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Coca-Cola And Diversification: A Love Story

Are they the ultimate example of using the strategy effectively?

10Mar

The Coca Cola Company has never shied away from diversification. It’s been the cornerstone of its success since acquiring orange juice manufacturer Minute Maid in 1960. It’s needed to do it. Coca-Cola alone, while undoubtedly a refreshing and delicious beverage, does not make a global beverage giant.

The company has now added Chi Ltd. a Nigeria-based leading dairy and juice company to its mammoth portfolio of over 500 brands - which it either owns, partially owns, or licenses. The drinks giant has taken an initial 40% equity investment, which it plans to increase to 100% over the next three years, subject to regulatory approval. It’s hoped that by creating a strategic relationship between the two companies, it will help expand its regional footprint in Africa as well as its product portfolio, to which it’s looking to add more healthy drinks in the face of increasing awareness around the downsides of sugar.

Coca Cola is currently struggling to change its reputation as a sugary dinosaur in a stevia world, and has been making moves into the healthy drink market for a number of years. Way back in 2007, Coca-Cola spent $4.1bn on Glaceau, including its health drink brand Vitaminwater. Its recent rebranding exercise has also largely been seen as an attempt to bring its lower calorie products to the fore, as well as the recent launch of its flavored milk brand Vio in India.

Coca Cola has used diversification as a strategy since it first faced stalling growth in the 1960s and ’70s, even buying out Columbia Pictures in 1982 before selling off such ‘non-core’ businesses a few years later. It now has 20 brands in its stable that bring in over $1 billion of annual sales, including Fanta, Sprite, PowerAde, and Vitaminwater. They have achieved success by going after anything on trend in the beverage world whenever growth stagnates. And stagnating the brand is. While they remain the top soda brand in the US, the third quarter of 2015 saw the company report just 1% global growth in the Coca-Cola trademark - including 1% growth for brand Coke, 8% growth for Coke Zero and an 8% drop for Diet Coke. In Europe, their revenues fell 7% to $1.3bn, posting an operating loss of $722m in the quarter finishing September.

Africa is a fast growing region for beverages, and the juice market in Nigeria is expected to grow at a CAGR of 9% between 2014 and 2019 because of its increasing population and urbanization. In 2014, Coca Cola announced an investment of $17bn from 2010 to 2020, triple what it invested in the previous decade.

There are two reasons to diversify. The first is to use your company’s way of creating value and its distinctive capabilities to generate new avenues for profitable growth in the acquired business. The second is to strengthen your company’s current business, by enhancing either its capabilities or its value proposition. This is what Coca Cola is doing, and it has done so highly successfully over the last fifty odd years. Coca Cola is a classic example of how to do diversification, with a standing commitment to exploring new ideas and growing product diversity that, even in a world when people are so virulently anti-sugar, the Coca Cola brand is still largely adored.

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