Innovation drive hits Coca-Cola profits

By Chris Mercer

- Last updated on GMT

Coca-Cola saw profits tumble by more than a quarter in the last
three months of 2005, underlining the challenges that still lie
ahead for the soft drinks firm in 2006.

Coke's profits fell from $1.2bn to $864m in the fourth quarter of last year, mainly due to double-digit increases in marketing and innovation spending. Full-year profits rose 0.5 per cent to $4.87bn.

Emerging markets such as Russia, China and Latin America held up sales, which rose 5.7 per cent to $5.5bn in the fourth quarter, despite dips in the UK and France.

Double-digit growth from non-carbonated drinks, especially the Powerade sports drink, Dasani bottled water and Minute Maid, have also continued to prop up the group's stumbling regular fizzy drink line-up.

Neville Isdell, Coca-Cola chief executive, re-iterated that 2005 had been a transition year for the soft drinks giant.

He said the firm had delivered "solid unit case volume growth that was well balanced between carbonated soft drinks and non-carbonated beverages"​, and that Coke had a "well-developed pipeline of innovation and marketing"​.

Analysts have criticised the firm for neglecting product innovation over the last few years. And arch-rival PepsiCo's better adaptation to consumer health trends recently saw it overtake Coke in market value for the first time in 112 years.

Isdell and Coca-Cola have worked hard to turn the situation around, launching a new marketing campaign under the banner - 'welcome the Coke side of life' - and promising more new products.

"We are looking forward. Several innovations have taken place, and more will be taking place in the next few months,"​ said Coca-Cola Europe spokesperson Steve Leroy after the firm announced late last year it would launch its new coffee cola drink, Blak, in France.

The firm said this week improving its tea and coffee portfolio proper was also a key focus for 2006, after it lost market share in these sectors last year.

Mary Minnick, Coca-Cola global marketing president, said at an analyst conference last December the group was planning to launch a tea and coffee brand in 2006 using a new dispensing technology.

Functional drinks is another area that has begun to catch Coca-Cola's attention. The firm is attempting to get EU-wide approval for a new juice drink containing plant sterols.

And its North American bottling arm, Coca-Cola Enterprises, recently signed a 10-year distribution deal with Bravo! Foods - producer of vitamin-enriched, flavoured milk drinks.

Major PR challenges, however, still await Coca-Cola this year on both obesity and alleged human rights abuse.

The group recently joined other soft drinks firms to voluntarily ban advertising to children under the age of 12 across the European Union. It has also, alongside the American Beverages Association, pulled fizzy sodas out of US elementary schools.

But, a loose network of lawyers, nutritionists and campaigners in the US have spent the last 15 months preparing a lawsuit against soft drinks firms to get all of their products out of schools.

Professor Richard Daynard, a lawyer who has already taken on the tobacco firms and who is working on the case against soft drinks firms, told​ the suit was now ready to go.

The action is expected to allege that soft drinks in schools breach state consumer protection laws and that vending machines are illegal as an 'attractive nuisance'.

As if that is not enough to contend with, Coca-Cola individually also faces an increasingly intense battle for its image over human rights and environmental practices.

The University of Michigan banned Coca-Cola products from its campus in January, saying the firm had missed the 31 December deadline to set up third party investigations and protocols to assess events in Colombia and India.

Michigan followed the Universities of New York and Rutgers in banning all Coke products, bringing the number of bans to 21 among North American colleges and universities. Another 130 are thought to be considering their options.

Coca-Cola has repeatedly and vigorously denied allegations of malpractice and disrespect for human rights. It announced in January it was "facilitating the design and development of another credible, objective and impartial independent third party assessment in Colombia during the first quarter of 2006"​.

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