Coca-Cola Company CEO: We’re looking for M&A opportunities with more scale
Drinks giant chief exec James Quincey on the company’s revamped M&A strategy and shifting internal culture to meet bullish financial targets
Speaking at the Bernstein Annual Strategic Decisions Conference earlier this month, The Coca-Cola Company CEO James Quincey told investors the company is “at a point where we are left with extra money” to invest in both organic growth and M&A.
He said the drinks giant had moved away from smaller acquisitions in favour of opportunities with more scale.
“If anything has changed in the last five to 10 years I think we’ve become more focused on filling more gaps in the portfolio and being more targeted towards consumers,” Quincey told investors.
“Historically we have bought smaller brands, a good example of that was all the juice brands we bought that we then put all together to create a bigger brand. We’re looking now for opportunities that have a little more scale, not that we’re against smaller acquisitions, but buying lots of small brands is a long road,” he added.
Coca-Cola’s capital allocation model favours investment in the organic business over M&A as Quincey said it provides the highest returns, although it is still interested in makings acquisitions in the short-term.
On the company’s biggest ever acquisition of US sports drink brand BodyArmor for $5.6 billion in 2019, Quincey said the deal had helped renew the sports drink category in the US “where nothing has really happened for a long period of time”.
“It’s about [whether] we can find [brands] that resonate with consumers, that give us leadership in categories, scale and the margin structure that we’re looking for. BodyArmor can help us make a big step change in the sports drinks category,” the chief executive added.
Elsewhere, the company is in the process of instilling a new internal culture to support its bullish financial targets.
Quincey said it was important for the firm to constantly push to look outwards at the consumer, while maintaining curiosity about the sector, being empowered and inclusive, and acting fast to implement new processes or release new products.
He said: “If you go back five or ten years our revenue was growing at 3% a year and our dollar EPS (earnings per share) was stuck at $2 or less for a very long period of time.
“Since then we have elevated the revenue growth up to 5% – 6% and the dollar EPS is starting to tick up nicely. We’ve cleaned up the balance sheet. We’ve got the right strategy and we’re focused on driving a culture that provides a top-line-led growth agenda,” the CEO said.
Quincey said the changes made internally had helped the business to weather Covid-19 and come out of the pandemic stronger than it went in.
Last month, The Coca-Cola Company announced it was phasing-out its HONEST Tea business to focus on its two core ready-to-drink tea brands Gold Peak and Peace Tea.
The decision stemmed from HONEST tea having been negatively impacted by a drop in immediate consumption sales and limited glass supplies.