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Coke Eyes Marketing as Area for Cost Cutting

Ad Spending to Change as Beverage Giant Hopes to Save up to $500M a Year by 2011

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NEW YORK (AdAge.com) -- Coca-Cola is looking to save between $400 million and $500 million a year by the end of 2011. And it's looking to find some of those savings in marketing.

In a second-quarter earnings call with analysts today, newly minted Coca-Cola CEO Muhtar Kent said that as the company undergoes an aggressive review of spending, marketing will be a primary area of focus.

The company will look to reduce "nonconsumer-facing" programs through increased use of global campaigns. It will also leverage best practices for creative and overall execution, as well as optimize its use of agencies. As an example, Mr. Kent said Coca-Cola recently completed a global marketing research agreement that will replace a number of local agreements.

"Our objective is to reinvest marketing efficiencies ... that we realize into efficient brand-building activities to drive the long-term health of our business," Mr. Kent said.

'Disciplined' approach
Coca-Cola Exec VP-Chief Financial Officer Gary Fayard said that given the economy, the company is maintaining a "disciplined" approach to marketing. That entails a slight increase in total direct-marketing spending vs. planned spending, as well as the reallocation of funds against certain geographies to drive growth.

During the call, Mr. Kent acknowledged the company is facing challenges around the globe, as volume increased just 3%, which is lower than previous quarters. "We're certainly operating in a more challenging environment, particularly as rising food and energy costs weigh on consumer confidence," he said.

That doesn't mean, however, it will turn off the spending spigot. "By continuing to invest in difficult economic times, our system is seeking to build a stronger bond with consumers and a stronger share position for the long term," he added.

The marketer just plans to spend differently. Mr. Kent highlighted that the company's beverages are an "affordable luxury," and noted that it's important to remain relevant in tough times. "In fact, you see us shifting some of our emphasis in our marketing programs ... [and] also in the area of packaging, ensuring that we remain affordable and ensuring that we can continue to capture all beverage opportunities around the world," he said. "What you see us doing is making sure that we remain relevant to the consumer."

Earnings fall, revenue increases
In the second quarter, earnings fell 23%, on one-time charges, to $1.42 billion from $1.85 billion. Revenue increased 17% to $9.05 billion from $7.73 billion.

The quarter was the last for former CEO Neville Isdell, who retains the title of chairman. He signed off by saying that Coca-Cola has made significant progress since the company's turnaround began in 2004. Mr. Isdell took on the role of chairman-CEO in June 2004.

"We have revitalized the sparkling-beverage category globally and continue to grow trademark Coca-Cola. We've addressed key issue markets and taken decisive actions. We've reconnected with our customer and consumers through effective marketing and innovation strategies," he said. "Clearly, our strategies are working, as we continue to expand our volume and value share leadership position in the non-alcoholic ready-to-drink beverage industry, as well as in sparkling and key still beverage categories."
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