Coke's New CEO James Quincey to Staff: Make Mistakes

By Jennifer Maloney Features Dow Jones Newswires

Coca-Cola Co.'s new chief executive wants the company to shake off a culture of cautiousness that has dogged the soda giant for more than a century.

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Nicknamed the "New Coke syndrome" -- after the company's catastrophic 1985 decision to reformulate its namesake brand -- that fear of failure is counterproductive at a time when Coca-Cola has to take more risks, James Quincey said in an interview this week at his office.

The 52-year-old Mr. Quincey, who succeeded Muhtar Kent as CEO on May 1, is taking the helm at an existential moment for the world's largest beverage company. Fewer people are drinking soda. Sugary drinks are being slapped with taxes in the U.S., U.K. and beyond, as governments look to raise revenue and curb consumption of added sugar, which has been linked to diabetes and obesity. And while Coca-Cola has diversified into dairy, tea, bottled water and other beverages, 70% of its global sales by volume is still soda.

Mr. Quincey's answer: Coke must become a "total beverage company." And to do that, it must not be afraid to make mistakes, he said.

"I'm not sure fear of failure is entirely wrong, except when it leads to inaction," Mr. Quincey said, sipping occasionally from a bottle of sparkling smartwater. "If you're trying to do something different on Coke, failure is big and emblematic."

But on smaller, emerging brands, the company needs to be experimenting more, he said. "If we're not making mistakes, we're not trying hard enough."

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Some company insiders and analysts say Coke should have moved sooner to address the sugar issue and adapt to shifting consumer tastes. At Mr. Quincey's urging, Coke in 2014 dropped its fight in the U.K. against voluntary health labels on its beverage packaging, which included a warning about high levels of sugar in its regular sodas. The company has begun promoting smaller package sizes and reformulating beverages to offer more low- and no-calorie options.

In the U.S., where consumers now drink more bottled water than soda, Coke is shifting from a volume-focused business to one in which it shares profit with its bottlers, so it can sell smaller cans and bottles at higher prices.

It is also in the process of selling off most of its bottling operations to focus on its more profitable concentrate business, a process that by next year will leave it with fewer than 40,000 global employees, down from 150,900 in 2012.

Mr. Quincey is cutting another 1,200 jobs, representing 20% of the company's corporate staff. And he is officially giving employees permission to say that Coke isn't their favorite brand in the company's portfolio, an admission that would have been blasphemous a year ago.

"If we are to be a total beverage company, it has to be OK for consumers to say something else is their favorite brand. Therefore, it has to be OK for an employee to say something else is their favorite brand," he said.

In 10 or 15 years, he said, soda could represent less than half of the company's global sales by volume, a shift he hopes to accelerate by investing more in upstarts and acquiring new brands.

Mr. Quincey was born and raised in the U.K. and studied electrical engineering at the University of Liverpool, then decided he was better at business than designing semiconductors. He joined Coke in 1996 and led operations in Latin America and Europe before being tapped as COO in 2015 and heir apparent to Mr. Kent.

Mr. Quincey cited a product stumble of his own, when rolling out a drink in Argentina in 2003 modeled on mate, a local herbal tea. It is traditionally made by filling a gourd with leaves and hot water and consumed in a group, with everyone drinking from the same straw. Coke's version, bottled and bubbly, missed the point, he said.

"The mistake that we made was not to understand why people drank it," Mr. Quincey said. "It's about the social occasion."

Coke is now under pressure to become more cost-efficient. Analysts have speculated that within a few years, it could be a takeover target of Brazilian investment firm 3G Capital Partners LP, whose founders are controlling shareholders in brewer Anheuser-Busch InBev NV. A 3G spokesman didn't respond to a request for comment.

Improving efficiency will be "a critical success factor" for the soda giant, HSBC analyst Carlos Laboy said. "Bottlers say head count is a problem at Coke. Too many people are doing the same redundant things."

Of 3G, Mr. Quincey said: "They're very clearly saying: We're setting a new benchmark as to what running an operation efficiently looks like. I think every company, including us and our bottling partners, we need to look at those benchmarks." He added that Coke would look to cut costs without sacrificing revenue growth.

As recently as 2015, Mr. Kent was doubling down on soda, a strategy that analysts say failed. Mr. Quincey rejects that conclusion.

"There's no road to the future without a successful red Coke," he said. "We need to be growing the sparkling revenue and expanding our leadership in the other categories. You've got to do both. That's the only way forward."

Write to Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

May 09, 2017 15:14 ET (19:14 GMT)