Coke adds life to health drinks sector

COCA-COLA is to roll out a series of low-calorie, energy and flavoured water brands this year to combat the falling sales of its fizzy drinks.

The US giant launched Diet Coke with lime last week and is ready to announce a number of others that aim to capture market share in healthier alternatives.

The company sees the new brands, or brand extensions, as a means of tempting back customers who have moved into fruit juices and other non- carbonated drinks.

It is likely that one of the new brands will be produced from the bottling plant at East Kilbride, which already produces 22 million cases a year.

Coca-Cola has been forced to scale back its forecasts for sales and earnings as a more health-conscious market has turned against fizzy drinks.

Alan Halliday, Scottish regional director of Coca-Cola Enterprises, the bottling business that is 38%-owned by Coke, said the shift was also due to consumers widening their choice. It was essential, though, that the company responded to market trends. "It would be a foolish company that did not move to where the consumer wants to be," he said.

In a rare interview with the company’s Scottish management, Halliday said the product portfolio was constantly reviewed and had doubled in the past few years. He has spent much of the last year with his colleagues in other UK regions working on the new launches.

It is widely felt by critics in America that the company has been slow to respond to market changes and has stubbornly resisted pressure to change. Its rival Pepsi has done just that, and other brands have entered the market to mop up customer demands for new-style drinks.

In Scotland, Coke has worked with the Scottish Executive to promote healthier drinks in schools through the introduction of non-branded vending machines and the inclusion of water and fruit juices.

The new ranges will be phased into the UK this year and backed by media campaigns. Diet Coke with lime will be supported with a 1m television promotion in March and six million samples will be distributed for tasting.

Some sections of the non-carbonated market are growing several times faster than cola, and arch-rival Pepsi has responded by positioning itself as a beverages and snacks company rather than merely a soda business.

Even so, Coca-Cola continues to dominate markets around the world. Figures from market analyst AC Nielsen some years ago showed that Coca-Cola sales were greater than those of Irn-Bru in Scotland, which was once the only market where it was outsold by a rival.

The latest figures to December 24 last year show both Coca-Cola and Diet Coke outselling Irn-Bru.

But the closeness of the figures means Scotland receives a higher investment from the company against other regions of the UK, though Halliday said that despite Coke holding top spot "it is important that both companies grow the category".

The new brands coming on stream will be an important means of clawing back lost sales. "This will be a very big year for the UK," said Halliday, while the company’s Atlanta-based chief executive, Neville Isdell, put it more sharply last year when he said this would be a "transitional year" for Coca Cola. Isdell said it would be concentrating on sales volume growth of 3% to 4%, instead of earlier targets of 5% to 6%.

Operating income is expected to increase 6% to 8%, compared with an earlier target of 10%.

Isdell also warned investors that they should not expect to see any significant improvements in Coke’s results for 18 to 24 months, admitting the company had under-performed since 1997.

In the US, sales of some of Coke’s health-oriented brands - Odwalla juice and Dasani bottled water among them - are up considerably.

But sales of the flagship Coke classic were down 5.7% for the first nine months of the year.

The patchy sales trends forced Isdell, who took over only last May, to concede that the company had not responded quickly enough to the health lobby.

There were further problems when the company was forced to withdraw Dasani in the UK following a health scare.

The company has now introduced nutritional supplements to some of its core carbonated products and has added up to $400m (210m) to its annual marketing budget, much of which will be spent promoting low-calorie drinks.

Irishman Isdell was brought out of retirement to succeed Douglas Daft, who announced his retirement in February after he lost the confidence of the board amid poor earnings gains.