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Less is more, says Coca-Cola's Isdell

By Chris Mercer , 21-Apr-2006

Quality not quantity was the catchphrase for Coca-Cola at its first quarter results conference, as the group said it would sacrifice volumes for higher margin beverages to lift profits.

Neville Isdell, Coca-Cola chief executive, said the soft drinks giant wanted to build on promising growth from coffee cola drink Coca-Cola Blak in France, as well as strong performances for energy drinks in North America.

Isdell said these were examples of slightly niche, higher margin but lower volume drinks that Coke had launched recently. "That's a strategy you'll want to keep your eye on going forward," he told analysts at a results conference Wednesday.

 

Coca-Cola, alongside many soft drinks firms, has seen profits and margins under fire over the last couple of years as it has struggled to cope with a shift in consumer demand away from carbonated soft drinks.

 

There was more trouble for Coke in Europe in the first quarter of 2006, with operating profits across the European Union tumbling 11 per cent compared to the same period last year.

 

Drinks sales in the bloc fell 21 per cent, although the group said 14 per cent of this was due to disruption and restructuring in Spain. Difficult conditions in Germany and a shrinking fizzy drinks market in Britain were also to blame.

 

Isdell, however, said Coca-Cola's recovery was still on track after what he termed a "transition year" in 2005, which actually saw PepsiCo overtake Coca-Cola in market value for the first time in 112 years of rivalry.

 

"A strong pipeline of innovation," will keep Coke moving forward, Isdell said, although he dismissed the idea of Coke branching out from nonalcoholic drinks in an interview with the Wall Street Journal earlier this week.

 

He said Coca-Cola Blak's debut in France had gone "extremely well" and that "we have new capacity coming in to try and meet demand in the peak season".

 

The firm has launched a huge marketing campaign for Blak across the country, complete with retro designs and images targetting young, fashion-conscious consumers.

 

Initial feedback from French consumers, gathered by BeverageDaily.com, indicated some scepticism, yet mostly curiosity in the new coffee cola combination.

 

Isdell said it was too early to discuss the progress of Blak in North America, but instead told analysts that Coke had made significant gains in the related energy drinks sector there, thanks to brands such as Full Throttle and Tab Energy.

 

Coke has taken advantage of a fairly splintered energy drink market to rise from a one per cent share in early 2005 to number two in the sector, Isdell added.

 

The usual suspects - Dasani bottled water and the Powerade sports drink - also drove a seven per cent sales rise for Coca-Cola's noncarbonated drinks division, and helped the firm post an eight per cent sales growth overall for North America.

 

Emerging markets, too, continued to provide sustenance to Coca-Cola's finances, as they have for several other big food and drink firms.

 

Coke picked out Russia, China and Turkey for particular mention, and reported strong volume growth across these three.

 

Latin America also performed well, posting a 22 per cent sales rise, with Mexico and Brazil proving there is still room for more carbonated drinks in the world. Coca-Cola's carbonated volumes rose six per cent in Mexico.

 

Coca-Cola's total net sales were flat for the first quarter at $5.2bn (€4.2bn), while net income rose 10 per cent to $1.1bn (€891m).