Coca-Cola Boosts Media Spending as Demand Slows
CEO Muhtar Kent Defends the Importance of Marketing
Demand for Coca-Cola's soft drinks is shrinking in North America, while growth in emerging markets shows signs of slowing. CEO Muhtar Kent believes increased marketing and media investment is the answer.
During an earnings call with analysts, Mr. Kent said that by 2016 the company plans to increase media spending and brand-building initiatives by up to $1 billion. He noted the marketing investments would be felt "in every country that we operate in large or small." Those investments will be funded through a combination of cost-cutting initiatives and improved utilization of the company's global marketing network.
Some analysts balked at the decision, however, questioning whether the headwinds facing the company can be offset with increased marketing.
"We have a tremendous amount of experience to say that good marketing … works for our business, and it will work for our business," Mr. Kent said. "When we invest in marketing, our global partners invest in feet on the street, in more coolers, in more trucks, in more lines and that's what we see happening."
"We'll be increasing the effectiveness of our marketing investments by transforming our marketing and commercial model to redeploy resources into more consumer-facing marketing investments to accelerate growth," added Gary Fayard, Coca-Cola's chief financial officer.
Coca-Cola has also implemented a "multifaceted" approach to try to reverse slower soft-drink sales, Mr. Kent said. The effort will target concerns that soft drinks cause obesity and feature innovation in sweeteners and packaging.
"The changes that the company is making just aren't enough," said Ali Dibadj, an analyst at Sanford C. Bernstein & Co. "Many investors aren't sharing the confidence that management does of the company's future."
Coca-Cola's fourth-quarter net income slid 8.4% to $1.71 billion from $1.87 billion a year earlier. Sales fell 3.6% to $11 billion in the period. Global sales volume grew just 1% last quarter, less than the 3% rate Coke posted a year ago. Sales volume in North America fell 1%.
~ With contributions from Bloomberg News