Coca-Cola’s Campaign Against Obesity Can Actually Help It Gain Market Share

The Coca-Cola Company (NYSE:KO) recently launched a program against obesity, one of the biggest issues popularly associated with consumption of sugary beverages. So why does Coca-Cola think it would be wise to be a part of the solution instead of focusing on its core business of selling soda? Coca-Cola is aiming to increase consumer engagement and in turn build upon its brand equity by committing to the solution of a widespread societal problem.

Coca-Cola is the world’s leading beverage company, selling more than 500 sparkling and still brands. The company sells non-alcoholic beverages in nearly every category – from sparkling beverages to water, enhanced and flavored water beverages, tea, coffee, juice and juice drinks, sports beverages and energy drinks. Led by Coca-Cola, its most valuable brand, the company’s portfolio features 16 billion dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle.

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How Is Coca-Cola Related To Obesity?

Coca-Cola sells soft drinks globally, which are popular sugary beverages. The consumption of these beverages has been found to be closely linked with obesity and other health related issues. A research paper recently published in the American Journal of Public Health, used a multivariate linear regression model to establish the relationship between soft drink consumption and the prevalence of being overweight, obese or diabetic in 75 countries. The research concluded that: “Soft drink consumption is significantly linked to overweight, obesity, and diabetes worldwide, including in low- and middle-income countries.”

What Does Coca-Cola Plan To Do?

Earlier this month, Coca-Cola announced a set of four business commitments, which it vows to fulfill across all its markets in order to help resolve the issue of obesity. These four commitments broadly include offering low- or no-calorie beverage options in all the markets it serves, increasing transparency on nutritional information by front-labeling the amount of calories in each of its products, promoting physical activity programs and controlled marketing of its products, including no advertising to children under the age of 12. ^[1]

Coca-Cola currently offers nearly 800 low- or no-calorie beverages that make up 25% of its global portfolio. Going forward, we can expect the percentage share of these offerings to increase as the company fulfills its commitments. Controlled advertising on the other hand entails limiting broadcast of its ads in all the markets it serves to audiences where no more than 35% of viewers are children, which is similar to the rule it currently follows in the U.S.

By highlighting calorie count on its products, Coca-Cola is in a way asserting its role of providing choices to its consumers. In another way it could imply advertising their low- or no-calorie beverages at the expense of the regular ones. Moreover, the promotion of physical activity programs by funding organizations that are running such programs will help the company increase consumer engagement in a way that its associated with social awareness.

How Would It Impact Coca-Cola?

Due to the limited scope for product differentiation through innovation in the sugary beverages segment, market players have been relying on advertisements and consumer engagements as primary tools for brand building. We believe that the recent announcement of its commitment to fight obesity is primarily a brand building initiative on the part of Coca-Cola. The company already holds leading share (~34%) in the U.S. liquid refreshment beverages (LRB) market by volumes, followed by PepsiCo, which holds more than 26% of the market. Two of its brands, Coke and Diet Coke, together command almost 27% of the U.S. carbonated soft drink (CSD) market. ^[2]

Since the issue which Coca-Cola has set out to resolve is associated with the consumption of its own products, some might argue that there could be negative impact on its business. However, it should be noted that Coca-Cola is not the only player in the sugary beverages industry. The whole industry has been witnessing declining volumes in developed markets over the last few years, and this initiative from Coca-Cola is not going to reverse that trend. However, we expect the company to reap benefits from this initiative in terms of market share gains, primarily driven by higher sales of its low- or no-calorie products and increased brand equity.

It should also be noted that the higher proportion of smaller servings in sales mix is a net positive for beverage companies since higher revenue per ounce more than offsets lower volume sold per transaction. Furthermore, we see better volume-mix driven by higher priced, no-calorie products such as Coke Zero, boosting operating margins of the company as well. Coke Zero volumes grew by 6.5% in 2012 compared to the company-wide volume growth of 4%. Therefore, we believe effective implementation of its plan will have a net positive impact on Coca-Cola’s business.

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1. Coca-Cola Announces Global Commitments to Help Fight Obesity, www.coca-colacompany.com [↩]
2. Special Issue: U.S. Beverage Results for 2012, www.beverage-digest.com [↩]