Click to read the original text for details In an era when everyone had a bottle of soda, no one imagined that today many people would rather wait on the street for a cup of tea costing dozens of yuan than drink a Coke that still sells for three yuan. Do you know which piece of paper is the most expensive in the world? Some say it's the Coca-Cola formula. According to "experts," this formula is worth $80 billion, and only three people in the world know it, each knowing only a part. But the beverage made from this formula sells for only 3 yuan a bottle, has been sold for 134 years, and generates nearly $10 billion in net profit annually...
-01- Deep Roots and Flourishing Leaves On July 21, Coca-Cola released its Q2 2020 earnings, with revenue of $7.15 billion and net profit of $1.981 billion, down 28% and 31.8% year-over-year respectively, marking the largest revenue decline in 25 years. The report noted that North America revenue reached $2.648 billion, making it the company's most important revenue region; Europe, Middle East, and Africa totaled $1.21 billion, and Asia Pacific revenue was $1.183 billion. The reason for the revenue decline is a familiar story. Coca-Cola also stated that due to the COVID-19 pandemic, pressure increased on the away-from-home sales channel, which accounts for about half of Coca-Cola's revenue. However, the toughest quarter has passed. Coca-Cola's global unit case volume has steadily recovered, with the decline improving from about 25% in April to about 10% in June, and to single digits so far in July. Coca-Cola attributed the improvement to the gradual recovery of out-of-home consumption scenarios and continued growth in at-home channel sales. Moreover, the Chinese market once again became the "market savior," with particularly strong performance in Q2. According to Securities Daily, a Coca-Cola spokesperson said that in China, the soda category grew 14% in Q2, with the Coca-Cola brand performing best and zero-sugar Coke seeing significant sales growth. While other markets struggled through Q2 and slowly recovered, the Chinese market had already shown vitality not inferior to pre-pandemic levels. In this market, which was the first to resume work and production, Coca-Cola has been active. It not only launched more than ten new products covering juice, tea drinks, fruit-flavored sodas, coffee, dairy, and other subcategories, but also unlocked new sales channels such as social e-commerce. At the same time, Coca-Cola is accelerating its production line layout in China. After all, the flourishing at the sales level is rooted in the production layout. In May, COFCO Coca-Cola launched a fully automated can beverage production line in Sichuan, reportedly the fastest in the global beverage industry, capable of producing 120,000 cans per hour, with an annual capacity of 260,000 tons and output value of 1.3 billion yuan. At the end of March, Zhengzhou Swire Coca-Cola signed a formal agreement with Zhengzhou High-tech Zone for an intelligent green factory project, expected to be completed and put into operation within 2 years, with an annual production capacity of 2.3 billion yuan after completion. Meanwhile, Swire Coca-Cola China will put six new production lines into operation in the second half of this year, adding over 1.7 billion yuan in annual output value. Additionally, Swire Coca-Cola China plans to add a plastic bottle production line in Hubei, expected to start production in May 2021. Before the earnings release, of the 23 analysts tracked by Bloomberg, 18 rated Coca-Cola "buy" and 5 rated "hold," with an average target price of $52.86. After the earnings release, Coca-Cola opened up more than 3%.
-02- Marketing Master Two months ago, to celebrate its 134th birthday, Coca-Cola released a new Chinese font called "Zaijuti" (Care Font), containing 6,769 Chinese characters and 976 other characters. Any individual, as long as not for commercial use, can use it for free. Coca-Cola stated that in the digital age, this is a humanistic font choice—use the Care Font to write about things you care about, for people you care about. Full of sentiment, it even makes people forget this is a marketing campaign, forgetting the deep-seated tactics behind it. For over a century, Coca-Cola has always understood marketing like this. In 1927, Coca-Cola first entered the Chinese market from Shanghai, producing in a joint venture with Watson's Soda Company. At that time, Coca-Cola already had the aura of a "marketing godfather." It found Ruan Lingyu, a popular film star, and commissioned an advertising painter to design a calendar poster advertising "Please Drink Coca-Cola," which successfully introduced Coca-Cola to the urban class and made it a popular beverage. In 1933, Coca-Cola's bottling plant in Shanghai—Zheng Guanghe Soda Factory—was already its largest overseas bottling plant, and Coca-Cola's sales in Shanghai continued to rise, maintaining the overseas sales record until 1948. But also in 1948, Coca-Cola withdrew from the Chinese market for well-known reasons and waited for an opportunity to return. On December 16, 1978, the "Joint Communiqué on the Establishment of Diplomatic Relations" was issued, ending the isolation between China and the U.S. Three days earlier, Coca-Cola had reached an agreement with COFCO Corporation, fully preparing to re-enter the Chinese market. On January 1, 1979, the communiqué took effect, and China and the U.S. formally established diplomatic relations. At the same time, Coca-Cola's first batch of bottled beverages left Hong Kong for Beijing, ready for sale. That same year, COFCO's plan to restart the Zheng Guanghe Soda Factory fell through, and Coca-Cola's bottling plant was established in Wulidian, Beijing. It was converted from a duck restaurant under COFCO and completed in April 1981. But in 1980s Beijing, Beiyang was the dominant brand. A bottle of Beiyang at 0.15 yuan had no reason to lose to Coca-Cola at 0.45 yuan, even if some bought it out of curiosity. But Coca-Cola brought more than just a dark beverage from across the ocean; it brought its terrifying marketing talent. In major shopping malls in Beijing, Coca-Cola launched a promotion: buy a bottle of Coca-Cola and get a pair of chopsticks or a balloon. This marketing activity, which seems like nothing today, was the first in-store promotion in China's contemporary market. Spending just 0.45 yuan made you a nameless participant in history. (A photo of a Chinese citizen holding a Coca-Cola appeared on the cover of Time magazine) After gaining a foothold with promotions, Coca-Cola was not content. While others used small to win big, Coca-Cola chose to use big to win even bigger. In 1986, CCTV wanted a documentary from the BBC but couldn't afford it, needing 200,000 yuan in sponsorship, which was almost Coca-Cola's annual profit at the time. But Coca-Cola gritted its teeth and secured the sponsorship, leading to Coca-Cola's first TV commercial in China and the first foreign enterprise advertisement broadcast on CCTV. Every time CCTV aired the documentary, Coca-Cola's ad appeared twice, before and after. In an era of scarce information, appearing on CCTV meant appearing before the entire nation. This was Coca-Cola's most expensive marketing and also its "cheapest" marketing. Before many realized it, the name "Coca-Cola" had entered their hearts. In the Chinese market, Coca-Cola no longer needed to explain "who I am." All subsequent marketing was just icing on the cake.
-03- The Ceiling Marketing talent determines Coca-Cola's floor, while its ceiling is cola itself. Indeed, cola is not wine, juice, coffee, milk, or tea; cola is just cola. The cola market will eventually hit a growth ceiling, and when health becomes a necessity, that day comes sooner than expected. In 2017, "fat house happy water" became a buzzword, but cola producers led by Coca-Cola couldn't be happy. Starting in 2012, Coca-Cola's annual revenue declined continuously, hitting a low of $35.41 billion in 2017, with net profit of $1.283 billion, a sharp 81% drop year-over-year. Data from U.S. beverage industry consultancy Beverage Marketing showed that per capita carbonated soft drink consumption in the U.S. fell for ten consecutive years, from 190 liters to 146 liters, overtaken by bottled water (149 liters) in 2016. Meanwhile, global per capita carbonated soft drink consumption also fell to its lowest level in 30 years. Users' physical reactions are more honest and direct: they call it "fat house happy water" while keeping their distance: "If it weren't for making Coke chicken wings, who would buy Coke?" "No, sometimes I buy a bottle to clean the toilet." For years, health issues led by obesity have been Coca-Cola's biggest opponent, a factor hindering sales growth written into annual reports. Sugar-free cola is not the key product to save Coca-Cola, not only because of its poor taste and sales, but also because the problem lies with users and health. A simple example: the phrase "Coke kills sperm" can deter many male consumers, and they don't care whether it's true. Behind this is panic caused by health concerns: better not to drink than to drink wrongly, being overly cautious. While the cola market hits its ceiling, there is also Coca-Cola's over-reliance on a single product category. Carbonated soft drinks (including Coke, Sprite, Fanta, etc.) once accounted for over 70% of Coca-Cola's global sales. This is the success of Coca-Cola as a product, but also the challenge for Coca-Cola as a company. Its old rival PepsiCo has long become a diversified snack food company, with Lay's, Doritos, Cheetos, Lipton tea, Gatorade, Quaker Oats, etc., all leading brands in their segments. In 2016, Coca-Cola proposed the slogan of building a "total beverage company." The cola segment was no longer the absolute ruler of the beverage market, and the era of diversification had arrived. Currently, Coca-Cola has over 500 brands and more than 4,000 products. Besides sodas, it now has coconut water, organic tea drinks, dairy, juices, purified water, and even coffee and fresh milk. At the same time, Coca-Cola launched an asset-light strategy, gradually reducing its own bottling operations. By selling bottling plants in North America and China, Coca-Cola no longer directly participates in the production of bottled beverages in these markets, instead focusing on providing cola concentrate and syrup to partner bottlers. By shedding heavy assets, Coca-Cola refocused on the beverage itself, reducing investment while ensuring the pace of new product launches. This ability to adjust at the corporate strategy level is another talent of Coca-Cola besides marketing. For a company with over a century of history, "seeking change" is extremely difficult and costly. In the 1980s, on the occasion of Coca-Cola's centennial, its old rival PepsiCo came knocking. PepsiCo conducted an experiment: they poured both colas into two cups for passersby to taste, and over 80% of respondents chose Pepsi as tasting better. In its century-long history, when had it suffered such humiliation? Coca-Cola decided to change the formula and spent two years developing New Coke. After rounds of testing, they received feedback that New Coke tasted better. Unfortunately, New Coke faced fierce backlash after launch, receiving thousands of complaint calls and tens of thousands of complaint letters daily. Coca-Cola couldn't bear it and had to announce selling both old and new formula colas simultaneously. Later, New Coke's market share was only 0.6%, and the formula that cost millions of dollars to modify was quietly abandoned. Coca-Cola's original formula, born in 1886 in an Atlanta drugstore as a headache remedy through a series of coincidences, has been popular for over a century. It is both the most expensive paper in the world and the hardest to rewrite. A humiliation triggered a chain of humiliations. Coca-Cola lost face and money, and perhaps gained only the painful lesson of "seeking stability." But in a rapidly changing market, when the cola market showed signs of hitting its ceiling, Coca-Cola once again abandoned "stability." Time has proven this "change" was right. The diversification of the beverage market is an irreversible trend, and cola will eventually step down from its pedestal.
-04- Conclusion Kodak kept producing world-class film until the day it went bankrupt, but no one needed it anymore. In an era when everyone had a bottle of soda, no one imagined that today many people would rather wait on the street for a cup of tea costing dozens of yuan than drink a Coke that still sells for three yuan. Sir, the times have changed. Source: FN Business (ID: FN-24H), Author: Wu Fu