Friday October 07 2011
Volume: 39 Issue: 40

CITRUS disease and the failure of farmers to re-plant is regarded by Coca-Cola as the most significant threat to the future of the juice industry. And the soft drinks giant has hinted that it is planning to do something about it.

Ian McLaughlin, general manager of Cokes Global Juice business unit, told delegates at this weeks World Juice 2011 conference in Madrid:Global warming is impacting on the raw material supply and in certain segments is threatening the future of the processing industry. In particular, the increase in disease is a worrying one because of the impact on trees and also because it is a barrier to growth.

We are all aware of the decline in the Florida citrus market but even the recent high prices of orange juice have not stimulated widespread re-planting. There has been virtually no re-planting in Florida. What we normally see is high prices for juice are a stimulus to re-planting and we are not seeing that. I would say greening is the greatest threat that we have and it is essential that we continue to invest in prevention and cure. Not doing anything about it is not an issue. We are working with the industry in order to make [re-planting] happens.

His presentation, however, was generally upbeat and spotlighted the growth strategy that has enabled Coke to double its fruit juice market share since 2000 and to record a 10% compound annual growth rate (CAGR) since 2005. Despite the general economic gloom (especially in the Eurozone), he told delegates that there was still room for growth. We strongly believe at Coke that this is the right time to think about growth,he said. We believe that we will get through this particular crisis and return to growth and there are many opportunities to grow our business.

We need a multi-year and multi-decade approach to planning the success of our business and that really is the approach we are taking at Coca-Cola. We do not want to waste this crisis. We want to use it as an opportunity to focus and plan for our next phase of growth. We have a very positive view of the future.

To ensure growth, Coke has focused on sustainable sourcing, winning brand propositions and efficient operating practices, he said. Expanding on that, as regards sourcing, he commented: We set out to establish and in some cases re-establish partnerships with juice suppliers and to source it at competitive prices so we could continue to invest in the market. In many cases we have had relationships without key suppliers for decades, in some cases for four decades, and the reality is that we see that as a key pillar of our strength. It is critically important that we have a strong supply network from our growers and processors.To this end, Coke established a dedicated sourcing team based in Zurich.

Cokes diversification into fruit juice has thrown up some interesting challenges. One was the need to move from a formula-based operating system (because Cokes DNA is rooted in sparkling beverages) to a recipe-based system. The next was to set up a stepped product portfolio, starting with cheap powders and concentrates (still very important in some markets), and moving up through mainstream fruit juices, and then premium chilled juices, to the present premium pinnacle of smoothies.

Key brand platforms

Coke has organised about 1 000 products into a few key platforms aligned under a global master brand. We believe it was the right decision to take, said McLaughlin. It has allowed us to retain equity and consumer connection in many of the brands we have had for decades.

Coke now has three one-billion-dollar juice brands: Simply Minute Maid in North America, Minute Maid Pulpy in China and Del Valle in Latin America. Simply Minute Maid was launched in 2001, with strict consistency in positioning, and provided Coke with valuable lessons as to how it might approach premium juice segments in other markets around the world.

Minute Maid Pulpy (strictly speaking a juice drink) offers sensory experiences in sight, smell, sound, touch and taste. Since it was launched, it has taken China by storm and is now in 20 countries across four continents and will go into other markets. It is also Cokes first billion dollar brand to come from an emerging market.

Del Valle is a case study of success by acquisition. The brand was bought in 2007, when it was operating in three countries in Latin America with annual sales of less than USD500 million. It was described by McLaughlin as the vehicle to transform our Latin American juice and is now present in 14 countries in Latin America with sales of over USD1.0 billion.

And for the super-premium end, Coke has invested in Innocent, the UK smoothie manufacturer, seen as a great brand and a great future platform for growth.

Challenges still remain. Take these together and we have a very different set of challenges that are unique in the history of the industry, said McLaughlin. One is related to the disease issue. Any residue of agricultural chemicals is unacceptable. We must be prepared to work with governments otherwise we will have regulation imposed on the industry.

In the short term, particularly in western markets, Coke is seeing a slight slowdown. Developed markets are the bedrock of the industry, so this is of concern. But in 2020, based on economic projections, the industry will have a billion new consumers in developed markets.

As people have more income and move into that middle class bracket, two things happen, added McLaughlin. The consumption of juice increases and, which is bad for the industry, the consumption of fresh fruit increases dramatically.(The effect of that has been most clearly seen in China recently).

Another challenge that we have to be aware of is the obesity concern. Juice used to be considered healthy but is now under challenge. We must consider how we market the benefits of juice as part of a well-balanced diet.

There are no local challenges any more. Anything that happens on a local level, immediately becomes through social media a global issue. It is our responsibility to lead on these issues as an industry.

He concluded: I cannot over-emphasise the role the industry has to take in safeguarding its future. I want to be very clear that we have a positive view of the future of the industry.