Daniel Gross explains why Coca-Cola’s next CEO is unlikely to replicate the growth levels of the past:
Coke’s next CEO will also apparently need the ability to overturn some basic economic rules. Once a national or global economy is sufficiently developed, exponential growth is impossible and even incremental growth becomes more difficult. The same argument applies to certain global brands like Coca-Cola, which has enjoyed exponential growth over its 118-year history. There is a limit to how much Coke the world’s population wants—or can afford—to consume. And from the looks of things, we’re bumping up right against it.
Of course, there’s population growth. And the fact that large sectors of the world’s population can’t afford expensive sugar water. Yet. Plus, I rather like the new Diet Coke with Lime.
Gross responds to some of this:
With U.S. Coca-Cola growth leveling off, future growth must come from the portions of the world where drinking Coke isn’t a daily habit. In its 2002 report, Coca-Cola noted that in Asia (population 3.3 billion), people consume about two servings of company products per month, while in Africa (population 831 million), average consumption is three servings per month. But the majority of the consumers in these untapped markets are living in relative poverty. They can’t afford to buy sugar and bottled water, much less pay a premium for a fizzy combination of the two substances. As a result, growth in these developing regions has been muted, too.
The economies of India and China are growing rapidly. But GDP per capita in those countries is just $500 and $1,200, respectively. And it will be several more years before huge chunks of the Indian and Chinese population have sufficient disposable income to spend on Diet Coke or Sprite. In the meantime, the business infrastructure that allows Coca-Cola to produce and distribute its products efficiently—and hence profitably—is sorely undeveloped in these massive potential markets. In 2003, according to Coca-Cola’s 10-K, sales in Africa and Asia rose 5 percent and 4 percent, respectively. For sales from these regions to make a significant contribution to Coca-Cola’s overall revenues, they’d have to rise at a pace several times greater.
A problem to be sure.
What if they made Coke also play MP3s and bundled it with Bacardi Rum, which they also own?
And, clearly, they’re not making full use of their brands in the U.S. For example, “Bimbo Break” would sell incredibly well over here. Indeed, just the Clinton and Kennedy families alone would make it worthwhile. And “Guarana Jesus” would certainly be a bestseller–especially with all the attention generated by the Mel Gibson movie.
