Still Learning from the Leadership in the Soft Drinks Industry

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The Canadean Soft Drink Strategy Congress was recently held in Madrid. Pedro Antonio Garcia Lopez, our friend and partner at Itaca Alternative Consulting, was the chair of the event. Middlegame was eager to hear about the conference and Pedro Antonio agreed to give us a firsthand account of his observations and publish them in the blog. The following is an excerpt of that conversation.

TODD Congratulations on being offered such a prestigious role! How did it go?

PEDRO ANTONIO  It was a challenge but also an awesome opportunity to gather collective wisdom of an incredibly diverse and talented group who are not only the absolute experts on beverages, but also shopper marketing overall.

TODD  That is phenomenal. Who participated?

PEDRO ANTONIO  The traditional big players like Coca-Cola, Pepsi, and Schweppes Suntory were there, but I was also delighted to interact with the mineral waters manufacturers like Solan de Cabras, Hassia, and Niagara. Many of the new kids on the global block like AJE also participated, which brought a unique perspective similar to the wide range of beverage startups that attended. The presence of food and beverage global analysts as well as industry suppliers was equally encouraging. Stevia, the natural sweetener, offered a very pervasive presence.

TODD  Was there an overall theme?

PEDRO ANTONIO  The congress was a fantastic opportunity to identify global industry trends, anticipate the future map for the competitive landscape, and investigate the main strategies of the industry players. I really took four key takeaways from the discussions.

TODD  Which one would you put first on the list?

PEDRO ANTONIO  There were numerous discussions about what I call product premiumisation. It goes beyond the upscale sale. The difference is a change in scope to offer consumers an experience rather than simply present them with a new product. This doesn’t surrender the traditional function of a beverage or how organizations define SKU attributes. It actually expands on them similar to how Middlegame and Itaca Alternative Consulting have incorporated brand imagery into the analytics we have done together.

TODD  Getting the shopper perspective of brands into the attribute definitions is definitely a positive outcome.

PEDRO ANTONIO  The strategy is influenced by social trends that pursue health and wellness or calorie consciousness. It is subsequently being supported by technical innovation in food engineering or packaging like the Vi Cap Closure that allows trendy new flavors to enhance the beverage or unique ingredients. These remain aligned with a healthy lifestyle like ginseng, salts, and certain herbs and minerals. An interesting offering that illustrates this was bottled water with collagen.

TODD  I love that we are seeing an adoption of the way Middlegame has been using the PITA Model to deliver growth as opposed to traditional price discounting that has eroded brand equity over the past decades. I need to introduce the PITA Model to the blog for those who weren’t in the Coca-Cola System. What else was on your list?

PEDRO ANTONIO  The second was what I am calling democratization. This trend aims at targeting the bottom or intermediate levels of the global population pyramid. It is all about rediscovering the tremendous business opportunity in emerging markets. The big brands in developed countries are waking up to this and the topic dominated many conversations.

TODD  You and I have been talking about this since we met almost two decades ago.

PEDRO ANTONIO  Brands in developed economies were designed to be affordable, but aspirational, for users. That definitely translates as they reprioritize market expansion versus market share gains. A good example is AJE, currently present in 23 countries, and now starting operations in Nigeria. They pointed out that many of the barriers are on complete reverse. A clever insight in Nigeria was that high sugar and calories are not perceived as a problem and that it is actually a nutritional solution.

TODD  Nobody can argue that these emerging markets are still the growth engine for major FMCG companies. We talk every day at Middlegame about the importance of equally spreading the gospel of Shopper Response Analytics in these markets. What was the next big topic?

PEDRO ANTONIO  The next is our old friend revenue growth management (RGM). It still starts with an in-depth knowledge of consumption occasions and maps the brand portfolio presences across the applicable price levels like affordable, mainstream, premium, etc. However, there was a significant effort to put this in the context of specialized route to market implementation. This strategy allows that established competitors significantly increase revenues and profits without increasing actual sales volume.

TODD  Were there any solid examples to share with the followers on the Middlegame blog?

PEDRO ANTONIO  A good example was how Coca-Cola in North America has downshifted cans size aligned with consumer perceptions on calorie consciousness. The increased price per liter resulted in increased profits despite a reduction in actual liters sold.

Comparisons of revenue growth management for beer and soft drinks were shown in a particularly interesting session. Beer achieves clearly better results due to having an integrated business model while soft drinks follow a more dominant franchise model.

TODD  I wish we could hear more of these RGM concepts in our marketing analytics conversations with clients. Maybe we are turning the corner. So many opportunities are being wasted. They need to move away from price elasticity and promotional lift. What was the last key topic?

PEDRO ANTONIO  The last was consolidation. The process is happening at both the national and international levels as global organizations try to take advantage of as much latent synergy as possible.

We have recent notable examples in the beer business with AB-InBev and SAB Miller. More specifically, Coca-Cola’s bottler consolidation process in soft drinks is a good example. Coca-Cola Iberian Partners, Coca-Cola Enterprises, and Coca-Cola Erfrischungsgetränke have combined to emerge as Coca-Cola European Partners. This unified organization is now the biggest Coca-Cola bottler in the world. Obviously the savings derived from these processes can nurture further system efficiencies and fund new launches. However, a highlight of the conference was how this would expand presence into other beverage categories via acquisitions of promising startups. This raised a lot of eyebrows.

TODD   This has been good for Middlegame. Bigger organizations tend to have a better focus on shopper response analytics. Their portfolios become stretched and they need our tools to identify and address the options available. However, the centralization of decisions has also meant that speed to market for grabbing the opportunities we find at specific retailers or outlets has slowed down.

PEDRO ANTONIO  I agree, but we need to look at these four strategies combined. They implicitly support the idea that the beverage business is in a continuous evolution. It is becoming an increasingly global marketplace with blurred boundaries of the marketing landscape. Competition for market share in well-defined category silos is over. The battleground is now clearly for share of stomach and ultimately moving for share of wallet.

About Itaca Alternative Consulting

Itaca Alternative Consulting is a go-to partner at Middlegame. Itaca elevates the strategic importance of the stories we are laying out with assortment, pricing, and merchandising analytics. For full details, please see itacaalternativeconsulting.com or reach out to us for a formal introduction. To see the slides that Pedro Antonio presented at the conference, they are available at slideshare.net.

Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.

Contact us at info@ middlegame.com.