In conversation with Coca-Cola CEO James Quincey at London Business School

A small question. I think there are two parts to that question. One is how do you lead and the other is how do you stay relevant as a global brand or a global enterprise. And I think they're two quite different things. So let me start with how do you stay relevant as an enterprise and what's interesting about the Coca-Cola company is obviously self-evidently it's partly the Coca-Cola brand, which is 140 years old. And then there's a whole series of other brands which is the other half of the company. And so the challenge is as an enterprise, how do you ultimately decide and balance what not to change? And what should stay authentic to its past and to its origin and what should you update and change? And if you think just about the Coca-Cola brand, it's the same red and white colors, it's the same script, it's the same taste, it's the same bottle since they invented it. So in many ways it's an unchanging thing in a changing world. And yet they've had to make it relevant to every generation. And one of the simplest ways of typifying that is how to market to consumers. In its very origin, it was one of the first brands to use couponing. Buy one, get a discount off. It was one of the very first brands, if you think we're talking about the 19th century now, to advertise about quality. It's the real thing because there were so many different imitations of everything in those days across all sorts of categories. But then it moved on. It moved on to outdoor. It moved on to merchandise. It moved on eventually to radio, TV, social media, etc. So the relevance is not just about what you make and do, but how you engage with people. And so the leadership challenge there with a brand like Coca-Cola is deciding what not to change. And resisting the temptation as we have largely always done although not always as those of you who have ever studied the New Coke catastrophe will know that was a moment of hesitation in thinking they needed to change the formula to stay relevant and of course it was a complete shambles and they reversed it almost immediately. And so those decisions are super important about what not to change. They're actually much harder than coming up with a new ad campaign or coming up with a new way of engaging people. And so leadership has to be very much about having a point of view. Because you know in the end people especially in marketing orientated companies there's a certain drive to do something new. No brand manager or MBA student ever turned up and said, 'I think we should just do what the last person in the job said.' Like that presentation has never been made. They always have a new idea. And so they're always trying to change it, which is generally good, but someone has to say no. And so with that balance, we've been able to keep Coke iconic. And yet in the beverage industry or in the general consumer industry, people talk about brands that sell a billion dollars at retail or more. And which is very rare that a brand sells more than a billion dollars at retail. And we have 31 of them. One's Coke and the rest we have largely invented to address more niche consumer needs. And so that's the great balancing act that is actually very hard to do is not only to carry on with the thing you started with but to balance it out with other ideas that can address more niche concerns for people and that's the leadership challenge.

Yeah, it's about soda and health really isn't it? The first thing is to look at the data because people tend to overemphasize what they see around them. Either by their socioeconomic level, their age, their country, whatever. Let's go back to the data and look at the beverage industry. And so I think it's always key as a leader to get down into the data. What does the data say? And the first thing to know about the beverage industry in the data, it's an industry that keeps growing. So volumetrically and saleswise, the beverage industry has grown. If you did a histogram of the average growth three years going back for 30 years or whatever, basically the industry grows at 4% every year. If it doesn't grow four, it grows at five. And the reason that's true is if you take the developed world, so US, Europe, Japan, Australia, etc., etc., of every 10 drinks you have, you're paying money for seven and a half of them, maybe eight. And that is relatively stable. But if the other 80% of the world's population in the emerging markets, they only pay money for two or two and a half of the drinks they ever drink. So the first key insight about the beverage industry is actually it is yet to be created because consumption of commercial beverages tracks disposable income. People spend money on beverages as they earn money and they very rarely have a lot of money and spend nothing on beverages and I'm including all commercial beverages. So the first thing to understand about the beverage industry is the long-term motor is the number of people in the world and how much money they've got and that is just driving the industry to keep growing within the total amount of beverages that are consumed. There's been an ongoing shift to what we would call non-alcoholic ready to drink. Something that comes in a bottle or a can rather than tea bags or loose granules or something. And yes, within that there has been a slow change of the mix. But again, there's a very big difference between what happens in the developed world and what happens in some other countries. So you take the UK over half the soft drinks now sodas are now zero calorie diet or zero. But actually the total number keeps growing. So when you conceptualize what's the soda, you first have to answer your question. Are you talking about the ones with sugar, with half sugar or with no sugar? Because that's a very different answer. I mean, if you look at just take Coke, Diet Coke, which is people think that's been declining for years and years and years. That's been growing for the last couple of years and Coke Zero is growing volumetrically. And so it's very important to get down to the data. What you do see which is very logical when you stand back from any industry every industry starts with someone coming up with an idea and there's one product let's call it Coke then someone comes up with another couple of products and the industry starts with relatively few categories and relatively few brands but as it grows and grows competitors come along and go well it's going to be quite hard to compete against Coke I'm going to come up with a slightly different idea I'm going to come up with a ready to drink tea or a sports drink or some form of smoothie or whatever and so different categories appear. So then every industry naturally creates space for different brands and different competitors and this beverage industry is no different. So it has fragmented the bigger it is in any country the more brands and categories it tends to have. So our response to that has been the solution. Coke remains the biggest basic consumer brand at retail in the world by a substantive margin in food and beverages. But now we have 31 billion-dollar brands because we too have responded by going after all those niches and now we have the biggest obviously the biggest cola, we have the biggest fruit flavor soft drinks, we have the biggest sports drinks in the world, we have the biggest ready to drink tea in the world, the biggest juices, etc., etc. And so that's the question of responding to consumer needs and becoming a total beverage company and that's how we kept growing.

Thank you. Yeah, the Coke. There's a famous quote by Andy Warhol, which is a Coke is a Coke. You can't get a different Coke whether you're the president or the homeless person. All the Cokes are the same and they're all good. That's the Andy Warhol quote, more or less. The Cokes are the same. It's not just the same recipe-wise and bottlewise, iconography wise, it's the same script. So, back to this idea that there's a bit that's authentic and unchanging, and that's the bit that's the same everywhere. And why is that the case? Because in the end, you can make an assertion that fundamental human aspirations and values are not actually that different around the world. Everyone wants to have friends and family. People want their children to have a better life. Like there's a set of aspirational elements of human need and human values that actually are pretty universal and the Coke brand sits in that space and so it is able to have a brand architecture that actually links to something that is almost universal across the world. Now its physical representation looks the same everywhere but the marketing representation can change around the world. If you're in Mexico it's going to be celebrating Mexican food not Chinese food as if you're in China. The representation, the ritual that it's building. Let's say Coke with meals, which is part of the marketing construct of the Coke brand. What does Coke with meals mean? It's not just about the physical pairing with a food. It's about the ritual that people go through at the moment of having the food. In some cultures, that will be the family sitting around the table. So the marketing you'll see in Mexico for example tends to be the family round the table with the Cokes. The ritual of food in Singapore is not that or Hong Kong the apartments are too small. They're out in the street having the food with friends. And so the representation of Coke and food will be the enjoyment of sharing a meal with friends on the street. And so each Coke actually if you go and ask people around the world how do you feel about Coke? Somewhat paradoxically they feel it's very local because it's a global brand that has been brought to life in the context of their culture.

Yeah. Just to find out what the hell is going on.

Yeah, if only I could make things happen as a CEO. Lots of people are involved in that. The starting point is actually something relatively simple which is the intersection of the idea that businesses are going to prosper in the long run if communities prosper in the long run. And the relevance of that comment is businesses that create externalities i.e. costs to society that they have not paid for are storing up problems for themselves in the long run. And one of those in the context of consumer industries is the packaging that goes with it because you take it home whether it's a cardboard box from your delivery or whatever that then has to be dealt with. And cardboard will break down relatively quickly but glass, plastic and cans does not and so there's an externality there to the environment to land waste etc. And that eventually starts becoming a problem because either it gets in the wrong place is in the sea or is on the street or it's wasted. Now in the case of our industry, we are in some ways fortunate because whether it's a glass bottle, a plastic bottle or if there was a can here, a can, each of those materials has an inherent economic value. If you have other packaging materials like flexible plastics, it basically has no economic value. But the reason that these three, my imaginary can here, have inherent economic value is because they are easily recyclable. So if you can collect it, you can recycle it. A glass bottle gets melted down. A can just gets melted down. A PET bottle gets chopped up and melted down. In fact, the reason I don't know if you can see, but you can see this bottle is slightly gray? Do you know why it's slightly gray? It's already been recycled many times. And the reason it's slightly gray is you get the bottle, you chop it up, and you melt it, and you blend it in with other virgin plastic, or you can make a bottle that's just made from recycled plastic, which is why it turns gray, which is that bottle. And so in the end actually in the case of beverage materials because each package has an inherent value the challenge is not recycling. In other words once I've got it I know I can make a new one out of it. The question is, can I get it back? And so what we have been pursuing over the last decade or so is essentially two different solutions in the developed world is to push and promote collection largely through municipal systems. So we're completely in favor of the wheelie bins. People don't like the wheelie bins, but it's great. The bottle goes in the wheelie bin. It goes to the recycling center, they collect it, they put them all together because it has economic value and they sell it back to us. So actually you can and in many European countries you achieve over 90% collection of the bottles and the actually cans are even easier than plastic bottles. You achieve over 90% collection of the bottles and cans because they have the value for the recycling system. In emerging markets, they have not achieved the organization of municipal collection. But because at the end of the day, labor's cheaper there, you largely find industries grow up to go around and collect all these bottles and cans and cardboard. And actually, collection rates in emerging markets are often higher than they are in the developed economies because labor's so cheap. So actually we're already closing in on 70%. Because the material has economic value and that has included us going to governments and saying you should mandate collection. You should mandate that industry contributes to paying the collection. You should do it the most efficient way possible which is not always what they do. And you should put in laws that require recycling material into virgin. That way you'll create a circular economy where everyone's economic interest is reusing the materials and it then won't be waste. So it's about in the end designing an economic system where all the actors are incented to make it work. If that's not true, it very rarely works in the long run.

I didn't quite hear the last bit but let me go with an answer and see whether it works. I think in the end you've got to decide why you're doing them. Are they integral and inherent to your business or are they nice to have? So, the first things that always go under pressure are the nice to haves. If you take the Coca-Cola company, in the end, you're going to have to make the argument, if we're talking about any serious amount of money, and also if it's not a serious amount of money, it's the nice to have, so it'll get jettisoned. If we're talking about serious amounts of money, you've got to be able to answer the question, why is this good for the shareholders? You've got to be able to answer that question. And so in the end to me it comes back to the central argument that if you want a healthy business you've got to have a healthy community. You can't have a growing business in a declining society. And therefore if one of the reasons that the society is not doing so well is the cost of the externality that you're creating it will eventually become a problem. Now, even when that is true and even when you're a company of the size of the Coca-Cola system, that does not mean you can go, okay, well, this is going to be a problem in the long term. I'm going to solve this on my own because most of these problems have very little chance of being solved by one company, which I think is part of what you referred to with the Palm oil thing. And in the end it has to be the...

Collective action of the companies in the industry, of the government sometimes, NGOs, and civil society to make it happen. And my perspective is that oftentimes government has to play its role of regulating. And so it sounds somewhat counterintuitive, and it is sometimes controversial in some circles in business, if actually good regulation can make it better for everyone because it's a level playing field. So whatever the problem is, if you can come up with smart regulation that makes an economic system work, you can then get over the sustainability problem. If you try and do it as one company and you compete against people who don't, you're going to start losing market share and pretty soon your shareholders are going, 'Well, why are you doing this when they're not and you're killing me?' That's never going to be a long-term strategy. You need to be able to create, in the end, some degree of level playing field so it's not something where the shareholders are going to come back and say, 'Well, you need to stop it.' And that's what I think we've done in the three biggest areas that matter to us.

The climate question is made very complicated but is actually quite simple. There are two basic sources of carbon. This is a carbon question, so it's a carbon density in your product question. And all food and beverages basically have two sources of carbon: the agricultural ingredients that they buy and the transformation of those into finished products through electricity. That's it. People make it super complicated but actually those are the two most important. Now, what can we do? We can tremendously reduce our usage of electricity through efficiency and we can reduce the added carbon in the agricultural cycle, things like fertilizer, etc. Those are the two starting points. The second element of the equation is to get electricity that comes with no carbon. You get green electricity. So the trivial pursuit question is: which is the lowest carbon footprint Coca-Cola in the world, from which country does it come?

Yes. Norway. One. Norway is good.

Good. Actually, the UK because of wind.