The Coca-Cola Company
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TheThe CocaCoca--ColaCola CompanyCompany Latin America Investors Meeting – May 2004 ContentsContents -- IntroductionIntroduction toto CocaCoca--ColaCola LatinLatin AmericaAmerica -- 20032003 PerformancePerformance ReviewReview -- 20042004 HighlightsHighlights -- SummarySummary 2 HowHow AreAre WeWe OrganizedOrganized Latin Center (Central America & Caribbean, Mexico Venezuela, Colombia & Ecuador) > 2.2 Billion UC > 680 MMUC Martin Machinandiarena Dan Sayre Brazil South Latin (Argentina, Chile, Peru, Bolivia, >1 Billion UC Uruguay & Paraguay) Brian Smith > 760 MMUC James Quincey (Volume Figures – 2003) 3 LatinLatin AmericaAmerica-- 4141 CountriesCountries,, 100+100+ KOKO BrandsBrands Honduras Mexico Per Caps- Total Products 184 527 % NARTD share % 23.9 % 30.5 $ 958 $ GDP Per Cap $ 5,773 Colombia 73 Guatemala % 11.5 107 $ 1,767 % 19.7 Venezuela $ 2,042 139 % 32.5 Ecuador $ 3,139 162 Brazil % 36.4 $ 2,030 135 % 18.9 Peru $ 2,539 105 % 35.5 $ 2,200 Argentina Chile 220 350 % 23.2 % 53.6 $ 3,323 $ 4,723 Information Dec ’03 GDP Per Cap Source: March ’04, Latin America Monitor 4 NARTD Share and Per-capita consumption source: Inform KO With A Great CSD’s Business - The Largest Beverage Category 2003 Latin America NARTD Industry KO Share of Category Sport Drinks Tea 22% Juices 66 MMUC Fruit Still 264 MMUC Tea Drinks 23 MMUC 360 MMUC Sport Drinks 9% Juices 1% Packaged Water SS Fruit Still 8% 2.3 Billion UC Drinks Packaged 5% CSD's Water SS 7.3 Billion UC CSD's 59% 0% 50% 100% Source: Canadean ‘03 5 Lead KO System With A Clear Understanding Of Environment Dynamics 20032003 • Economic slowdown • Government holding socioeconomic Mexico structural changes • GDP 1.3% Restricted • International confidence Economic Brazil • Consumer purchasing power still constrained Conditions • GDP <1% • 2 month strike Venezuela • Unstable conditions • GDP (-11%) • Peruvian Family • Operations in Peru, Venezuela, Ecuador, Mexico • Entering in Costa Rica Evolving • Moving closer to PDBs Competition • Shifting strategies to compete more aggressively in Pricing Other • Competitor’s efforts to gain leadership in Categories Non-CSD’s segments 6 Keeping A Solid Market Position PBG • ’03 volume +1% Kola Real Reducing prices • Reducing Share of CSD’s in Venezuela -0.8 pp Kola Real • Share of CSD’s Below 3% and stable Gallito • 0.4% Share of CSD’s & stable Tubainas • Not growing • Reducing Share of CSD’s -1.4 points vs Jan ‘03 Kola Real • Reducing share of CSD’s in Ecuador -2.0 pp vs Jan ’03 PDB’s • Reducing Share of CSD’s in • Stable in Peru Chile -1.3 pp vs Jan ’03 • Stable in Argentina Information Jan ’04 Source: Nielsen / TRAC Worldwide Ltd (Peru & Ecuador) / Datos I.R.I. (Venezuela) 7 And Continue Producing Solid Results • Maintained share of NARTD across LA SBU • Build a New Business Model in Brazil • Emerge stronger after crisis in Argentina & Venezuela • 4% volume growth in 2003 • Launched a new Pan-Latin America platform for Coca-Cola - “De Verdad” advertising drove efficiency / effectiveness - Common platforms for main programs • Continue successful innovation on CSD’s - Vanilla Coke, Coca-Cola Light with Lemon - Lift Manzana Verde, Fresca Rosa, Fanta Free, Kuat Naranja, Nativa, etc. 8 MexicoMexico 9 Consistent Performance Volume 7% CAGR • Volume & Profit growth • Healthy Coca-Cola Brand with stable indicators MMUC KO gap vs Nearest Competitor - Daily Consumers 7 : 1 - Favorite brand 5 : 1 1999 2000 2001 2002 2003 - Positive purchase intent 2 : 1 - Consumer base 3 : 1 Operating Income Currency Neutral 13% CAGR* • Successful innovation in CSD’s - Vanilla Coke, Lift Green Apple, Fresca Rosada MM $ • Leadership in Water Business - Acquisition of Risco Brand /100% conversion to Ciel 1999 2000 2001 2002 2003 - Reached Category Leadership in •Reported Operating Income grew by 9%, plus a 4% personal packs Negative Currency Impact, resulting in Currency Neutral Operating Income of 13%. 10 BrazilBrazil 11 AA CoupleCouple OfOf YearsYears Ago…Ago… Drastic Hyperinflation fluctuations in / devaluation purchasing bursts power Consumer, Trade, Competitive Transformations Heavy informality, significant tax evasion Unstable political environment, volatile rules 12 Our System Confronted Tough Conditions, Developing an Operating Mentality Anchored in ... 1998-2002 KO Volume & Rev/uc Indexes, Share Trends 114 120 100 Volume Index 100 Protecting Volume – 80 Share / Focus on 60 48.5 50.4 pricing 100 Share of Sales 40 69 20 Rev/uc Index 0 1998 1999 2000 2001 2002 2002 Few Package Options 2L PET 2/3 of volume Mix 13 TheThe DynamicsDynamics OfOf TheThe OperatingOperating MentalityMentality CreatedCreated AA ViciousVicious Circle…Circle… ChronicChronic SystemSystem DisalignmentDisalignment CapabilityCapability CuttingCutting NoNo ProfitProfit // ROICROIC MentalityMentality Low System Profitability RestrictedRestricted Price-DrivenPrice-Driven PortfolioPortfolio && ConsumerConsumer ExecutionExecution RestrictedRestricted DifferentiationDifferentiation 14 InIn 2003,2003, CreatedCreated AA NewNew BusinessBusiness ModelModel Have taken significant steps • Agreed to long-term strategy with AlignedAligned && our bottling partners HealthyHealthy BottlersBottlers • Worked in close partnership with BrandsBrands ProfoundlyProfoundly bottlers to offer new packages and Sustainable AnchoredAnchored withwith ValueValue DrivenDriven tailor customer options to drive Profitable Growth revenue & profit growth LoyalLoyal CustomerCustomer ConsumersConsumers RelationshipsRelationships AcrossAcross KeyKey SegmentsSegments • KO organization restructured & realigned with strategic priorities SegmentedSegmented && DifferentiatedDifferentiated BPPCBPPC Arch.Arch. • Recalibrated prices for value creation Organizational Capabilities • Rebuilt Execution Capabilities 15 GeneratingGenerating PositivePositive ResultsResults +2.2 pp Coca-Cola brand growing share of volume System profit increasing significantly 2002 2003 +50% +2.4 pp 2002 2003 And also share of value 2002 2003 16 ArgentinaArgentina 17 From Strong Economic Expansion to Deflationary Recession - To Abrupt Implosion 21% Decline in GDP since it’s peak Post Default & Chaotic 295 Devaluation 285 275 265 Consumers resetting values/relationships & 255 +7% Annually looking for security 245 Real GDP - GDP Real AR$Bn 235 -21% 225 I-02 I-99 II-01 II-98 III-00 III-97 IV-99 IV-96 Real GDP Source: INDEC (Instituto Nacional de Estadística y Censo) 18 Cohesive plan to Emerge Stronger; organization restructured to drive it Emerge Stronger - Protect consumer base with focus on Coke, while strengthening relationship with our brands - Ensure System financial & operational viability - Reset Customer relationships & gain execution advantage - Retain solid foundations in Quality, Government Affairs & Community Relationships 19 Historic opportunity to strengthen Coca-Cola’s connections with consumers Committed to deep consumer understanding to define relevant actions - In real time - Coke plan rebuilt aligning tone, style, and mechanics to new Continuous Tracking of Consumer reality • Perception Social Environment Identity Continuous • • Continuous Tracking of Consumer Crisis Engagement Tracking of Social Moods & Values Environment “ Refreshing the mood “ Targeted Deep Dives & Experiential Research Universal/Teen “ Connecting Coke leadership with Argentine dreams “ New Couple/Family Xmas “ Reinforce loyalty thru value with moms and newly unemployed dads” Xmas Promo Affordable Packages “ Provide access to the new poor to KO beverages “ RefillablePackages “It’s what’s inside that matters” 20 OurOur EmergeEmerge StrongerStronger StrategyStrategy WorkedWorked • 13% volume growth vs +5% in NARTD Industry +7.6% in GDP • 19% growth in Coca-Cola / 15% Rest of CSDs • Per Capita Consumption +24 vs PY • Improving Coca-Cola brand indicators - Favorite Brand +1.3 vs PY - Worth what it costs +1.7 vs PY 21 VenezuelaVenezuela 22 KO System Was Strained By A Deteriorating Socio-Economic Situation Socio-economic Situation Consumer - 2 month general strike in Dec ’02 & Jan ‘03 …dramatically deteriorated purchasing power; changing habits to “make ends meet” - GDP declined -11% in ’03; unemployment at 24% - Exchange control during all Trade year …Adjusting inventories, focusing in high rotation items, speculating with non-controlled - Inflation accelerating at 27% price items - Extreme political uncertainty 23 Clear Roadmap to Drive Profit Growth - Strengthen Coca-Cola Connections with Venezuelans - Lead Category Package & Price Architectures - Strengthen In-Market Presence - Accelerated system costs reductions / efficiency improvements ... Always Maintaining high level of flexibility to cope with uncertainty 24 We Obtained Exceptional Results With Coca-Cola Brand Despite a Very Challenging Context - Volume Increase >10% vs. 2002 - Share of market: -Coca-Cola market share +4.3 pp (Dec’03 vs. Nov’02) - Consumer Indicators (Dec’03): Gap vs. Nearest Competitor • Favorite brand: 2 : 1 • Consumer base: 1.3 : 1 • Daily Drinkers: 2 : 1 - Positive System Profit Swing 25 20042004 26 Improvement in Economic Conditions … Total LA GDP from 1.5% in ’03 to 3.0% in ‘04 Mexico - On the road to recovery - Potential for a more solid growth Brazil - Strengthening economic condition - Growing internal consumption - Structural reforms (taxes, energy) Argentina - Some positive signs, but some uncertainty remains Other Countries: the usual mixed picture Stable (Chile) Modest (Peru, CA&C) Volatile (Venezuela, Dominican Republic) Chaotic (Haiti) 27 Managing Our Portfolio Latin Center Mexico • Accelerate growth in