As soda sales continue to fall in the United States, Coca-Cola (NYSE:KO) wants consumers to view it as more than just a soft-drink company. New CEO James Quincey refers to his company as a "total beverage company," and Coke's latest ad highlights that its portfolio goes well deeper than just the carbonated beverages it's best-known for.
The problem is, even though the company owns a number of non-soda brands, including Honest Tea, Odwalla juice, and Smartwater, the majority of its sales still come from soda. In fact, according to Adweek, the category Coca-Cola calls "traditional sparkling," still makes up 70% of its value.
The company knows that needs to change if it's going to keep growing. That's something the CEO addressed in a February speech.
"Consumers are looking for products that are more natural," he said. "At times with less sugar. Sometimes with more benefits."
What is Coke doing?
Quincey's efforts involve both marketing and actual changes. In addition to running ads that talk about the company making "more than our name suggests," it's also making some substantive changes to its products.
By the end of 2017 Coca-Cola plans to reduce sugar in more than 500 of its drinks. That's part of how the beverage maker is supporting recommendations from the World Health Organization (WHO), and other leading health organizations that say people should get less than 10% of their daily calorie intake from added sugar.
"We've begun our journey toward that goal," Quincey said, noting that the company also plans to make low and no-sugar drinks easier for consumers to find. That includes both improving in-store placement of those beverages and spending more ad dollars to increase awareness of its low and no-sugar offerings.
It's also getting bigger
In addition to its internal and marketing efforts, the company also just closed a deal to purchase Topo Chico Sparkling Mineral Water for $220 million. The brand, which has used water from a natural source in Cerro del Topo Chico in northern México where it has been bottled since 1895, gives Coke another option in the growing water market.
"As we accelerate our evolution to a total beverage company, we're investing in brands that are on trend," said Coke's VP of Emerging Brands Matt Hughes in a press release. "Topo Chico is a fast-growing brand with a lot of passion behind it and growth runway ahead."
Premium, imported sparkling water, he explained, has been experiencing double-digit growth as a category. Topo Chico, he added, has also been successful in the U.S. where it has sold well in Texas. It's currently in 35 U.S. states, but 70% of its American sales come from Texas.
Is Coke no longer it?
Coca-Cola has a problem similar to what the tobacco companies have dealt with. The company's core product has negative health implications and that taints the entire brand. Unlike big tobacco, however, Coke has not refused to address the health concerns by changing its core product.
The company has been very aggressive in offering healthier low and no-sugar options, while also selling its full-sugar beverages in smaller sizes. In addition, the company has worked to give consumers options that include juice, water, and other healthier beverages.
Still, Coca-Cola having to separate its image from its iconic signature beverage does weaken the brand. Soda sales, as of the end of 2015, have fallen for 12 straight years, reaching a 31-year-low. That's not likely to reverse itself as consumers continue to become educated about making healthy choices.
That trend will drag on Coca-Cola's results and make it harder for the company to market. That said, Quincey has the right plan. The only way forward for the one-time soft drink company is to offer whatever consumers want to drink whenever they are thirsty. Adding Topo Chico is a small step in that direction and it will almost certainly be just one of many acquisitions the company makes over the next few years.