Coca-Cola: Middle classes ‘somewhat confused and fragile’

18-Jul-2011 - Last updated on 19-Jul-2011 at 15:15 GMT

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Kent: Targeting a billion new middle class consumers

While the middle classes in developed markets had emerged from the economic downturn “feeling somewhat confused and fragile”, Coca-Cola still generated robust volume growth in North America as well as faster-growing emerging markets in the second quarter, said bosses.

In a conference call with analysts this morning, chief executive Muhtar Kent said volumes were up 4 percent in North America and 6 percent worldwide in the three months ending July 1, with growth driven by the Coca-Cola brand, which was up a “solid 4 percent”.

The results were ahead of the soft drinks giant’s long-term growth targets, said Kent: “Importantly, we are delivering these strong results at a time when global macroeconomic conditions are at best mixed.

"Even as consumers around the world continue to feel the impact of a slow economic recovery, they increasingly choose our brands to refresh themselves."

Powerade up 9 percent in North America

In North America, Coke Zero was generating double digit growth, energy drinks were growing in the double digits, Fanta was delivering high single digit growth and Powerade was up 9 percent, he said.

As for juices, “certainly commodity pricing was a challenge, but we’ve put that behind us and still generated growth with our Simply brand and believe we have the right propositions going forward both at the higher end with Simply and Odwalla but also in the mid range with all the innovations on Minute Maid.”

On commodity pricing, there would be “some pressure next year but nothing like we’ve seen this year”, while the firm had also secured “very favorable hedge contracts in place for corn for 2011”, said chief financial officer Gary Fayard.

Double digit growth in China

Coca-Cola, which is investing a whopping $25bn into its business over the next five years, had doubled in size in China over the past five years and notched up double digit growth in volumes there in the second quarter, revealed Kent.

There would also be a greater emphasis on single serve products in China and other emerging markets to meet the needs of the growing urban middle class, he said.

“One billion new consumers will be entering the middle class by the decade’s end.”

Growth in Japan was stronger than expected while sales in Latin America were driven by double digit growth in Mexico and strong sales in Brazil and Argentina.

Meanwhile, the opportunity for growth in Sub-Saharan Africa was “significant”, he predicted.

Productivity initiatives ahead of plan

Group net sales surged 47 percent to $12.7bn in the quarter ending July 1, boosted by the acquisition of Coca-Cola Enterprises' North American operations, while operating profit leapt up 15 percent to $3.2bn.

Meanwhile, “productivity initiatives” were ahead of plan, and on track “to slightly exceed the upper end of our original targeted range of $4-500m in annualized savings by year-end 2011”, said Fayard.