Coca-Cola seeks a new nirvana with cannabis drinks
For a company that equates itself with family values, Coca-Cola’s foray into cannabis drinks would be a seminal shift
New Coke is here again and this time there’s no turning back for the world’s largest producer of carbonated beverages. Bloomberg reported on Monday (Coca-Cola is eyeing the cannabis market) that The Coca-Cola Co. could be looking at the, hold your breath, cannabis drinks business. Thirty-three years after the launch and withdrawal of the infamous New Coke, an entirely new class of drinks may be coming out of the stables of the 126-year-old company.
After years of disappointing sales and declining profits in the business that made it a household name, the giant from Atlanta is reinventing itself, desperately trying to shed its tag of a permanent placeholder at birthdays and family barbecues. The company, which once advertised itself as “The Great National Temperance Beverage” (1906) and “Pure as Sunlight” (1927), is turning all edgy in response to a new generation which has firmly turned its back on such evils as sugared sodas, though it may be okay with cannabis. According to US industry trade journal Beverage Digest, sales of carbonated soft drinks have declined for 12 consecutive years and sales last year were the lowest in 31 years. Consequently, the last few months have seen a flurry of moves by Coca-Cola aimed at a different set of consumers whose idea of a good time may not be drinking a Sprite or even a Coke Zero.
In May, forty years after its first foray into alcoholic drinks ended prematurely after the New York-based wine company it had bought to sell products under the Wine Spectrum brand was sold off, Coca-Cola launched an alcoholic drink, Lemon-Do , in the Japanese market. And two months ago, it announced that it would acquire UK-based Costa Coffee chain for $5.1 billion.
The Coca-Cola portfolio now includes bottled water, coconut water, tea and coffee, besides health drinks and juices. If, as has been reported, it does launch a drink infused with cannabidiol (CBD), the non-psychoactive ingredient in marijuana, it would make a definitive and seminal shift for a company that, for years, tried to equate itself with family values and positioned itself as a symbol of “all things good, decent and honest about America”.
Thus, no Christmas was complete without Coke. Through the 1930s, it ran a series of Santa Claus advertisements featuring him as the big, jolly man in the red suit with a white beard holding up a bottle of coke. For all its travails in the market though, it remains a solid financial performer. In its latest quarter ended June 2018, it reported net income of $2.32 billion on revenues of $8.90 billion, despite a drop in organic sales in the US. Despite that, there’s no denying its vulnerability with nearly 70% of its sales still coming from soda, an endangered product category.
Its principal rival PepsiCo, under former CEO Indra Nooyi, created a much more diversified portfolio of products comprising of carbonated and non-carbonated drinks, along with packaged food, which have been a better buffer against falling sales of sodas. The move to remake itself, even risk serious brand dissonance in the process, is thus both audacious and imperative.
Much like the tobacco companies, it needs to rapidly grow its non-cola businesses, even while it is heavily reliant on the same for its profits and cash. It is a delicate balancing act since it involves juggling a large existing customer base, which it knows like the back of its hand, with an amorphous new segment, whose characteristics are yet to emerge. It is a punt for the distant future, when there will be no longer any soda-drinking customers to fall back upon. It is then that the wisdom of the new generation of products that the company is experimenting with will be truly tested. Coca-Cola is still one of the most recognized brands in the world, a fact that gives it enormous leeway to explore new categories and launch new products. A CBD-based drink may just be what the doctor ordered. After all, one of the company’s missions is to “inspire moments of optimism and happiness...”, and cannabis is rumored to do just that!
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider looks at current issues and trends in the corporate sector every week.
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