The USPS and Coca Cola

The recent announcement of postal finances brought the usual commentary. It might be refreshing to pause and think about the implications of a recent article in BusinessWeek (August 4-10, 2014) which described some of the challenges facing Coca-Cola, an American brand icon, with 2013 sales of over $79 billion. Some of these seem similar to those facing the USPS. It might be useful to think about this comparison, and to take a look at how Coca-Cola is responding.

Increasing Substitution and Declining Volume 

Sports drinks, bottled water and other substitutes are replacing carbonated soft drinks, especially with key consumer demographic segments (young people). The company responded by offering a wide variety of options of carbonated drink to its consumer segments, not all of which have been successful (New Coke?).

After a period of stagnant soft drink sales, volume started dropping in 2005. The decline hasn’t stopped yet. According to some reports quoted in the article, Americans are drinking about the same amount of Coca-Cola as they did in 1986. Coca-Cola made $46.8 billion in 2013, down from $48 billion in the previous year. Much of the company’s growth in recent years has come from foreign markets.

Continuing Strength of the Core Business

The availability and increasing popularity of various substitutes has not diminished the core business – regular, classic Coca-Cola. It is still the company’s best-selling product. Long-term market dominance led to a focus on its core business, and the company was slow to diversify.

Pepsi-Cola, the perennial also-ran in the core soft drink business, ventured into other businesses (Frito-Lay), and is not as dependent upon carbonated soda for revenue.

Business Strategy

For a long time, the core strategy was to build sales volume and maintain a strong brand through aggressive advertising and promotion. For almost 70 years) the price of a can remained a nickel. [1]  One result was that to make money the company had to sell a lot of Coca Cola. It became ubiquitous, notwithstanding Pepsi and certain other regional competitors. A few decades ago, the company increased its efforts to sell more by introducing larger containers in both its consumer and fast-food channels. Its arrangements with its bottlers were also focused around volume metrics.

It also adopted more sophisticated pricing policies, discounts and promotions. While it may be possible to obtain low-priced Coca-Cola in bulk quantities, the nickel can is long gone (what is it in your area?).

The company has a distinct culture and strong ties to its local area. Though the alliance of bottlers and others in its supply chain, it has reasonably close ties to retail and restaurant customers and gets feedback from them. It commissions detailed consumer research to track changing tastes, and is looking into more direct feedback through automated devices embedded in vending machines, and has introduced new vending machines to give consumers more choices. The company established a Venturing and Emerging Brands unit in 2007, and has since acquired several companies.

Coca-Cola is one of the most respected brands in the world. It has a strong presence in its markets, and a good relationship with its customers. It has a strong, dedicated culture and reasonably capable leadership. None of that really matters all that much in the long-run if the company cannot change its business model. Substitution of its core product is likely to continue. I expect Coca-Cola to make the necessary changes, but success is not inevitable – many other companies in other industries have not been able to change enough for all sorts of reasons.  Coca-Cola was actually started as a “health” product. There are some indications in its future vision that it is returning to its roots.