ATLANTA – Legendary investor Warren Buffett once was quoted as saying Coca-Cola was such a strong company that a ham sandwich could run it.
As new CEO James Quincey takes over from the outgoing Muhtar Kent, he faces challenges that have turned Buffett’s aphorism into a painful reminder of better days.
The Atlanta company is still hugely profitable, but increasingly under pressure. Soda sales stalled, and its core Coke brand slipped in the U.S. market as people cut back on sweet, fattening drinks in recent years. The beverage market is more fragmented, with new choices constantly materializing. Coke is pushing to broaden its lineup with non-fizzy brands, but its lifeblood remains soda.
Behind its perpetually sunny marketing facade, Coke in recent years has spent enormous corporate energy rearranging internally and retooling operations to deal with new marketplace realities.
Onto the stage now steps Quincey, a British-born, 21-year Coke veteran who is expected to bring new ideas and vitality.
His tenure didn’t start quietly. On Tuesday, in what was essentially his first act as CEO, Quincey used an earnings call with financial analysts to announce job cuts that will hit the headquarters staff in Atlanta hard.
The company plans to eliminate 1,200 jobs later this year from a pool of 5,500 corporate positions. The cuts are part of a plan to save about $800 million through 2019.
Quincey said the cuts are “clearly a painful process,” but necessary. He said job decisions will be made “as fairly as possible,” but also with “speed.”
“People don’t want this to linger on,” he said in an interview.
Quincey said the plan is to use about half of the savings to speed investment in new products and marketing, and to restore Coke’s revenue and profit growth to 4 to 6 percent per year.
“There’s an acceleration we’d like to see,” Quincey said. “I don’t think we’re broken, but I don’t think we’re where we need to be.”
While soda sales are an obvious sore spot, they aren’t Coke’s only issue. Assessing the company’s fortunes from the outside has been complicated in recent years by an overhaul of bottling operations.
In 2010 Coke bought North American bottling operations from partner Coca-Cola Enterprises. It did the same with hundreds of bottlers around the world. Coke for a time took control of the operations, significantly enlarging the company. Now it’s spinning them back out to new partners.
Coke’s revenue has slipped for the past four years — from $48 billion in 2012 to $41.9 billion last year — in part because of the accordion effect of the bottling overhaul.
The 130-year-old company’s star has also faded a bit in other ways.
In 2007, Coca-Cola was the most valuable brand in the world, according to London consulting firm Brand Finance, which ranks brand values annually, based on its own calculations. Now it’s 16th in the U.S. and 27th in the world, according to the firm’s latest list, well behind companies like Google, Apple and Amazon.com.
Born in London, Quincey spent part of his youth in Hanover, N.H., where his father lectured at Dartmouth.
Quincey earned his degree from the University of Liverpool but decided he was better at business than engineering. He joined giant consulting firm Bain, which eventually led to a job at Coke.
Quincey, who is fluent in Spanish, spent much of his Coke career in Europe and Latin America.
The biggest of the company’s problems is that people are simply less likely to reach for a soda than in the past, and there’s little indication that the trend is fleeting.
Coca-Cola’s “megabrand” sales volume — Coke and its variants — fell almost 5 percent over the past three years in the U.S. and were down almost 1 percent worldwide, according to company filings to the U.S. Securities and Exchange Commission. Those core brands account for nearly half of sales volume.
The decline is partly due to health concerns that sugary drinks contribute to obesity and diabetes.
But more than soda politics are at work. Consumer tastes are shifting toward new products, experts say. They are being supplied by competitors popping up all over, they say, because it’s getting easier for small companies to launch new drinks and get them into markets.
This more fragmented market is requiring Coke to shift from its “have a Coke” mind-set to a fast-moving, portfolio approach to the market.
Gold Peak tea, launched about a decade ago by Coke, passed $1 billion in annual revenue about four years ago, and is now the No. 3 tea brand in the U.S. Another, Smartwater, is the result of Coke’s $4 billion-plus Glaceau acquisition in 2007, while Dunkin’ Donuts Iced Coffee is a recent rollout from a joint deal with that company.
One dud: an ill-fated 2015 venture with Keurig to market a single-serve soda dispenser called Keurig Kold. Kent called it a “game-changer,” but the machine bombed and was discontinued within months.
Quincey expects that by 2019 the fruits of Coke’s rejuvenation efforts will be more obvious.
“Those that are willing to crunch the numbers can see it now,” he said.