Coca-Cola Co. has pushed into all sorts of new kinds of beverages — from drinking vinegars to protein shakes. But a big source of growth this quarter came from a more familiar place: carbonated soft drinks.
Even as U.S. consumers reportedly move away from artificial sweeteners, the company’s first-quarter earnings were boosted by gains in Diet Coke and Coca-Cola Zero Sugar. Diet Coke in particular posted a comeback, with a
major redesign spawning growth in North America for the first time since the fourth quarter of 2010.
“We got off to a strong start returning Diet Coke to growth in North America,” Chief Executive Officer James Quincey said Tuesday morning on a call with analysts. “Now we recognize it’s still very early in the process, but we’re encouraged by the initial consumer response. Importantly I’m pleased to see the team take bold action to change the trajectory of the results.”
The soda news offers a glimmer of optimism for a company that has struggled to show investors a path for growth — although a full turnaround still has a long way to go.
The shares fell 2 percent to $43.12 at 11:37 a.m. in New York, amid declining U.S. stock markets.
Diet Coke’s revival is a particularly remarkable feat given it’s been in decline for years as U.S. drinkers’ tastes changed. Though it remains the third-largest carbonated soft drink in the U.S., Diet Coke saw volume drop 4.3 percent last year, according to industry publication Beverage-Digest.
But it seems Americans weren’t finished with diet sodas after all, just waiting for a new look. Coke in January launched the biggest-ever makeover for its original zero-calorie brand, releasing its classic Diet Coke and four new flavors in taller, skinnier cans, spurring the American rebound. New flavors made up about a third of the brand’s growth, Quincey said on a conference call with reporters.
“I hope the trend continues,” Quincey said of Diet Coke’s turnaround. “I’m encouraging the team to continue to learn and be bold with the next round of actions. ”
Coke’s new version of Coca-Cola Zero Sugar also reaped rewards: globally, the brand posted double-digit gains. Even Coca-Cola Classic grew 3 percent.
The source of growth was surprising, said Morgan Stanley analyst Dara Mohsenian. The composition of organic sales “was different than we expected,” he said in a note to clients.
Coca-Cola’s diet renovation isn’t over. The next step is figuring out exactly what worked to resuscitate the brand in order to continue the positive trend, be it the flavors, new marketing campaign or sleeker packaging, CEO Quincey said on the call with reporters. The company will probably release more Diet Coke flavors, he said.
“In the past, sometimes when we relaunched or reset a brand we would have a big set piece, we’d put our best ideas forward and then if it started working we would kind of assume that’s it and come back to it later on,” Quincey said. “In the modern world, which is much more dynamic, we need to follow up more quickly with the next iterations.”
Coke’s non-branded products, the healthier waters and juices, also
did well last quarter. Picking up high-growth smaller brands is part of Coke’s strategy of diversifying its portfolio to reach consumers during more drinking occasions.