Click to read the original article for details. As carbonated drinks lose their former glory, Coca-Cola has to accelerate its transformation to gain recognition from the market and investors. Coca-Cola has not disappointed its investors. On July 25, Beijing time, Coca-Cola released its Q2 2019 earnings before the market opened. Both revenue and net profit exceeded expectations, and the stock opened higher, briefly reaching an intraday high of $53.92, a record high. Coca-Cola stated that thanks to sustained strong demand for bottled water, sports drinks, and zero-sugar drinks, it raised its full-year revenue growth target. Data shows that in Q2 2019, Coca-Cola's net revenue grew 6% to $10 billion, beating analyst expectations; net profit was $2.6 billion, up 12.6% year-over-year; the profit margin was 29.9%, up from 29.4% in the same period last year. Although Coca-Cola's revenue had been declining for five consecutive years prior to this, its recent two-year strategy of diversifying into all beverage categories shows that Coca-Cola is shedding its "carbonated drink" label and transforming into a total beverage company.

Five Years of "Rollercoaster" Performance

Coca-Cola's ability to regain high growth after a period of sluggish performance is closely related to its business adjustments over the past two years. In June this year, Coca-Cola's CFO John Murphy said at a Deutsche Bank consumer conference: "Over the past few years, we have seen our beverage portfolio continue to diversify. While our core business today is still primarily sparkling soft drinks, we have made consistent progress in other growth categories, such as juice, hydration (water and sports drinks), tea, and coffee." In recent years, Coca-Cola has been criticized for its high sugar, high acidity, and lack of nutrients, with carbonated soft drinks being classified as junk food, which runs counter to the trend of healthy eating. After the UK introduced a sugar tax on food and beverages in October last year, sales of classic Coca-Cola in Europe fell by 1%. Under the trend of sugar reduction, Coca-Cola, whose main business is soft drinks, inevitably saw its revenue decline year by year, from $46.805 billion in 2013 to $35.41 billion in 2017, and further to $31.86 billion in 2018, with negative growth rates for several consecutive years. Transformation is imperative for Coca-Cola, and this veteran FMCG giant with a history of over 130 years began internal innovation as early as 2014, but only saw significant growth in the past year. Looking at Coca-Cola's quarterly reports over the past two years, although revenue in 2018 was lower than the same period in 2017, net profit continued to grow, indicating that its net margin has been improving. In the first two quarters of 2019, both revenue and net profit were higher than the same period last year.

"Cola + Coffee + Alcohol" Full-Category Layout

Consumers' dietary concepts and tastes are changing. According to Mintel's 2019 Food and Drink Trends report, as the global population aged 60 and above continues to grow, aging issues are particularly concerning to consumers. The pursuit of longer life brings new opportunities for food and beverage manufacturers. The world is aging, and Coca-Cola, as a beverage giant, has already sensed the business opportunities in new trends. Since 2014, Coca-Cola has actively developed sugar-free cola and increased the proportion of non-carbonated products, but classic Coca-Cola sales remain the main source of revenue. Other Coca-Cola brands like Diet Coke, Fanta, and Sprite are all carbonated drinks, which are not on-trend. Coffee, functional drinks, and wine are. To expand its product categories, Coca-Cola has adopted the most direct approach—acquisitions. To this end, last year Coca-Cola even established a dedicated venture capital division, Global Ventures. In the past two years, Coca-Cola has rapidly cultivated new growth points through acquisitions, including Costa Coffee, Monster energy drinks, NFC juice brand innocent, and non-ready-to-drink tea brand Doadan, all of which were acquired in recent years. In 2018, Coca-Cola increased its focus on the coffee market by acquiring COSTA for $5.1 billion and launched a ready-to-drink (RTD) coffee series this year, with the main selling point being low sugar. It also acquired kombucha brand MOJO and juice company Chi, among other health-trend beverages. As competition in functional drinks intensifies, Coca-Cola's acquisition of Monster filled its gap in this category. However, Coca-Cola faces not only long-time rival Pepsi but also Red Bull, Monster, Dr Pepper, etc. According to the 2018 ranking of the world's most valuable soft drink brands, the latter three saw their annual brand value increase by 13%, 31%, and 30% respectively, leaving Coca-Cola behind. But to capture a share of the functional drink market, Coca-Cola, in addition to acquiring Monster, also launched its own Coca-Cola Energy. Just in the past month, after ending its non-compete agreement with Monster, Coca-Cola has listed this drink in European and Japanese markets. In addition to entering coffee and launching functional drinks, Coca-Cola has also made significant moves in the alcoholic beverage market. In May 2018, it first released "Lemon-Do," a canned sparkling sake mixed with Japanese shochu, lemon juice, and soda water, which became popular among young people in Japan due to its low alcohol content. To this end, last year Coca-Cola even established a dedicated venture capital division, Global Ventures. In June this year, Coca-Cola launched four premium mixed cocktail drinks for the UK market, developed by professional mixologists, adding whiskey, rum, and other spirits to cola, which can also be mixed with different spirits to create cocktails. Just last month, there were reports that Coca-Cola might bid for Pernod Ricard's wine business, continuing to diversify its product layout in the alcohol category. In terms of alcohol, coffee, and food service, Coca-Cola has already taken concrete measures. According to CFO John Murphy, besides carbonated drinks, Coca-Cola is also the number one company in the following three segments: juice, dairy, and plant-based beverages; water and sports drinks; and tea and coffee. Additionally, due to its partnership with Monster, Coca-Cola holds the second position in the energy drink category. In the coffee sector, despite acquiring COSTA, Coca-Cola's market share in hot coffee remains small. John Murphy said that Coca-Cola is accelerating the development of this business. He also specifically mentioned that the coffee business will also involve food service coffee machines (Proud to Serve, referring to larger coffee machines and coffee bean business for B-end clients, usually operated by baristas), self-service coffee machines (Express, referring to convenient coffee business for C-end consumers via smaller machines), and ready-to-drink coffee. As carbonated drinks lose their former glory, Coca-Cola has to accelerate its transformation to gain recognition from the market and investors. Source: YIOU.com