Editor's note
On July 26, the 2024 Paris Olympic Games officially kicked off, and the quadrennial event attracted global attention. The Olympic Games is not only a stage for athletes, but also a marketing show and a treasure trove for many companies. This special plan will focus on the leaders of the domestic sports industry who participate in the construction of Olympic venues, as well as sponsors who are active on the international stage, to gain insight into the "road to the sea" made by China's "intelligence", and to record the symbiosis and growth of enterprises and the Olympic Games.
Tuyere financial reporter Zhao Chong
With the arrival of July 26, the Paris Olympic Games are about to open in a grand way.
The Games have attracted the support of 79 sponsors, with one of the oldest partners being The Coca-Cola Company, which has been a staunch partner of the IOC since the 1928 Olympic Games in Amsterdam.
Recently, Coca-Cola released its second-quarter results, with revenue and sales growth, of which sugar-free Coca-Cola sales grew the fastest, while its net profit declined.
In the Chinese market, even though sales volume has declined, the company has adopted a price increase strategy to avoid getting involved in a price war, and the contradiction between Coca-Cola's profit and revenue may become more and more fierce in a near-stock market environment.
Sales are growing but profits are declining
On the evening of July 23, the company released its financial report for the second quarter of 2024. According to the financial report, Coca-Cola's revenue in the current period was 12.363 billion US dollars, a year-on-year increase of 3%; Operating profit was $2.632 billion, up 10% year-on-year.
Source: Company financial report
Overall, Coca-Cola's revenue growth was driven by multiple markets. Among them, in the second quarter, EMEA (Europe, Middle East, Africa) regional revenue was 2.339 billion US dollars, a year-on-year increase of 7%; Latin American market revenue was 1.65 billion US dollars, a year-on-year increase of 20%; Revenue in the North American market was $4.812 billion, a year-on-year increase of 10%.
However, the Asia-Pacific market became a drag on revenue. In the current period, Coca-Cola's revenue in the Asia-Pacific market was US$1.512 billion, down 4% year-on-year. In terms of sales, Coca-Cola achieved double-digit growth in India, and sales in Southeast Asia, Japan, and Korea also increased.
While sales increased, Coca-Cola's net profit attributable to shareholders of the parent company fell 5% year-on-year in the second quarter of this year. The increase in revenue in the second quarter also affected the performance in the first half of the year.
Judging from the performance in the first half of this year, Coca-Cola also showed an increase in revenue but not profit. According to the data, in the first half of this year, Coca-Cola achieved revenue of 23.663 billion US dollars, a year-on-year increase of 3%; The net profit attributable to shareholders of the parent company was 5.588 billion US dollars, a year-on-year decrease of 1%.
In addition, Coca-Cola also raised its full-year performance forecast, and it expects organic revenue growth of 9% to 10% for this year, higher than its previous forecast of 8% to 9%; It also raised the company's earnings per share growth to 5% to 6%, up from its previous forecast of 4% to 5%.
Coca-Cola that doesn't fight price wars
As recognized as "fat house happy water", cola products have always occupied a place in the beverage market, especially in the Chinese market. As an important market for Coca-Cola, the Chinese market saw an overall sales decline in the second quarter.
Zhan Kunjie, chairman and chief executive officer of The Coca-Cola Company, said that sales in the Chinese market declined in the second quarter, but the main reason was the macro environment and market changes.
Source: Visual China
Looking at the carbonated beverage market as a whole, the market size is shrinking. Nielsen data shows that from July 2023 to June 2024, the carbonated beverage market is close to 55.902 billion yuan, down 6.7% year-on-year. In 2022 and 2023, this market will decline by 2.7% and 7.0% year-on-year, respectively.
Behind the decline in Coca-Cola's sales, the domestic beverage consumption trend has quietly changed. Taking sugar-free beverages as an example, the category performance of this sector is different, the growth rate of sugar-free soda, which was popular in the past few years, has declined, while the popularity of sugar-free tea has been rising. The Nielsen report pointed out that diet soda brands, including Coca-Cola Sugar-Free, Pepsi Sugar-Free, Yuanqi Forest, Watsons, Nongfu Spring, etc., will all show a downward trend in growth in 2023 after experiencing a growth peak in 2022.
In such a situation, Coca-Cola is even raising prices.
In May, according to a number of media reports, the price of Coca-Cola products in Hebei, Henan, Shandong and other regions began to rise, among them, 888 ml of Coke, Sprite, Fanta adjusted to 5 yuan, 2 liters of PET bottle products adjusted to 7 yuan.
As for the reasons for the price increase, Jiang Han, a senior researcher at Pangu Think Tank, analyzed, "It is not only a direct reflection of the rise in raw materials, transportation, and labor costs, but also the result of changes in the entire market environment and the reshaping of the price system." He believes that the price of raw materials is affected by the fluctuations of the international market, especially the rise in the cost of major raw materials such as sugar and aluminum (used in canning), which directly pushes up production costs, and at the same time, the increase in environmental protection requirements and the rise in energy prices have also exacerbated operating costs.
"The formation of price expectations is critical to the future development of Coca-Cola. If consumers form an expectation of Coca-Cola's continued growth, then this expectation itself may trigger changes in consumer purchasing behavior, which in turn will affect Coca-Cola's sales performance. Once consumers begin to expect continued price increases, they may buy earlier or look for cheaper alternatives, which will erode Coca-Cola's market position and brand value. Jiang Han said in an interview with a financial reporter.
He said that Coca-Cola must carefully consider its impact on consumer expectations and market confidence when adjusting prices. It can be seen that under the stock market, Coca-Cola's price increase strategy will undoubtedly increase the pressure on sales growth.
Coca-Cola's Olympic Year Challenge
Since the 1928 Amsterdam Olympics, The Coca-Cola Company has been a loyal sponsor of the Games. The beverage giant has been supporting every Olympic and Paralympic Games. In 2019, Coca-Cola extended its cooperation agreement with the IOC until 2032.
Over the past 100 years, Coca-Cola has invested more than $1 billion in the Olympic Games. Why is Coca-Cola so keen on sports sponsorship?
It's because Coca-Cola does reap good profits through its sponsorship of sporting events.
After the Atlanta 1996 Olympics, Coca-Cola's earnings in the third quarter of that year increased 21 percent to $967 million, while their rival PepsiCo lost 77 percent of its profits to $114 million without the Games.
Before the 2016 Rio Olympics, Coca-Cola revamped its drink Coke Zero. Because of the Olympic Games, the brand index of Coke Zero was 6% at the beginning of July, and by the end of August, at the end of the Olympics, it had risen to 17%. According to Nielsen data, Coca-Cola's sales increased by 25% year-on-year as of mid-September.
Picture: Promotional image of Coca-Cola Olympics-limited soda on an e-commerce platform
According to statistics, during the 2012 London Olympics, Coca-Cola's global sales increased by 2%, which is equivalent to 75 million additional cases of beverages sold.
It can be seen that sponsors are so flocking to the Olympics because they are one of the largest marketing platforms in the world.
At the same time as the release of the second-quarter results, Coca-Cola also raised its performance forecast for the whole year, and it expects the organic revenue growth rate for the whole year to be 9%-10%, higher than the previous forecast of 8%-9%; It also raised the company's earnings per share growth to 5%-6%, up from its previous forecast of 4%-5%.
Can Coca-Cola use the Paris Olympics to achieve "volume and price increases"? It's worth waiting and seeing.