KO Coca Cola Company

By Mark Maurer 

Coca-Cola Co.'s finance chief John Murphy is helping the company shrink its product portfolio along with its head count as part of a restructuring effort responding to the coronavirus pandemic.

The Atlanta-based beverage giant wants to cut the number of its brands, lay off or buy out thousands of workers and revise its marketing strategy.

Those plans are part of a strategic overhaul that began in 2017 to increase collaboration between business units and better understand consumer trends. The pandemic has accelerated the need for those changes, Chief Financial Officer John Murphy said in an interview with CFO Journal.

"The number one priority for me is to be able to look back on this period and say we actually moved the needle significantly on how we allocate our resources," Mr. Murphy said, referring to the restructuring.

Coca-Cola's global sales have taken a hit in recent quarters as many bars, sports stadiums and movie theaters that serve the company's soft drinks remain closed. Revenue for the third quarter that ended Sept. 25 fell 9% to $8.65 billion compared with the prior-year period, following a 28% decline in the second quarter from the year-earlier period.

The company said in October it plans to eliminate about 200 brands -- of a total of more than 500 -- to free up funds for other, more profitable products. Brands to be discontinued represent about 1% of net sales revenue and underperformed even before the pandemic began, a spokesman said.

Mr. Murphy said he works with Coca-Cola's marketing and operations chiefs to decide which brands to keep. "My role...has been to sort of steward and shepherd that process, marrying the strategic rationale for doing it with the economics," he said.

The heavy lifting of the restructuring is expected to be completed in the next six months, Mr. Murphy said. Coca-Cola will continue adding brands to its portfolio and remove those that "are not cutting it," he added, noting the company looks at criteria such as historic performance and anticipated consumer demand when assessing its brands.

The spokesman declined to provide a target for the company's cost savings.

Other food and beverage companies also have taken a close look at their product portfolios in recent months, marking a reversal of a yearslong trend that saw many such businesses adding new products to attract health-conscious consumers.

The pandemic increased the urgency for Coca-Cola to reduce the number of its brands because too many of them generated too little revenue, said Gerald Phelan, an analyst at credit rating firm S&P Global Ratings.

Coca-Cola has also cut jobs as part of its restructuring. In August, the company said it was offering buyouts to about 4,000 employees in the U.S. and Canada. Employees in certain other countries also received such offers, Mr. Murphy said.

The restructuring will allow Coca-Cola to function more like a network needing "less decision making, less bureaucracy and ultimately less people," Mr. Murphy added. The company had more than 86,000 employees at the end of 2019, according to a filing with securities regulators.

Mr. Murphy said he is also reviewing Coca-Cola's advertising and marketing expenses to better manage spending, especially for digital marketing. The company in 2019 allocated about $4.24 billion for advertising, up 3.2% from $4.11 billion in 2018, according to its latest annual report.

Coca-Cola in recent years spent too much on advertising agencies and marketing campaigns, said Nicholas Johnson, an analyst at Morningstar Research Services LLC, a research firm.

"When you have [such an] immediate...decline or disruption, it really forces you to re-evaluate through a more stringent lens," Mr. Johnson said, referring to the blow to Coca-Cola's business from the pandemic.

Write to Mark Maurer at mark.maurer@wsj.com

(END) Dow Jones Newswires

November 25, 2020 05:44 ET (10:44 GMT)

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