Coca-Cola plans to cuts costs by $3 bn a year
22 October 2014
Coca-Cola said it planned to cut costs by $3 billion a year following dismal sales and flat volume growth.
According to the Atlanta-based company, it would achieve its cost-cutting goal by 2019 through a variety of measures, such as:
- Restructuring the company's global supply chain, including manufacturing in North America;
- Implementing zero-based budgeting across the organisation;
- Streamlining and simplifying its operating model; and
- Driving increased discipline and efficiency in direct marketing investments.
"As a result of these productivity initiatives, the Company expects to fund the marketing initiatives and innovation required to deliver sustainable net revenue growth," it said in a statement.
It added, these savings would help support margin expansion and increased returns on invested capital over time.
The world's biggest beverage maker also said it would refocus on its core business model of building "the world's greatest beverage brands and leading an unmatched global system of strong local bottling partners" by refranchising the majority of company-owned North American bottling territories by the end of 2017 and a substantial portion of the remaining territories no later than 2020.
It will also strategically target brand and growth investments that leverage its global strengths by improving the "quantity and quality of marketing", as well as making future investments that will target markets and categories where brands remain underfunded relative to the opportunity.
However, it did not specify the number of jobs that would be lost as a result, but said most changes would be communicated by early next year.
With the slowing sales of their drinks, Coca-Cola and rival PepsiCo had both sought to improve their financial performance by trimming costs. In the US, the companies were also trying to boost sales by pushing "mini-cans" as a way to control portions.
For the quarter ended 26 September, Coca-Cola said global beverage volume was up 1 per cent, as an increase in non-carbonated drinks lifted results. According to the company, in its flagship North American market, soda and non-carbonated drinks each fell by 1 per cent.
Earlier this month, PepsiCo said soda volume for the region declined 1.5 per cent for the quarter, even as non-carbonated drinks rose slightly.
Meanwhile, Coca-Cola shares were down the most in six years after third-quarter sales fell short of estimates and a $3 billion cost-cutting plan announced by CEO Muhtar Kent failed to satisfy investors, Bloomberg reported.
Sales sank to $11.98 billion in the quarter from $12 billion a year earlier, Coca-Cola said yesterday.
Coca-Cola, the world's largest beverage maker, was struggling with sluggish international growth and concern over obesity and artificial sweeteners.
Following criticism that he was not responding quickly enough to the slump, Kent vowed yesterday to cut expenses by $3 billion a year by 2019.
Bloomberg said shareholders might be waiting for more dramatic action, especially since it remained unclear how much of those cost savings would wind up in investors' pockets, said New York-based analyst at Sanford C Bernstein, Ali Dibadj.
Dibadji added, he would not call it a capitulation to shareholder pressure as the company had not indicated how much of the $3 billion would be returned to shareholders, rather than "squandered" on marketing and advertising, as claimed by disgruntled investors.