|Coke said the impact of Covid-19 for the entire year is unknown to them for the meantime but warned that the effect on the second quarter will be “material.” / Photo by pio3 via Shutterstock|
The Coca Cola Company said the closure of restaurants, stadiums, and movie theaters from the Covid-19 pandemic have weakened the demand for its products internationally for April.
Covid-19 impact on Q2
The year started strong for the company, with their global sales volume up by 3% through February except for China. However, its global volume fell by 25% in April, reports business news provider CNBC. Coke said the impact of Covid-19 for the entire year is unknown to them for the meantime but warned that the effect on the second quarter will be “material.” The effects of shelter-in-place (stay at home) orders and social distancing measures have hurt the company’s sales as entertainment centers and stadiums, where the company used to get nearly half of its revenue, are closed. This is why Coke said that the impact will depend on the duration of those measures.
Coke reviously reported its first-quarter results. The earnings per share, which means earnings per outstanding share of common stock, was at 51 cents, adjusted. Its revenue was $8.60 billion. This first-quarter organic revenues and earnings per share in the first quarter outpaced analyst expectations.
The beverage company added that even if it cannot predict the ultimate impact of the pandemic on their sales, it still believes that the pressure will only be temporary and it remains optimistic about having sequential improvement in the second half of 2020.
Q1 fiscal year
For the first-quarter net income fiscal year, it was worth $2.78 billion or 64% per share, an increase from $1.68 billion or 39% per share compared to last year. Not including the asset impairment charges and other items, it earned 51% per share.
The company net sales also fell 1% in the first half of the fiscal year or worth $8.60 billion. The organic revenue, which excludes currency effects, divestitures, and acquisitions, was flat for the first quarter.
Prior to the imposition of lockdowns and stay-at-home orders, Coke had been drawing in customers because of its healthier options, such as Zero Sugar, smaller cans of soda, and its new product called Coke Energy.
|As a global key player in the beverage industry, the Coca Cola company has about 300 bottling partners in the world. / Photo by Tricky_Shark via Shutterstock|
March stockpiling increased its demand
The softdrink giant saw an increase in demand for their drinks from e-commerce platforms and grocery stores in March as people anxiously stockpiled out of fear of the coronavirus crisis. Other products, like Simply Orange and Minute Maid juices, have also seen an increase in demand as more consumers started eating breakfast at home. The lockdown has made a reversal of trends.
Coca-Cola Chief Executive Officer James Quincey said that sales through e-commerce platforms doubled in many countries although it is still a relatively small part of the business. Sales volumes were also flat in Africa, the Middle East, Europe, and Latin America for the quarter because of the pandemic. In the Asia Pacific, where Covid-19 first hit, volumes fell by 7% in March. The only region where Coke saw a growing volume is in North America.
As a global key player in the beverage industry, the Coca Cola company has about 300 bottling partners in the world. In its 2018 report, thee North American segment introduced about 36.7% in the company’s total global revenue. Database company Statista shares that Coca-Cola is the leading carbonated soft drink (CSD) company in the US with a 43.1% market share in 2004. It grew to a 43.3% market share in 2018. Other top CSD companies in the US in 2018 were PepsiCo (24.9% market share), Dr Pepper Snapple (17.9%), Refresco (3.6%), National Beverage (3.1%), and others, which include Big Red, Rockstar, Red Bull, and Monster Beverage (7.2%).
The British businessman added that they’ve been through challenging times in the past as a company and he believes Coca Cola is still positioned to emerge strong and manage through the pandemic.
Coca Cola pausing its marketing spend
Coca-Cola has also recently paused its marketing spend, which represents the amount of money a marketing department spends, over a reduction in the Return on Investment. ROI is a performance measure used to evaluate the efficiency of an investment.
Quincey told the investors in a call that the company has seen a “profound” and “significant” impact of the pandemic on its business that they have to halt most of its marketing. Many markets are also taking a pause now as they focus on other priorities, such as the communities.
The company has found that there will be “limited effectiveness” in marketing spend due to the government’s responses to the health crisis or while people are in lockdown. The CEO said that they will just be re-engaging when the timing is right.
Other FMCG companies increased marketing spend
Other firms in the fast-moving consumer goods (FMCG) sector have taken an opposite approach to Coca Cola as they continue to invest. For instance, multinational consumer goods corporation Procter and Gamble said that “now is not the time to come off air.” P&G’s Chief Financial Officer Jon Moeller told marketing news platform Marketing Week that the company will be doubling down its marketing spend in categories, including baby, healthcare, and baby. Its marketing investment rose to 190 basis point in the quarter amid the pandemic.
The CFO believes that since the consumers in their sector now have more media consumption more than ever, they are “moving forward, not backward.” Coca-Cola’s CEO, on the other hand, may focus its marketing spend on digital as the platform is serving them “very well” at the moment.
Coca Cola – total advertising expenses
The softdrinks giant spent US$3.5 billion for advertising in 2014 and $4 billion in 2018. In 2018, a high percent of Coca Cola’s revenue share came from North America (36.7%), followed by Europe, Middle East & Africa (22.8%), Asia-Pacific (15.4%), Latin America (12.7%), Bottling Investments (12.1%), and Corporate (0.3%). These statistics come from market research report platform Market.us.
Sparkling soft drinks accounted for 70% of the global beverage volume share in 2017, followed by water and sports drinks (18%), juice, dairy, and plant-based (8%), and tea and coffee (4%). It is a part of the company’s goal this 2020 to improve water efficiency in its manufacturing operation by 20% and recover and recycle the equivalent of 75% recovery rate of the bottles and cans that they introduced to the market.
Just as the retailers and local grocery stores are working hard to make sure that families can get the food and beverages their family needs during this challenging time, the Coca-Cola company has to stay agile to adapt to the changes brought by the pandemic.