Despite Coke’s worrying soda sales slide, CEO Muhtar Kent revealed yesterday that not-from-concentrate juice brand Simply Orange brand bucked broader category declines to grow double digit in the US last year.
Kent devoted his opening remarks to analysts – following the company’s Q1 earnings announcement yesterday – to laying out Coke’s plans on “restoring momentum” in sparkling drinks.
Modest 2% global volume growth – the fourth quarter of growth below Coke’s long-term 3-4% target – saw strong 8% growth in still drinks offset by a 1% decline in sparkling.
Net operating revenue fell 4% year-on-year to $10.576bn in Q3 ending March 28; net income attributable to shareholders fell 8% to $1.619bn.
Analyst concerned by Coke’s near-term growth trajectory
“Given the ongoing pressure we have seen on volumes, particularly sparkling which registered a 1% decline, we continue to remain concerned about the near term trajectory of Coke’s volume growth,” Wells Fargo senior analyst Bonnie Herzog warned in a note yesterday.
“However, with the benefit of the Easter holiday in Q2 and initial positive momentum from its recently announced strategic priorities, we believe FY2014 may represent a critical infliction point with Coke returning to its long-term volume growth target,” she added.
Trailed by Kent, Coke’s five strategic priorities mentioned by Herzog above include (1) accelerating sparkling growth (2) expanding its still portfolio (3) increasing brand investments by $400m in 2014 (4) winning at point of sale (5) investing in next generation leaders.
Not surprisingly, Kent focused on Coke’s success in stills during yesterday’s call with analysts, saying: “We’re building on our leading juices and juice drinks portfolio growing 3% in the quarter.”
“This was fuelled by exceptional brands like Simply Orange which grew double digit in North America and Minute Maid Pulpy, which grew 8% in China,” he added.
The success of Simply Orange is marked, with Nielsen data showing Simply Orange sales of $1.06bn in the 52 weeks ending August 11 2013, making it the No.1 US orange juice brand ahead of Tropicana and helping Coke to a 22.1% total market share in US juice.
Nielsen retail sales data for the 2012-13 season ending September 28 show that total orange juice volume sales fell 0.8% in the US to 560.76m gallons, while market value fell 1.1% to $3.474bn.
‘Black Book’ helps Coke standardize Simply Orange
And Mintel analyst Beth Bloom wrote in a November 2013 report that, while juice and juice drinks benefit from a health halo, perceptions of high calorie content and sugar have stunted growth.
“More and more, health professionals are pointing to the dangers of juice consumption and encouraging moderation, or elimination, especially among children,” Bloom said.
But Simply Orange (founded in 2001 by Minute Maid) bucks the trend, attracting consumers to pay a price premium for a not-from-concentrate juice promising no added water, sugar or preservatives.
However, a recent Bloomberg Business Week article said, “Simply Orange juice is anything but pick, squeeze and pour”, since Coke uses its secret Black Book algorithm to blend juice to create a standardized product.
The hugely complex algorithm reportedly catalogs 600 orange flavors, datasets including weather, satellite imagery, expected crop yields, regional consumer preferences, acidity, sweetness, etc.
'100% pure'? Simply Orange under fire
It's worth noting that Simply Orange hasn't escaped the notice of class action lawyers, who urge similar arguments against the brand as those used against PepsiCo brand Tropicana, in numerous ongoing class actions.
A current class action launched in 2012, 'Re: Simply Orange Orange Juice Marketing and Sales Practices Litigation', is currently before the US District Court, Western District of Missouri.
The plaintiffs allege that the brand makes false and misleading claim in stating that it is '100% pure' and 'natural', due to processing.
But the brand insists that the manufacturing practices in question are precisely those permitted by the Food and Drug Administration (FDA) to ensure consumers receive safe, high quality and affordable orange juice.