Revitalizing the Retail: A Case of the Coca-Cola Company

Discussion Questions

In April 2017, a delegation of Coca-Cola System leaders visited Pakistan to witness the market and its contribution to igniting the growth of the entire region. The main objective of this visit was to assess the market’s potential, to review the growth of business in this part of the world, and to meet all the stakeholders. Despite the mighty global presence and local achievements, the company still feared the market share in local competition mainly occupied by Pepsi International and other beverages. For over a century, Coca-Cola and Pepsi strived for the global market leader position in the beverage market. Amidst stiff competition, per capita consumption of carbonated soft drinks rose globally. In Pakistan, the consumption was also rising (see Exhibit 1); the former CEO of Pepsi-Cola, Roger Enrico, said,

The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca-Cola Company did not exist, we would pray for someone to invent them.

The battle of cola continued, and the giants faced new challenges. Could Coca-Cola boost domestic sales numbers? How could it supersede Pepsi and increase its reach in the local market? Would it be able to penetrate retail sales?

Coca-Cola was a name trusted by consumers across the globe for its deliverability of refreshing and high-quality products. The company globally held strong distribution muscles, good customer service and market reachability. Further, TCCC had all ingredients, as a beverage producer, to grow its market share; however, with the changing world, TCCC needed to look ahead to thrive as a business over the next decade. The company had been striving to achieve superior customer service, a strong retail presence and an intensive distribution channel in the country (see Exhibit 2). This delegation aimed to recast Coca-Cola as the beverage of choice in the soft carbonated category.

The Coca-Cola Company

Dr. John Stith Pemberton, a local pharmacist, produced the syrup for Coca-Cola in Georgia. Headquartered in the United States, Atlanta, Georgia, Coca-Cola was a giant in the beverage sector and one of the world’s most renowned soft drink brands. Coca-Cola was the world’s largest beverage producer, with a huge assortment of 500 brands, a global presence and over 700,000 employees worldwide.

Coca-Cola had a history of strong leadership. The company committed to its mission of creating brands of carbonated beverages that people loved. The company continued to show the responsibility of using a global food scale. TCCC also introduced less sugar-containing beverages and diet drinks for its diet-conscious customers. Packaging sizes started reducing with clearer nutrition information printed on them.

Coca-Cola in Pakistan

The TCCC came to Pakistan in 1953 few years after the country’s independence. The firm adopted both company-owned and bottling operation models, and it started operating under the license of The Coca-Cola Export Corporation, Pakistan Branch (TCCEC, PB). Coca-Cola continued to operate in Pakistan as a local business. The first plant was set up in Karachi. Coca-Cola Pakistan provided large-scale employment both in under-developing and urban sectors.

After the successful acceptance of the original Coca-Cola (classic Coca-Cola), TCCC introduced more brands in Pakistan. In 1965, it launched ‘Fantail’ followed by ‘Sprite’ in 1972. The operations continued for the next three decades when in 1993, TCCC developed sugar-free beverages (see Exhibit 3). This conscious step was taken to serve a segment of health-conscious customers. The strongest competitor of Coca-Cola had offered low-sugar carbonated beverages, so this counter was necessary to remain in the mainstream.

At the time of the delegation’s visit to Pakistan, the country had a population of around 220 million with a median age of 23 years. This meant that the Pakistani carbonated soft drink beverage had a huge customer base, which was expected to grow steadily. In Pakistan, most of the beverage market was dominated by sugar-contained carbonated drinks. However, the demand for healthy drinks and bottled water increased (see Exhibit 4).

The Coca-Cola System (Bottling Strategy)

The company operated around the globe through bottling partners and explored many multi-channels. Coca-Cola created a global reach with a local focus, strengthening the company’s more than 250 bottling partners worldwide. Greater operational control helped Coca-Cola in implementing the ‘bottling strategy’. Under this philosophy, the company was responsible for branding the business. In Pakistan, TCCC provided concentrated beverage bases and syrups to bottling operators. The bottling partners would manufacture, package, merchandise and distribute these branded beverages to the customers and vending partners for further reselling to the end consumers. All the partners worked in collaboration to execute the strategy of TCCC. The service rate to end consumers was recorded at 1.9 billion per day.

Bottling Investment Groups (the Bottlers)

In 2006, the company united all the company-owned bottling groups to create the bottling investment operating group. In 2007, these bottling groups met to create key success indicators. TCCC chose the division intending to address bottling investments and global operations issues. The bottling investment group was operating in 19 countries. This group was primarily tasked to focus on long-term development, improvement in operations and building a model of collaboration among partners. The importance of the bottler’s relationship with retailers was pivotal to continual product availability and the brand image. Merchandising agreements were used to increase carbonated beverage sales. Therefore, the bottling investment group’s role was necessary to keep the sales momentum up.

The Coca-Cola System in Pakistan comprised of:

The Coca-Cola Export Corporation, Pakistan & Afghanistan Region (TCCEC).

TCCEC was manifested to prepare concentrated syrup and beverages for CCBPL, responsible for the post-manufacturing operations. This role encompassed market development, investment in the market, order management, end-customer delivery and cash recoveries from the market. CCI Pakistan served a consumer base of 208 million, with six plants and more than 3000 employees across Pakistan.

Coca-Cola’s Competitor in Pakistan

Market Segmentation

Pakistan Bottled Water Market

The world water counsel believed that by 2020, the world would need 17% more water than was available. Pakistan faced an imminent water crisis as it had less water available and lacked sanitation. Pakistan’s bottled water consumption was forecasted to reach US$451.57 million by 2025.

The consumption of bottled water had become rampant in urban localities. In 2017, four bottled water plants were set up in Karachi. TCCC’s worldwide water brand Dasani was also launched in the same year in March. This launch was positioned as a strong and competitive water brand in the market in line with the strategy of TCCC. Coca-Cola was counted as one of the major players in the bottled water along with Pepsi, Nestle and Qarshi industries. The bottled water market was segmented based on its types and distribution channels. The per capita consumption of bottled water increased by CAGR of 8.8% (see Exhibits 5-1 and 5-2).

Marketing Operations

The company began its operation with three-pronged approaches. The first was the capitalization of trade marketing, the second was to meet intensive distribution and the last was the retail mix. TCCC ran parallel to its counterpart in trade marketing practices with the advent of achieving the highest numeric and retail shops coverage. From the beginning of TCCC operations in Pakistan, it had been trying to activate all the potential shops of beverage category handlers. A portion of the budget was utilized, for that matter. As an FMCG company, TCCC followed an intensive distribution strategy. It continued with an aggressive trade marketing approach to connect with retailers. The roles of trader marketing included communicating schemes to the retailers, sharing retailers’ issues and demands with TCCC’s management and improvising trade execution on the field. Contrary to its mandate, the trade marketing turned out to be less effective than Pepsi.

On the other hand, Pepsi executed a superior trade performance. The Pepsi cola beverages exuberantly practiced all promotion and national sales activities. Retailers started promoting Pepsi over Coca-Cola as their retailer-bottler relationship grew stronger. The success of other competitors was poised as they could exploit their trade merchandising, which primarily focused on getting engagements and loyalty programmes with all channel partners, including wholesale, modern trade and retail outlets. Thus, the sales volume increased for them, while TCCC was behind the bar and trying to create its impression in the market. The competitors were executing superior customer services, running a store loyalty programme and increasing market coverage. Coca-Cola had yet to match the competition.

Marketing channels were categorized based on volumetric sales. Sales for the channel categorization were considered regarding the number of cases sold to the retailers. TCCC had created the retail split into four major category-wise shops and called them ‘Diamond’, ‘Gold’, ‘Silver’ and ‘Brown’ outlets (see Exhibit 6).

The beverage industry’s choice of trade channel included urban and rural markets. In pursuing competition and market share, a remote presence appeared to be lackluster for Coca-Cola. The intensity of distribution muscles was weaker, even in the small pockets of the urban market and suburbs. The competitors had an edge of a strong market presence. With the arrival of modern trade, competition became more intensive. Relationship marketing was the key to penetrating modern trade and mini markets. The strong relations with key customers were the drivers of brand health and sales volume. Coca-Cola initially focused on a selective retail loyalty programme to tap the potential of new trade. Despite early measures, TCCC lacked superior execution.

Shopper Insights

The bonding between the brand team and the store owners drove the success of the beverage industry and retail loyalty. Assets deployments, like chillers and refrigeration, were part of marketing investment to gain customers’ orders. Once deployed, a continuous follow-up and customer service focus was the prime mover to create a total customer experience. This included the retail environment and factors within retailing to connect with end-consumers. This should have raised secondary sales, but TCCC lagged in translating its brand legacy at the store level. The competitors were successful in getting shelf space in a continuity manner. The measures to maintain retail services, including compliance with its complaints, prompt actions and retail requirements, lagged TCCC behind. Pepsi-Cola captured major prime locations for chiller placement. Visual merchandising was a differential factor between Pepsi-Cola and TCCC.

Coca-Cola Pakistan’s Current Focus

The primary focus had been on carbonated soft drinks since its inception. Over the years, attention had shifted to sustainability to strengthen its market share. Having seen consistent growth in the beverage market in the past few years, TCCC enhanced its focus on adding new products line for both beverage variety seekers and health-conscious customers. They preferred to consume less sugar (see Exhibit 7). The company also planned to include coffee, tea, dairy and fruit juices in its beverage portfolio.

The Way Forward

The company wanted to increase retail sales and to cover its reach into deeper pockets of urban markets. A senior delegation of the company and bottling partners met the Prime Minister of Pakistan to discuss the company’s investment plan in the country. The management vowed that they were planning to invest $200 million in the next three years to strengthen the business. Discussion on bottled water was also part of the agenda. The direction was clear that Coca-Cola Pakistan was ready to revitalize its business.