Marketing: Investors adapt to consumer trends
By Jenny Wiggins
When the world’s biggest soft drink company starts changing its marketing tactics, investors would be foolish not to ask why.
Coca-Cola, which has traditionally promoted itself via its iconic Coke brand, using slogans such as “Coke is it,” now wants to make it clear to consumers that Coke is not the only drink it sells.
Its most recent campaign, called “Make every drop count,” says: “You’ve always known us as Coca-Cola, the soft drink. Now it’s time you knew us as Coca-Cola the company.”
The television, print and internet advertisements – which started in February in the US and in April in the UK – come as consumers ditch foods and drinks that are perceived as unhealthy (such as sugary fizzy drinks and salty crisps) for products that appear to offer some kind of health benefit, such as probiotic yoghurts that claim to regulate the digestive system.
Coke, which also recently launched “Coke Zero” (a diet version of Coke aimed at men), is using the new campaign to impress upon consumers the fact that it sells all kinds of drinks, including bottled water, juices and teas.
The campaign is important for the company, because it risks losing money if it does not sell the kinds of drinks consumers now want to buy.
Analysts say that growing demand for healthier kinds of foods and drinks is not a fad, but a long term trend that increasingly affects corporate profits.
Arnaud Langlois, equity analyst at JPMorgan, says: “It’s no longer a theoretical debate. It’s a reality. Changing consumption patterns are having a major impact on companies’ [financial] performance.”
The beneficiaries are companies that already produce the kinds of products consumers want, or companies that are taking steps to adapt existing products. These include Danone, the French group that makes pro-biotic yoghurts, as well as Swiss food company Nestlé, which has made nutritional foods a core strategic focus.
Companies that do not meet consumer needs are suffering. In March, Asda took the juice drink Sunny D (previously known as Sunny Delight) off its shelves after finding its customers did not want to buy it.
Asda said: “People were moving towards healthier drinks as opposed to Sunny D.” The drink, once one of the UK’s best-selling soft drinks, contains preservatives, colours and sweeteners. It now plans to launch a chilled fruit-based rink without preservatives in the UK this summer, as it responds to customer demand.
Meanwhile, shares in UK company Britvic, the owner of the Tango soft drink brand, have fallen 17 per cent this year after the group repeatedly warned of poor demand for fizzy drinks, which account for half its business.
Fund managers say that it is vital to monitor how closely companies are keeping up with health trends.
Neil Wesley, fund manger at Morley Fund Management, says: “It’s in our interests to look at these trends and see where companies have been repositioning investment.”
Still, while many companies are making an attempt to meet regulator and consumer demands for healthier products, some observers say that they could be moving faster.
Ethical Investment Research Service, a non-profit research group, said in February that food and beverage producers are not doing enough to manage the litigation and regulatory risks associated with their products, some of which are believed to encourage obesity due to their high fat and sugar content.
Researchers found that companies sometimes compensate for reducing fat by adding more sugar, and that they are also reluctant to commit to quantitative targets monitoring how they implement obesity-related policies. ERIS says these targets could include the projected value of calorie-reduced products as a proportion of their overall product portfolio.
The experience of McDonald’s in the UK has shown the danger of companies becoming too complacent.
McDonald’s – the UK’s biggest fast food chain – has been struggling with weak sales during the past five years amid attacks on the nutritional quality of its food and the rapid growth of other restaurant chains such as Nando’s, Subway and Wagamama.
To try and win back diners, it has had to introduce healthier kinds of foods – such as sandwiches and fresh fruit – and is also investing more than £100m in the next two to three years improving its dining areas and the external facades of its restaurants.
When companies do make changes, they have to be careful how they go about it.
Cadbury-Schweppes recently re-launched its 7UP soft drink in the US. The company said it removed artificial ingredients, such as the flavour preservative calcium disodium EDTA, from the drink, and claims 7UP is now 100 per cent “natural.”
“The move to ‘natural’ is in response to rising consumer demand for natural products,” the company said in April. But consumer interest groups have been quick to question Cadbury-Schweppes’s claims, with the US’s Center for Science in the Public Interest arguing that one of the drink’s ingredients, high fructose corn syrup, is not natural. The centre last month said it would sue Cadbury-Schweppes unless it dropped the claim. Cadbury-Schweppes says high fructose corn syrup has the same nutritional qualities as table sugar. The dispute highlights the need for companies to ensure they can back up any health claims that they make as they change their products.
Regulators are moving to enforce new laws on on health claims, with the European Parliament recently approving new legislation that will govern how companies can use claims such as “low fat” or “high fibre” on food and drink packaging. The laws will also create guidelines for companies that claim their products are “good for your heart”.