This is McConomy Business Talks, the podcast where real conversations meet real business.
Coca-Cola, a 130-year-old iconic brand and a dominant force in the $800 billion soft drink industry. Synonymous with globalization, Coca-Cola operates in over 200 countries worldwide. The beverage behemoth now has a new CEO. James Quincey spent the last two decades rising through the ranks at Coca-Cola. Now, as head of the company, Quincey aims to win over a new generation that shuns sugar and to show the world that he takes the environment seriously. Even as he adapts to a new world of technology, James Quincey sat down with us for an extended conversation. We wanted to understand how he plans to use innovation to transform every aspect of Coca-Cola, attempting to change its culture while managing a global checkerboard of regulations and tax regimes.
Coca-Cola operates in a lot of different countries, which means there's a lot of different regulatory systems, a lot of different legal schemes you have to really adapt to. Let's talk about a couple of those. First of all, the United States. The tax cuts. How does it affect Coca-Cola?
Yeah, we're still working through the numbers. I mean our tax rate last year effectively was about 24%. So it's not the biggest change to us because we're an international company. The absolute rate hasn't affected us as much as perhaps some of the more domestically focused enterprises. But we're positive on moving to the territorial system. So we think the simplification is positive in the long run. To the extent that it helped create more demand, that will be good news too. We're still working through the numbers that we'll lay out on our earnings call. Of course, we're part of having some of the money overseas, but in the end, if it generates more economic growth, that will lift all the boats.
Does the expensing of capital investment affect you at all?
Not in a great amount. I mean, it will make some difference. We'll lay that out, but that's not the biggest moving piece for us.
And if there is significant incremental cash available to Coca-Cola, have you decided yet, does it go into capital investment? Does it go into buybacks of shares? Does it go into dividends?
I mean we weren't short of cash at the end of the day. So we've been a successful company. We've got the resources we need to invest in the marketplace. We're still working through exactly how the puts and takes work because obviously we've got to pay tax on the cash first or in addition. So we're looking at how we use all that and how we make the right capital allocations.
One of the really big issues for the United States right now is the so-called dreamers. These are the young people who are brought here as children. And the question is, do they get to stay as adults essentially? Do you have at Coca-Cola people who are really uncertain about whether they can stay or not? There are about 700,000 more or less nationwide.
Yeah, we have some people in our company and in our bottling partners who fall under the dreamers or the DACA program. We would love the government to find a way to make proper underlying immigration reform, including finding a solution for the dreamers so that it's not so disruptive and that they can stay. So hopefully they'll find a path to that. Of course, partial solutions may be necessary, but we would love to see fundamental reform.
You ran Mexico for Coca-Cola at one point, so you have seen this issue on both sides of at least our southern border. Do you see a path forward, a constructive path forward on immigration?
I think there's a path forward, but I think it also is connected and it can't be completely disassociated when you think about long-term fundamental reform from getting both economies to grow. In the end, part of what drives the informal immigration is the disparity in the economic outlook. Having a community of North America where all the economies are growing actually helps solve that problem too. So I think leadership from the United States to drive growth will help solve some of these other issues too.
You've also seen NAFTA from both sides of the border. You've seen that issue which is another hot issue right now in the United States. Has NAFTA overall been good or bad for the United States?
My view would be that free trade deals are good overall for all participants, and I think it's been good for North America and all the countries in it. Doesn't mean it's perfect. Very few free trade deals are perfect. So can it be made better? Yes, I hope they can make it better. But I don't think we should start deconstructing global trade. I think it's been a powerful engine for lifting all boats. It doesn't mean it's solved all problems. There are questions of income inequality. There are questions that not all the rules were perfect and need to be improved, but let's go forward, not backwards.
So when President Trump first came in, he was very closely allied with many people in business. He consulted and he had panels that he talked with as well. Do you get to talk to either President Trump or the administration about things like NAFTA? I mean, do they consult you or do you make your views known to them?
When there are things where we have a view or it affects our business, we make our views known either directly to the administration or through many of the business forums like the Business Roundtable. There are enough points of intersection collectively and individually with the administration that they know what we think.
So from that, do you have any sense of where we're headed with NAFTA because there are conflicting reports? I mean, the Canadians seem to be preparing for a US withdrawal. There are a lot of people in Washington who say no, we're not going to withdraw. Do you have any sense from your point of view of where we're headed?
My view on negotiations is you've got to let the negotiations negotiate. And if you're not in the room, you don't know what the answer is until it comes out. So I think the important thing for those who aren't in the room is to keep saying what they believe to be true, what they believe to be the areas where things can be made better. And then the negotiators have got to get in the room and thrash it out. Trying to work out what color the smoke is coming from the room doesn't lead you anywhere until they come out and tell you what the answer is.
Your native country has voted in referendum to leave the EU. I won't ask you what you think about that, but tell us how that's developing. I mean, is there a soft landing there that you can see? How would we get to it?
It does go back to my point about negotiations. You're never really sure until the cake is cooked. I myself think the logic of the economics is a softer rather than a harder Brexit. I think in the end, whilst it won't be a catastrophe one way or the other, life will be better. There will be more economic growth if it's a softer Brexit, but there's a lot of details and a lot of different points of view to work out because in the end, the referendum wasn't between do you want this or that. It's like, do you want this or not want this? It wasn't a referendum around the version of the exit, which is kind of where we're trapped at the moment. And of course, there's a lot of negotiations going on. It's very important to get it right for the UK and to some extent for Europe as well.
Whether it's Brexit or whether it's NAFTA, how do these trade issues affect Coca-Cola's business?
One of the great benefits of the Coca-Cola system is we're global, but we're extremely local. We manufacture in every country virtually that we sell in. Virtually everything that's sold in the US is made in the US. Virtually everything that's sold in Mexico is made in Mexico. Virtually everything that's sold in the UK or France is made in that individual country. So global trade restrictions or openings don't tend to affect us heavily in the moment. To the extent that they reduce or increase total economic growth, that's what matters to us. And so I think philosophically we're pro global free trade because it drives economic growth. Therefore, let's focus on making those deals better, because it'll provide the wealth to then solve a lot of society's problems.
You came in and took over Coca-Cola and really trumpeted innovation as critical to your future. I believe you have a chief innovation officer, but maybe you're the chief innovation officer in some sense. How do you innovate in a 130-year-old company that's so well known around the world, has been there for so long, has such an entrenched perception of people's views?
It's hard. Any institution that's been around a long time, whether it's a company or a government organization or any organization, it's going to be very hard. So from my point of view, if I'm not the chief innovator, I'm certainly the chief agitator for innovation. And what that means is driving the culture to try and do a few things on top of everything else we do. Stay curious. If we're not curious about the outside world, about the consumers, about the customer, about what's changing, how will we innovate? But curiosity just leads you to an insight; it's very passive. You need to drive empowerment so people feel they can go and do something, that they're not waiting for head office to make the decision, that they can get up in the morning and go and do something. And I think the next thing is you've got to be inclusive. You've got to try and connect the pieces because we have tremendous global knowledge and a tremendous global system. Sometimes your idea has already been tried somewhere else. So connect to the other parts of the system. And lastly, we probably fell into the trap of trying to make things perfect before we did anything in the past. No, we need to learn from some of the software companies: have version 1.0, 2.0, 3.0. That gets us both innovation and speed. And if we keep pushing those four things, I think we'll make progress.
And how do you know? How does James Quincey know whether you're getting the innovation job done? I mean that in the sense you're sitting at the top of a very large organization, a lot of people spread around the world. How do you judge whether the word's getting down and people are already changing their behavior?
It's hard to know, but the only way forward is to look for multiple signals. There's no one number or one metric that's going to give it. We have employee surveys where we ask people. We can look at the sales numbers and measure the success rate or the number and the success rate of the things we put into the marketplace. We can look at what our research and development pipeline is generating and are we really getting new patterns? Are we really making progress? So I think one has to have a dashboard to look across and say, is there progress?
How is technology changing the way you do business and for that matter your workforce?
Technology is disrupting just about every company that we know of today. How is it affecting Coca-Cola? And first talk about how it's affecting your relationship with your consumer. How you deliver to your consumer, things like e-commerce, how you market to your consumer.
