling wine around the world, it resonated in some countries. In some countries, there has been a new category of hard soda sparkling wine, so you just need to release new products without category education. In other countries, this category does not actually exist, so you still have to try to open up this category market at the same time.” He said.
In addition to alcoholic beverages, coffee is one of the key categories that the carbonated beverage giant is expanding. “You made a big acquisition in the coffee field before. Now Costa’s business covers about 40 countries. Do you see the path of Coca Cola to the leading position in coffee?” Zhan kunjie was asked at the meeting.
“To put it simply, our vision for coffee is to have some coffee stores and Costa Express (Zhan kunjie said).
He said that Coca Cola still has the same vision when it acquired Costa. Unfortunately, the epidemic is “particularly unfriendly” to this strategy, because most stores have faced great challenges in the past two years.
“We have developed this strategy, but we don’t have time (in-depth) to implement it before the outbreak. So (whether we are on the way to coffee leaders) it is still uncertain, but we have completed part of the work.” Zhan kunjie said.
For example, Costa’s ready to drink coffee performed well, “we have done very well in China, and we are undoubtedly the second (Note: This refers to the first tier cities in China)”. As for the self-service coffee machines, he said: “when everything is turned off, they are difficult to sell because you want to put them offline.”
Since joining the Coca Cola family in 2019, Costa has changed from a single store business to an “all-round coffee company”.
Costa China’s total business has developed very rapidly. “The sales have greatly exceeded our expectations, and the repurchase rate is very high. We will continue to work on this category in the future.
So far, Costa has three business segments in China:
Back to the forum, “so I think the simplest answer is that we (Costa) still hold basically the same assumptions and investment reasons, but the past two years have not allowed us to go too far, so before we really implement it, everything has not been finalized.” He said.
He also stressed that in the past two years, the company has learned a series of things, whether it is about stores, digitalization, Costa express, etc.
“What I want to say is that we have accumulated experience in every aspect, which is necessary to win. Therefore, we have been able to improve our plan, and we have made innovations in every aspect. From a large perspective, this is actually just a matter of implementing (established) strategies.” Zhan kunjie said.