Here’s How A Change In Management Will Impact Coca Cola

Recently, The Coca-Cola Company (NYSE:KO) announced that its Chief Executive Officer (CEO) Muhtar Kent will be succeeded by James Quincey, the company’s President and Chief Operating Officer, starting in May next year. James, a veteran at Coca Cola, worked closely with Kent for 10 years of his 20 year career at the company and hence is quite close to several initiatives taken by the erstwhile CEO in his tenure. Unlike earlier management changes at Coca Cola, this transition is expected to be smooth as the baton shifts to a company veteran who is also being touted as the “right person to lead the company”. With his deal experience, James is expected to fuel growth in the company through acquisitions.  However there are several challenges which lie ahead of the new CEO, especially when Coca Cola is looking at declining volumes of carbonated soft drinks and is faced with “sugar tax” in several regions. We believe that Coca Cola’s transition to a new CEO should be smooth given that a company veteran is taking over. The company’s focus is likely to shift towards more acquisitive growth, given James’ background.

Portfolio Diversification And Less Capital Intensive Business Key Challenges

Consumption of carbonated soft drinks (CSD) is declining as consumers move away from sugary sodas to healthier beverages. In addition, some countries are looking to impose “sugar tax” on CSDs, to encourage this trend.  Coca Cola’s biggest challenge is to diversify its portfolio to include healthier beverages. Its closest competitor PepsiCo has a huge snack division and a healthy mix of carbonated and non-carbonated soft drinks, which protects it to some extent from the impact of decline in CSD volumes. James Quincey had a key role in expanding Coca Cola’s product offerings, driving systematic portfolio reformulation to reduce added sugar and introduce smaller packages for health conscious customers. We believethat, since James has been instrumental in product diversification, he will carry these initiatives forward as the CEO, impacting Coca Cola’s revenue’s positively.   The other major transition which Coca Cola is undergoing is to shift from its downstream businesses.  It is refranchising its bottling territories in North America and moving away from the low margin business of distribution. While Kent was driving this initiative, we believe the new CEO should be able to take this task over and manage it equally effectively. Prior to becoming the company’s COO in August 2015, Quincey was the President of The Coca-Cola Company’s Europe Group.  Under his leadership, the Europe Group was the company’s most profitable operating group as it strategically expanded its brand portfolio and improved execution across the geography.

We believe a strategic product expansion (organic or inorganic) is critical for Coca Cola’s future growth. With James Quincey as the new CEO the Coca Cola might become more aggressive in acquiring companies to diversify its product portfolio, which should drive growth in the long term.

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