Coke light on innovation: analysts

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Coca-Cola Co.'s rough sketch of how it will spend its long-promised $400 million in incremental marketing-by maximizing its media-buying efficiency, rethinking shelf-space management and focusing heavier outlays on diets-failed to impress analysts, who groused that the soft-drink giant is paying lip service to product innovation.

"We are not recommending [the stock] until we get more evidence that Coca-Cola is delivering on its promises," said Bonnie Herzog, beverage analyst for Citigroup Smith Barney.

While revenue rose 4% to $22 billion for the year on a 2% increase in gallon sales, volume dropped 1% in North America during the fourth quarter and volume was flat in the region for the year. The marketer blamed weather, higher prices and weaker-than-expected sales of C2 for the North American results.

In fleshing out the marketing plan announced in November, Coca-Cola executives put diet and other "health and wellness" brands at the top of the list. The marketer is doubling its media budget toward diet brands, which grew 6% last year.


Don Knauss, president-chief operating officer for North America, offered few details, but said Coca-Cola will emphasize targeted rating points by buying TV shows that reach the highest concentrations of the demographic it wants to reach. The company also plans to heavy up on print media buys. In 2003, the company spent $22 million in print media, according to TNS Media Intelligence. For the first nine months of 2004, it spent $23 million in print.

While Coca-Cola wouldn't disclose details of its category management plan, experts said it is layering store-level and customer-level consumer insights on traditional shelf-space tools like scanner data and shelving schemes to squeeze more sales out of every store and every customer. By using this approach, marketers can add as much as 4% to 7% to baseline growth, according to Bill Bishop, president of Willard Bishop Consulting, who declined to discuss Coke specifically since it is a client.

"The products announced are far less revolutionary ... than what is needed," Morgan Stanley Beverage analyst Bill Pecoriello wrote in a note to investors.

Coca-Cola Chairman-CEO E. Neville Isdell defended Coke's innovation while admitting that it is "within conventional thinking" for this year, but added that by 2006, Coke "will start to demonstrate some of the new research that we are doing in order to broaden the view of the category that we're in."

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