Speeches

Remarks to London Business School

Muhtar Kent, President and Chief Executive Officer, The Coca-Cola Company
London, England
May 28, 2008

Thank you, Professor Kumar, for that kind introduction and good evening, everyone.

I'm truly delighted to be here. I've had the opportunity to speak on several university campuses this past year -- in China, Switzerland and the U.S. I always come away energized by the experience.

This visit hits particularly close to home for me because as Professor Kumar mentioned, I attended university in Great Britain back before many of you were even born!

I'm not going to bother listing all the changes that have taken place in the world since I was in university in the 70s, as that would take the better part of a couple days, I'm sure.

One evolution I will mention, though, is the dramatic transformation of London Business School over the years. In just four decades, this great institution has gone from a start-up with an ambitious mission to one of the world's pre-eminent business schools.

That's quite an accomplishment .

In essence, London Business School has compressed time -- an essential capability in an era when the rate of knowledge is said to be doubling every five to 10 years.

Tonight, I'd like to talk about doing business in this era of unprecedented change that we all live in.

Specifically, I'm going to give you some insights on the big trends we at The Coca-Cola Company see emerging in the global marketplace -- trends that will dramatically shape your future as you prepare to launch or continue your careers.

In this discussion, I'm going to explain how we're positioning our business in this environment... and how we'll apply new learning and leadership in the years to come. Mostly though, I want to hear what's on your mind -- so I look forward to an engaging question and answer session.

Let me start by painting a picture of what I call the "New Equilibrium" -- four massive forces that are changing the balance of global economic order:

Rising oil prices
Rising food prices
Growing middle class consumption
And rapid, rapid urbanization.

I think we're truly at one of those inflection points -- those defining moments when all the rules change about how we are to move forward. How well we understand these new realities... accept them... and prepare for them... will undoubtedly determine our success in the coming years.

Let's look at the first component of the New Equilibrium -- the rising price of oil. Most experts today agree that oil is not spiking, it's simply rising. While some of the rise may be related to speculation -- it's still just a small percentage. Greater global consumption of energy, coupled with harder to reach oil deposits, is resulting in higher prices that are largely here to stay.

The world is now paying about $5 billion more a day for crude oil than just five years ago. This is fueling one of the largest transfers of wealth in history.

I was at Davos this year and I can tell you that no other topic received as much attention among the world's leaders as this shift in wealth due to oil and its implications for business and society. I am traveling to Russia next week for a regional World Economic Forum and this will also be a huge point of discussion in that oil-producing nation.

It's now estimated that oil-rich nations have a $4 trillion-dollar cache of petrodollar investments around the world. That figure could increase rapidly in the months ahead.

Perhaps the most telling and recent example of this shifting influence is the fact that the Abu Dhabi Investment Authority is now one of the largest shareholders in Citigroup...and Singapore's GIC owns a $15 billion dollar stake in UBS.

Of course, oil booms and busts are not exactly uncommon. What is different now, however, is that we're seeing solid, gradual gains as opposed to sudden peaks and valleys.

This is also producing some unintended and far-reaching consequences, which is the second component of this shifting landscape. The surge in production of bio-fuels like ethanol is partly responsible for rising food prices around the world.

So here we are with higher energy costs... and higher food costs. Now... factor in the sustained increase in demand for food and energy that's being prompted by rising living standards in emerging nations.

So, the third major shift we're seeing is the growing global middle class. In fact, by 2015, some 700 million new consumers will be ascending to the middle class. That's two markets the size of the United States added to the world economy in less than a decade!

These new middle class consumers strive for the same things we want out of life -- cars, appliances, homes, better quality food and beverages and so on. And like their counterparts in the developed world, most of these middle class consumers will reside in urban areas.

Urbanization is the fourth component of the New Equilibrium. For the first-time in history, the majority of the world's population is now living in urban areas. The urbanization trend is just beginning. For the next decade, 65 million people annually will migrate to urban centers. That's roughly the equivalent of adding a city the size of London to our planet every 80 days.

Clearly, what you see here with these four global shifts are significant challenges and opportunities. For all of us, it's going to require shifts in thinking... shifts in behavior... indeed, shifts in our world view.

At Coca-Cola, we certainly see the challenges. For starters, our system is an important commercial consumer of energy and agriculture. Rising commodity prices for everything from plastics and oil to citrus and corn have a significant impact on our system's business.

Streamlining our supply chain and productivity efforts has never been more important. Balancing risks and opportunities has never been more important.

At the same time, we see a world of tremendous opportunity out there. A world of more consumers... with more money... drinking more ready-to-drink beverages as their urban, on-the-go lifestyles evolve.

We're very bullish about the global beverage industry and where it's headed. Unlike durable goods such as washing machines and microwave ovens and plasma TVs -- which you buy once and hold on to for at least five to 10 years -- the beverage industry is one of continuous replenishment.

Today alone, for instance, 1.5 billion servings of our products were enjoyed around the world. Here in the European Union, the average consumer reaches for one of our brands every two days. That rate is even higher in North America and Latin America.

Over the next several years, the $650 billion dollar non-alcoholic- ready-to-drink beverage industry is expected to grow faster than the world's GDP. Non alcoholic beverages are growing faster than cosmetics, alcoholic beverages, packaged foods and household care. What we are seeing in markets around the world are consumers demanding -- and responding to -- greater choice.

To provide this choice, we have expanded our portfolio significantly through innovation. In fact, almost 10 percent of our volume today -- or 2 billion unit cases -- come from products that didn't exist three years ago. Coke Zero® is a great example. We introduced it less than three years ago in the U.S. and first brought it to Great Britain almost two years ago.

How many of you have tried it? I'm trusting you all love it!

Coke Zero has been a huge hit for us. Globally, it grew over 250 percent last year, and was in 81 markets by the first quarter of 2008. It's bringing people back to sparkling beverages while generating great interest among new consumers.

Last year, on the heels of the great success of Coke Zero, our entire Trademark Coca-Cola category -- which includes Coca-Cola®, Coke light® and Coke Zero -- grew at its highest rate since 1998.

As encouraged as we are by this, we're equally excited by the balanced growth we're seeing across our portfolio of sparkling and still beverages.

Today, almost 40 percent of our volume growth is coming from still beverages -- juices, teas, waters, sports drinks. Industry-wide, by 2010, profit growth is expected to be virtually split 50/50 between sparkling and still beverages.

The growth opportunity is also becoming more balanced by geography. By 2010, emerging economies will account for over 60 percent of the global beverage industry's profit growth -- up from a third today.

We feel ideally positioned for the tailwinds driving the global beverage industry.

We have the scale -- we operate in more than 200 countries, with 70 percent of our revenue coming from outside North America.

We have the commercial reach -- globally, we serve 20 million customers outlets, from the largest international supermarkets and restaurant chains to individual kiosks and corner stores.

And we have an unmatched global footprint of brands that have made us industry leaders in sparkling beverages, juices and juice drinks, ready-to-drink coffee and ready-to-drink tea. As of 2007, we were No. 2 globally in sports drinks and No. 3 in packaged water.

This combination of scale, reach and footprint -- coupled with those trends I spoke of -- have had a major impact on our business. To capture even more global opportunities, we're zeroing in on 5 critical priorities.

Accelerating the growth of our core sparkling beverage business.
Expanding our still beverage portfolio.
Leveraging our balanced geographic portfolio.
Expediting our innovation pipeline of products, packaging and equipment and...
Enhancing our system capabilities of consumer marketing, commercial leadership and franchise leadership -- basically all of those advertising, branding, marketing and merchandising activities that result in greater demand for our brands at the point of sale, the moment of truth.

We're addressing these priorities in the spirit of being "constructively discontent." We see the glass as half full.

Around the world today, our company and bottling system partners command $85 billion dollars of a $650 billion dollar -- and growing -- industry. We believe there's more out there for us. Much more.

The health and vibrancy of today's global beverage industry, in many regards, is a perfect metaphor for the future of the global economy. In fact, few industries are more integrated into the global economy than non-alcoholic ready to drink beverages.

Consider this scenario. You start your day with a glass of orange juice produced from oranges grown in Brazil. As you arrive for work, you pour a cup of coffee made from beans that originated from Indonesia, Ethiopia and Colombia. You top it with rich cream from the westcountry. At lunch, of course, you reach for an ice-cold glass of Coca-Cola made with secret ingredients from around the world. At dinner, you opt for a mineral water from the Scottish highlands.

You see where I'm going with this. Each day, the average beverage consumer has completed a culinary trip around the world. And thanks to the benefits of free trade, he or she has sampled some of the best the world has to offer -- all at affordable prices.

As you may have gathered by now, I am an advocate of free trade and global markets. I guess I come by it naturally as I grew up in a diplomatic family. I was born in America and raised in Thailand, India, Iran, Turkey, Sweden and Great Britain. 30 years ago I went to work for Coca-Cola -- a company that has been participating in the global economy for nearly a century.

I've had the fortune to work for The Coca-Cola Company in the U.S., Italy, the Netherlands, Britain, Turkey, Austria, and China and now back in the U.S. I've been afforded the wonderful opportunity of working on every inhabited continent and interacting with dozens of different cultures.

The world I have seen... the world many of you have seen... is a rich, dynamic and diverse world -- a world of more common ground than differences. It's a world that's becoming more affluent and hopeful for a brighter future.

The positive forces of trade and globalization have made that possible. As business leaders, we also understand there comes with global engagement a great responsibility.

There's no doubt the world and its resources are stressed. I talked about some of the stress points of- rising energy and food costs and the demands placed on our resources by a growing and affluent population. Trying to stop the momentum of globalization, however, is not the way to manage these challenges.

Despite what some of the anti-trade activists may want us to believe, globalization is not a force that can be reversed. It's been around since the first Phoenicians plied the Mediterranean and it will continue for as long as man walks this planet.

The question is... How will it progress?... By itself globalization is neither positive nor negative. It's up to us to ensure it progresses in a positive and balanced way. That's a huge responsibility and it's something we don't take lightly at The Coca-Cola Company.

Today, the sustainability movement is spreading to all corners of the planet. That's an incredibly positive trend for society and business.

Again, I think it speaks to the growing awareness and need for balance and harmony in our lives. We have seen through our own experiences -- time and again -- that our business in any market is only as healthy and sustainable as the community in which we operate. Borrowing from my days of tackling statistics -- there is a clear one-to-one regression in terms of healthy sustainable businesses and healthy sustainable communities.

We've long recognized the responsibility to lead in this area but we're also wise-enough to know that we can't do it alone. Solving society's largest challenges takes real leadership and partnership among business, government and civil organizations.

Think about this: In 1800, the population of the world was 1 billion. Today, just over 200 years later, it is 7 billion. This is a 7-fold increase. By 2100, it's estimated that the world's population will grow to 12 billion -- and most of these people will be living in urban areas.

Since the year 1800, however, emissions have grown 22 times, or 3-times faster than the population has grown. We know this is not sustainable. And we know today -- more than ever -- there is an opportunity for business to partner with governments and civil society to play a role to help create sustainable communities.

That's why in recent years we've collaborated with Greenpeace to develop eco-friendly coolers... and the World Wildlife Fund to restore some of the world's most endangered watersheds. It's why last year we worked with the United Nations to develop a plan to reduce our global water usage. It's why we're partnering with local communities in 49 countries to support healthy watersheds and community water and sanitation programs. And it's why we're working with a host of communities and agencies to create innovative recycling solutions for our beverage packaging.

At Coca-Cola, we believe that a true 21st century global company is one that must be a fully engaged and functioning member of society.

We're also looking for future leaders who understand this and who are capable of helping us manage today's new realities. We want people who know how to work in teams, navigate well across cultures, and build lasting relationships.

Sounds like the work you've been doing here at London Business School doesn't it?

At Coca-Cola, we're not looking for people who choose to surround themselves with others who see the world exactly the same way they do. We look for managers who seek out a variety of diverse people, attitudes, beliefs and experiences -- people who can assimilate and be as comfortable working in Lagos as they are in London.

Life in the 21st century is going to be all about continuous learning... relationships and flexibility. It's going to be about engaging your mind and your imagination. Life in the 21st century is also going to be about engaging your heart.

On this note, a couple of parting words of advice.

Hold close to the deep relationships you've established here at this great university and let them serve as models for the way you engage with all the new people that will enter your life in the years ahead. Relationships will be at the heart of your future success.

Be at ease moving through different cultures and never lose that ability to adapt to change. The demographics of the world are changing and your ability to work across cultures... and geographic borders... and differing points of view... will be essential.

And finally, give as much back to the world as you take. Our world grows more inter-dependent by the day. We are only as strong and as enduring as the sustainable communities we help support.

The great diversity of this university with its mission of seeking tolerance and truth -- will serve you well in the years ahead.

I wish you the best of luck and thank you again for the opportunity to be here tonight.

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