Coca-Cola no longer has the sales to support all of its workforce and bottling operations, but it hopes to gain from the halo effect from vanity projects.
Coca-Cola (KO 0.37%) is in the midst of a major cost-cutting program intended to realize $3 billion in annualized savings by 2019. Earlier this year the company announced it was laying off 1,800 employees, and management previously said it would refranchise its U.S. bottling and distribution operations that employ about 90% of its 130,000-person workforce. It might even similarly separate its foreign bottling and distribution assets.
So what is it doing investing in a $500 million fund to bring low-cost Internet service to the developing world?
Turn on, tune in, and get on the Web
OneWeb says its mission is to "enable affordable Internet access for everyone," and to do that it is launching a constellation of low-orbit satellites that will make available the networks of mobile operators and ISPs to serve new coverage areas. It recently signed an agreement with Airbus to design and build 900 microsatellites, and also purchased 65 rockets from France's Arianespace.
Bringing high-speed Internet access to emerging economies is a worthy goal, as this can help foster economic growth and individual empowerment. OneWeb says it is on track to realize the goal by 2019, and is being helped along by investments from not only Coca-Cola, but also Airbus, Hughes Network Systems, Intelsat (INTE.Q), Qualcomm (QCOM 0.22%), and Virgin Group.
There's always some tangential benefit from contributing to such efforts that is not immediately apparent. Companies regularly donate to "important" projects because of the prestige that comes with them, even from business opportunities arising from less-noteworthy endeavors.
For example, Scotts Miracle-Gro (SMG -3.86%) sponsors the Roush Fenway Racing NASCAR team through its Ortho division, a seemingly odd pairing at first because you don't expect people to run out and buy an herbicide simply because they see the logo on a car. But there is a persistence factor that accrues to a brand so that over time it could arguably increase sales.
Photo: MrGaryLarson, Flickr.
It's why you'll also find other major corporations like Sprint (S), Hewlett-Packard (HPQ 3.62%), and, yes, Coke ponying up big bucks to be official NASCAR sponsors.
A long-term payoff?
Coca-Cola said it is participating in the OneWeb project because it will help its "business by improving real-time access to some of the world's most remote areas where we are already active in helping provide opportunities for entrepreneurs."
Yet for a company whose primary beverage business is suffering a significant slowdown, a feel-good initiative like this seems like a diversion of scarce resources that could be better spent elsewhere.
Sparkling beverages accounted for three-quarters of Coke's revenue last year, half of which came from North America. And though the soda maker squeezed out a 1% increase in global volume, here at home it has been in free fall. Domestic sparkling beverage volumes declined 1% last year and, according to Beverage Digest, U.S. per-capita consumption of carbonated soft drinks fell to its lowest level since 1986.
Activist investors have begun agitating for Coca-Cola to make some big changes, such as a major acquisition, because they feel CEO Muhtar Kent is satisfied with simply nibbling around the edges, playing defense rather than going on the offensive. They argue that a "transformative strategy" is needed to shake the beverage giant out of its lethargy.
That's not what the OneWeb investment is. Undoubtedly, Coke did not contribute a particularly large sum of money, at least not in relation to the company's $46 billion in annual revenue. Heck, if Coke had financed the entire $500 million fund itself it would have only amounted to 1% of total sales (the actual amount Coca-Cola contributed to OneWeb has not been disclosed).
Yet it's not necessarily the money that matters, but the mindset behind it. Coke needs to concentrate on rebuilding its core beverage operations, particularly soda, and cost-cutting initiatives; new drinks of dubious potential, such as premium milk product Fairlife; and vanity projects like helping to bring the Internet to emerging markets really isn't going to change what's wrong with it.
Coca-Cola's fortunes aren't going to rise and fall on this contribution, but it should give investors an idea of where the beverage giant's priorities lie, and that might not be particularly encouraging.
