Becoming: Coca-Cola

The famous Coca-Cola bottle throughout the ages.

“Coca-Cola should always be within an arm’s reach of desire.” 

Robert W Woodruff, Coca-Cola CEO, 1923-1954 

The story of Coca-Cola is one of sustained competitive advantage. In over 130 years, it has developed an unassailable leadership position in dozens of global markets. Its shareholders have enjoyed over 50 consecutive years of dividend growth[i]. The commonly held theory that Coke was built on advertising is only partially true. Below, we examine some of the strategies which the company implemented to maintain global market leadership for over a century.

Five of these strategies are outlined below.

Developed a Scalable Formula

From its very first days in the late 1800s, the Coca-Cola company distributed syrup rather than a finished product. Distributors (first. cafes and bars with Coca-Cola fountains and later, bottlers) added five parts carbonated water to one part syrup. Few companies can match the scalability of this model, which significantly lowers its distribution costs, allowing it to invest the leftover money in marketing the product.

Bottling

When it was first bottled in 1899, bottling presented the Coca-Cola company with a strategy to reach far more customers than was possible with soda fountains. However, as time went on, the bottles became marketing tools in themselves. In 1916, the company hired the Root Glass Company to design a bottle, which it subsequently trademarked.[ii] As with any successful consumer product, the packaging (in this case, the bottle) was made a central component of the product story.

Distribution

Bottling leads conveniently to the company’s incredible distribution network. It has never shirked an opportunity to distribute its product, whenever the opportunity arose. However, the distribution was also carefully managed. From its earliest days, Coca-Cola ensured that a significant part of the distributor’s budget was advertising, allowing the company to sustain its competitive advantage through its distinctive red branding.

Marketing

Coca-Cola’s commitment to marketing its product is well-known. In 2017, the company spent $3.4 billion on advertising,[iii] placing it approximately $1 billion ahead of Pepsi Cola. Remarkably, this means that almost 10% of Coca-Cola’s revenue is invested in advertising when most companies spend less than 5%. It’s also not a new trend: In 1895, its financial statements showed that approximately 20% of its entire expense was advertising.[iv]

Innovation

Coca-Cola’s formula for its syrup may be the only constant at the company. A casual observation of its patents shows that it is constantly innovating in areas as diverse as payment methods for its vending machines to sensors detecting contamination in the CO2 used in its carbonated water.[v] With the battle against sugary drinks heating up, in 2018 Coca-Cola patented a stevia-sweetened Coke, which should protect it against likely government actions against soft drinks in the years ahead.

[i] See: https://www.valuewalk.com/2015/09/always-coca-cola-3-4-yield-53-years-of-dividend-increases/

[ii] Prendergast, M., (2015). “For God, Country and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It.” Hachette Book Group (p. 98).

[iii] Statista (2018). “Coca-Cola Company’s advertising expense from 2014 to 2017 (in billion US dollars).” Available online at: https://www.statista.com/statistics/286526/coca-cola-advertising-spending-worldwide/

[iv] Prendergast, M., (2015). “For God, Country and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It.” Hachette Book Group (p. 57).

[v] See: http://www.ipwatchdog.com/2015/03/25/coca-cola-patents-juice-dispensers-artificially-sweetened-cereals/id=55730/