Coca-Cola Co. continued to face an uneven recovery around the world as the economies remained under varying levels of pressure from the coronavirus pandemic.
In the third quarter, Coke’s global case volume dropped by 4 percent and revenues declined 9 percent from the previous year to to $8.7 billion, with performance in each market determined largely by local lockdown measures and how dependent Coke is on the “away-from-home” category, which includes restaurants, bars and sporting events. Globally, the segment accounts for about half of Coke’s business. At the height of the shutdowns in April, case volumes were down 25 percent.
“We continue to see progress, but the environment remains dynamic, and it is not a straight-line recovery around the world. Different markets are seeing varying degrees of impact,” CEO James Quincey said in an earnings call, adding that volumes improved in some markets as governments allowed activities to resume with some restrictions.
“In Latin America, volume improved as government restrictions eased, specifically Brazil continues to be an outperformer, but economic pressures remain and our recovery in Mexico has been slower than expected,” Mr. Quincey said.
China is seeing a strong recovery after thwarting the virus’s spread, while Japan and India — two key markets for Coca-Cola — are showing positive signs, he said. E-commerce is growing quickly, while grocery showed solid growth.
Executives also announced in an earnings release that Coke would cull about half of its brands globally, about 200 in all, to focus on those showing greater growth potential, like the newly rolled out Coca-Cola Energy and AHA! sparkling water. TaB diet soda, Zico coconut water, Odwalla juices and certain regional offerings are among those to be cut.
Mr. Quincey noted in the call that some would be integrated into regional or local brands. The “hydration” category — water and sports drinks — figures to be one of the biggest casualties.
CFO John Murphy said the brands to be cut only make up about 1 percent of global sales, with the expected increase from growth brands expected to offset any revenue declines.
Mr. Quincey said the move doesn’t mean scaling back local-market innovation, but freeing up resources so that those winning brands could be scaled up more quickly.
“We’re focusing on bigger, more scalable bets,” Mr. Quincey said.
The company has rolled out TopoChico hard seltzer in Mexico and Brazil at the moment, with plans to launch it in the U.S. through a brewing partnership with Molson Coors.
In Europe, most of the Costa Coffee retail stores that the company purchased for $5.1 billion to become a global cross-platform coffee player have been reopened, with more than a million people logging into to take advantage of a promotion via the new Costa app and Costa machine revenues serving as a bright spot. Still, sales in the Global Ventures category (where Coke integrates new acquisitions) were down 19 percent.
Coke is also continuing a global restructuring that will reduce the number of business units from 17 to nine and reducing its staffing levels. The company announced in August that it would offer buyouts to 4,000 employees in the U.S., with similar programs set to be instituted in other markets.
Mr. Quincey said the core of the restructuring was in place before the pandemic, but that the new environment has accelerated timelines.
“The pandemic has been a catalyst of change for our company, but the initial work behind our strategic transformation was in motion for some time before the crisis hit. We’ve been challenging legacy ways of doing business, and the pandemic helped us realize we could be bolder in our efforts,” he said.
See the earnings release here and a transcript of the call with analysts here.
