Speeches

"How To Grow Markets: Lessons from 41 Years
 in the Beverage Industry"

"It's In Our Hands . . . Believe, Invest, and Compete to Build
 a Bigger Market"

INTRODUCTION OF NEVILLE ISDELL BY JOHN SICHER, EDITOR OF BEVERAGE DIGEST

JOHN SICHER: It gives me great pleasure to introduce our lunch speaker today. He is Neville Isdell, the Chairman and CEO of The Coca-Cola Company. Neville has held this job for about three and half years, and his impact has been huge. When he took over, Coke was struggling. Growth was slowing. Internal morale was suffering. Today, Coke is back on its feet and charging forward. Its stock price reflects that. In the middle of next year, he'll be starting the management succession transition, as Muhtar Kent will take on the job as CEO. But Neville's legacy is clear, secure, and incredibly positive. He will long be known as the man who got Coke back into a position of strength and power. On a personal note, I'd like to congratulate Neville. He has just become a grandfather. So, please join me in welcoming Neville Isdell.

REMARKS BY MR. ISDELL

Good afternoon everyone, and thanks, John, for that. It's a few years since I've been here, but I'm thrilled to be back with you on this important event, which really closes out the year for the industry in a very major way. And, of course, as you've mentioned, quite a bit's been going on in my life in the last few weeks. I've announced the giving up of one title [handing over CEO duties and remaining Chairman of the Board]. You've just announced that I've actually got another title [as a grandfather]. The only difference on this is that, normally when you get a new title, you know, there's a little bit more power attached to it. I've discovered that when you get the title of "grandfather," both you and the dog are down one level in the hierarchy in the household. [laughter]

So, I join you here today, greatly diminished in my authority in my own home. I do want to get to Q&A, because I think that's a lot more instructive. But I do first want to say, with so many industry leaders here, that I've got a very strong view and perspective of our industry, I'd like to just share some of that with you.

I've Never Been More Positive About the Future of Our Industry
It's been 41 years since I first entered this industry in the wilds of Zambia, and I have never been more positive, on a global basis, about the future of our industry. And that bright future is not a Pollyanna view. I think that we're seeing -- out of the adversity that we've been in, but also adversity that has been part of the industry as a whole -- a whole new energized industry, and that's what I've tried to make The Coca-Cola Company -- a new, energized leader for the industry.

And let me put that in perspective -- George and I were just talking over lunch [George Kalil, President & CEO of Kalil Bottling]. Unless we're all pulling together to grow this industry, none of us is going to prosper in the same way.

Trends Point to Great Opportunity (Demographics, Wealth Creation, & Urbanization)
Now, one of the trends is, of course, one that's been around for awhile, it's the demographic trend. It's the fact that there are some really strong tailwinds in terms of overall demographics. I'm not just talking about 733 million people that are going to come into the world by 2015.

In fact, even more importantly, what I'm talking about is this massive wealth creation that's taking place globally, in terms of the building of a middle class, in terms of literally hundreds of millions of people coming out of poverty . . . people who are able to purchase our products.

There has been higher economic growth -- and there will be, I believe, in the years ahead -- than we've seen in some 60 years, because of this movement. It's partly driven by urbanization, and of course, with urbanization, we're better able to reach those consumers, as well. So, that is a very strong trend for the industry that we're focused on -- non-alcoholic, ready-to-drink beverages.

Consumer Spending Growing at 6% Annually
The raw number globally is that consumer spending is going to be this year -- and we believe it will be around the same next year -- up something like 6 percent for the industry. And, if you look across all of packaged goods, non-alcoholic, ready-to-drink is actually the strongest segment of the overall packaged goods industry. Simply put, we're in a sweet spot.

And, there's going to be something like -- we estimate in the next four years, at the retail level, about $100 billion worth of growth for the industry. And we can argue about where that's all going to come from. John [Sicher] was outlining some of that today, and I don't agree with it, with all of his dismal analysis about Sparkling beverages -- but the way we see it, about a third of that is going to actually come from Sparkling beverages. A third will come from Still beverages. And a third of that's going to come from emerging markets.

The Difference Between Percentage Growth Rates and Volume Growth Rates
I think one of those things that we tend to confuse sometimes, are percentage growth rates with actual volumetric rates. And clearly, for all of us, the Still beverage growth is going to be higher in percentage terms. But, for quite a way forward, the absolute volumetric growth is actually going to be higher for Sparkling beverages. And that's what we see.

The Lessons I've Learned About How to Grow Markets
So, if I go back over the four decades, 5 continents, and 11 countries I've lived in, I've worked in "up" markets, but I've also worked in "down" markets. Like all of you, I've made good decisions, and I've made bad decisions. But, one of the things that I hope I've learned over that period of time is how to grow markets. And, I think one of the real keys about growing a market is looking at each individual market with a focus on the long-term, and investing behind that long-term belief.

1. You Must Believe in the Future of Your Industry
Of course, I use the word "belief." If you don't believe in the future of your business, you're going to ensure that there isn't one.

Henry Ford put it beautifully. He said, I quote, "Whether you think you can, or you think you can't, you're right."

Sometimes we think we can't, and we create that negative spiral for ourselves.

Now, when I talk about belief, I'm not talking about blind belief. I'm talking about a belief that is based on a very strong knowledge and view of the fundamental facts.

But, many of you know I'm Irish, and if you're Irish, you believe the minority is normally right. [laughter] And, let me put that another way, in order to describe how I can link that. You know, when the majority believes something, it's already happened. And that's what we tend to talk about. We tend to talk about what's already happened, and extrapolate that into the future. Change comes from people who think like the minority.

2. Invest - Because You Can't Save Your Way to Prosperity
I also believe that whilst effectiveness and efficiency is very important, you can't save your way to prosperity. You have to, again, invest behind that growth. And I've learned that all the way through from Zambia, to South Africa, Australia, to the Philippines where I went through a period where GDP was declining 4.5 percent. They had assassinated the opposition leader at the airport. It was the end of the Marcos era, and with all of the packaging innovation that we put in, we grew our business, double-digit. And that was probably one of the great learnings that I had in my career.

And, of course, what we did in Eastern Europe, and also Germany, Russia, in the 1990s. Different markets, different decades, but really, the same lesson.

Let me give you another example. I was fortunate enough to be running the Communist countries when the Wall came down. Before the Wall came down, I didn't think I was actually in a very good position running those countries, because how do you do business in those Communist countries?

The moment the Wall came down, we started investing. The currencies were not convertible. The legal structures were opaque, and sometimes they weren't even there. Security of tenure with regard to land was questionable. And yet, within 5 years, by 1994 -- and Muhtar [Kent] shared a lot of this with me -- we invested $1.5 billion in Eastern Europe. And you look at what a growth component those countries -- including the former Soviet Union -- are to our overall business today. But we did it by investing, we did it by belief, and we did it by taking some risk.

3. By Competing, We Grow the Market
Now, I believe it's not only investment, but it's also competition that's very important because others followed us. We may have been there first, but the competition that took place for share, for turf, for territory, is what grew the total pie. The Lou Dobbs of this world deal with a static pie. We, thorough our competition, work on an enlarged pie. And the more we compete together, the bigger we make that pie.

The examples that I've used are Coca-Cola examples, but I think you'd want to look at what Pepsi did with Gatorade. They took over that business, and they believed with Gatorade that they could make it much bigger than it was. And they invested very, very heavily in restaging the brand, in many ways, and in marketing that brand. And look at the share they have in that category, look how they've built that category, and look how now, thankfully, we are able to be in a situation where we can compete with them, not just with POWERADE, but with vitaminwater, as well. And that, I think is -- again, I won't go into this in detail -- but part of the overlapping that you see taking place with categories, as well.

So, by believing in the future, investing in the long-term, competing amongst ourselves, we build a bigger, better future for all of us.

How I Applied Those Lessons Upon Returning to Coca-Cola in 2004
That's essentially what I did when I came back to Coca-Cola in 2004. Because, you know, the investment community didn't believe in us. It was even worse than that. Our people didn't believe in us -- didn't believe we could grow. And you're going to hear, this afternoon, from two of our very successful bottlers, who can tell you that story . . . can tell you that they weren't getting the support.

You heard John Brock [President & CEO of Coca-Cola Enterprises] this morning about us not having the brands. And one of the first things I did was I went to the Board, and I said, "We're under-investing behind those brands." And the Board gave me $400 million to invest in innovation and marketing.

And, as you know, our stock price went south. Do you know why? Legitimately, there was a question which we hadn't answered yet, as to whether we could spend that wisely, because we hadn't in the past. And I think the general belief of our whole system -- and I mean our whole system -- is that we've be able to, together, spend that wisely.

And the bottlers now, with confidence, are beginning to reinvest. They're beginning to do what you saw John Brock talk about this morning -- look at their own capabilities, ratchet up their efforts to be the very best in class, as we melded together.

Importance of the Franchise System
I am a great believer in the overall franchise system, and to think separately is not to grow. We are one system. We are linked by veins and arteries. And when we get those clogged up, we end up in some of the situations we have -- and I created some of those fights -- some of the situations we had, where we weren't talking together. We were talking past each other.

Sparkling Beverages: Japan Shows the Power of Belief, Investment & Innovation
Let me just give you one other example -- Japan, and innovation as part of this. Coke Zero in Japan has been a superb success. It's energized the whole category. And, in Japan this year through the third quarter, we were experiencing, for trademark Coca-Cola, the highest growth rate that we have had in 30 years -- 30 years.

The average individual working for our company in Japan -- because of our success at tea and coffee, believed that the growth was over for Coca-Cola. You provide the impetus, you provide the belief, you provide the innovation and differentiation -- you can make it happen.

Still Beverages: Growing Through Acquisitions and Organic Development
Now, I also believe -- and this is the dichotomy -- when you talk enthusiastically about Sparkling beverages and you believe there's a future, people think that you don't believe in the growth of Still beverages -- but we do.

We know we were disadvantaged. We have made, obviously, the glacéau acquisition, and we were thrilled to get that. We know that just about every other company in this room was doing due diligence as well, including our major competitor.

And, we've also acquired a number of juice brands around the world to improve our footprint there.

But it's been organic growth, at the same time, in the Still category. We have, in China, the number one position now with Minute Maid. We started that from scratch. But, you know, we recognize -- John said it about the Still category in parts of Western Europe, we still have a way to go to build our business out there.

And of course, a major focus on North America, and I believe that we are going to see growth returning to the overall North American business, including, by the way, Sparkling beverages.

So, I just want to end there, and then we can go to Q&A with John. I believe in our future. I believe there's no better time to be in our business. But, it's not just the demographic trends. It's what is actually happening behind the scenes with regard to innovation.

Innovations in the Pipeline
And I'll tell you a story. We had our group presidents in about four or five months ago, and we let them in to really look behind the curtain at some of the things that we're doing. You won't see them for maybe five or maybe six years, and we had them sign confidentiality agreements.

And one of the group presidents said, "You know what? I wish I was 10 years younger."

Well, I wish I was 20 years younger. [laughter]

But, I have this fundamental belief in our industry. I'm thrilled to see so many voices coming forward. Pepsi's said it. Cadbury's said it -- that we need to focus, again, on the growth of Sparkling beverages. And if we do that as an industry, and we believe in our future, we will create that future because, at the end of the day, it's in all of our hands.

Thank you very much, indeed.

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