Can Coca-Cola Meet the Challenge?

Last April, Warren Buffett spoke at Coca-Cola's annual meeting and warned the beverage giant of being too complacent about its success. His words could hardly have been more prescient. About a year later, Coke is facing major challenges from competitors, health activists and consumers. How can the company weather these strategic assaults? How can it end its dependency on its flagship products, diversify and regain its leadership, especially among young people? Above all, how can Coke show that it cares about its customers' best interests?

In the video below, Warren Buffett shares the stage at the Coca-Cola annual meeting last April with Coke CEO Mukhtar Kent.

Buffett, whose company Berkshire Hathaway is one of the largest shareholders (it owns some $400 million Coca-Cola stock, extols the virtues of Coke, calling it "a wonderful brand" that "is forever."

(Our daughters don't know who Buffett is, but would doubtless agree. Whenever there is a Coke and my wife does not object, or does not see it, they will drink it. It is the epitome of pleasure.)

But Buffett also sounded a note of caution, saying the greatest danger to any business was complacency.

Less than a year later, Buffett's warning seems prescient.

The company is facing sluggish growth in its overseas markets. Coca-Cola is facing multiple upstart competitors, including energy-drink makers, pressed-fruit brands and do-it-yourself soda appliances like Sodastream International Ltd. in Israel.

For years, Coca-Cola reigned as the world's number-one brand. In 2013, that changed. Both Apple and Google overtook Coke in the Interbrand annual ranking of global brands.

U.S. First Lady Michelle Obama has mounted a campaign to fight obesity, urging Americans to drink more water.

As New York City's mayor, Michael Bloomberg went for banning sales of large-size soft drinks.

Coke has posted its fourth consecutive quarter of declining sales, with a 3.6% fall to $11 billion.Net income slid 8.4% to $1.71 billion.

These challenges have raised concerns about Coke CEO Kent's long-term strategy.

In February, Kent, who had promised investors bold revenue gains by 2020, announced $1 billion budget cuts by 2016.

But Ali Dibadj, an analyst at Sanford C. Bernstein in New York City, said Kent's pledge did not go far enough. "There needs to be much more cost cutting," he said.

Coke has thrived for 127 years and survived many other health fads, not least because its flagship product contains both caffeine and sugar, which can be addictive.

Kent told analysts that while he "wasn't satisfied" with Coke's performance in 2013, "since 2010, we've added 1.1 billion unit cases, bringing volume to 11 billion unit cases in 2013. This is the equivalent of adding another Brazil from a brand Coca-Cola perspective."

Kent has touted the company's presence in 200 countries as its best protection, saying that its troubles in one market can be offset by growth in others.

But Martin Lindstrom, a brand and marketing consultant, disagreed. "The whole company is affected. Coke has to stop the erosion in the United States or it will cascade elsewhere."

Lindstrom noted that the average age of a Coke drinker is 56. "They think they are young when they drink it," he said. But "young people themselves are turning to to alternatives like energy drinks."

Coke is more heavily carbonated than Pepsi, and roughly twice as carbonated as the energy drinks Red Bull and Monster that are rapidly gaining market share, especially among young people.

Coffee and dark chocolate-infused beverages have become more popular, especially in Japan and Europe, and have shifted preferences from sweet to bitter, Lindstrom said.

The company is seeking to diversify further. In January it bought a Vermont-based Green Mountain Coffee Roasters Inc. to work with the maker of Keurig coffee brewers to introduce a system for producing single-serve cold drinks.

Last year, in Argentina and Chile, the company introduced Coca-Cola Life, which it describes as a naturally sweetened, reduced-calorie sparkling beverage.

And to counter claims that Coke's products contribute to obesity, the company promoted exercise in ads on "American Idol."

But is that enough to counter the multiple challenges Coca-Cola faces?

What do you say? How can Coke overcome itschallenges? Or is there no reason to worry? I look forward to reading you on my blog:

http://thomaszweifel.blogspot.com/.

Dr. Thomas D. Zweifel is a strategy & performance expert and coach for leaders of Global 1000 companies. His latest book Strategy-In-Action: Marrying Planning, People and Performance (with co-author Ed Borey) was just published by iHorizon.