Remarks by Muhtar Kent to the Foreign Correspondents' Club of Japan

Muhtar Kent, President and Chief Operating Officer, The Coca-Cola Company
Tokyo, Japan
May 7, 2008

As prepared for delivery

Thank you, and good afternoon, everyone.

It is a great pleasure to be back in Tokyo and a privilege to join you for my first visit to the Foreign Correspondents' Club of Japan. Being here and learning about this great organization and your rich history is a clear reminder of just how vital a free press is to our world economy and the positive forces of globalization.

Things like democracy... and innovation... and economic development don't happen without the free flow of information and ideas. Nowhere does information flow faster than 21st century Japan. In the past year alone, I've traveled throughout Japan on several occasions and every time I return, I sense more change. Months in Japan are like years in most places.

I'm reminded of a saying that grew out of Coca-Cola's experience when we first started doing business here 51 years ago. Our leaders at the time -- people like Paul Austin who ran company operations, and Nisabura Takanashi, the founder of the Coca-Cola Japan Bottling Company -- would say that "Japan compresses history." They would talk about Japan's unrelenting focus on changing, adapting and reinventing.

Today is no different. This passion for change has never wavered. In fact, it has only intensified. History continues to compress in the world's most dynamic consumer market.

When you think about it, our two organizations -- Coca-Cola and the Correspondents' Club -- have played a role in promoting innovation and reinvention in Japan. In fact, we probably have more in common than you might think.

We both started here at roughly the same time -- you in the late 1940s... Coca-Cola in the 1950s. Foreign correspondents helped pioneer the free movement of information and ideas in and out of Japan. Coca-Cola helped promote consumer-driven innovation in this great nation.

These two forces -- the free flow of information and the rise of highly empowered consumers -- have created an innovation climate in Japan that I believe will be a bellwether for the world economy in the years ahead.

Today, we hear so much about the BRIC countries -- Brazil, Russia, India and China -- and other fast-developing economies that there is a tendency among some to overlook mature, developed, slower-growing markets like Japan. I think that's shortsighted, especially in the case of Japan. While the economy here is not going to see the same kind of growth experienced by developing nations, what we will see -- if we take the time to look -- is the future. And that's what I really want to talk about.

From my perspective, Japan today represents the future of the beverage industry... the future of the global economy... and the future expectations of what it means to be a 21st century global corporation.

Let's start with a look into the future of the beverage industry. When I say "future," I'm going to use the year 2020 as a point of reference because in our experience, the consumer and beverage landscape in Japan has always been at least a decade, if not more, ahead of the global curve.

For example, in 1975, a full 20 years before the rapid expansion of the global coffee culture, we saw the emergence of Japanese consumers looking for the convenience and value of ready-to-drink, premium-brewed coffees. That year we introduced Georgia Coffee, and it now comes in dozens of variations and represents our single largest brand in Japan.

In the early 80s, we started seeing a demand in Japan for enhanced waters and more functional sports drinks. In 1983, we launched our Aquarius brand here and it is now available in markets around the world.

In the early 1990s, about 10-to-15 years ahead of the current global tea craze, Japanese consumers were first reaching for our Sokenbicha tea brand. Today, Sokenbicha is the category leader here.

And this past year -- when some industry experts were telling us that sparkling beverages had no growth life left in mature markets like Japan -- a magnificent thing happened. Here … in the world's oldest consumer market -- we not only grew Trademark Coca-Cola -- but we grew it at the highest rate we've seen in 30 years.

Now, I'd like to show you four recent television commercials that illustrate how we're connecting with Japanese consumers and creating relationships with our brands.

The first is for Georgia Coffee... the second is for Aquarius... the third is for Sokenbicha... and the fourth is for our Coke Side of Life campaign. Please take a look. ]four television advertisements are played for the audience] The Coke Side of Life campaign, by the way, has been cited as the most popular television commercial in Japan.

Across the world in 2007, Trademark Coca-Cola, which includes our Coca-Cola, Diet Coke and Coke Zero brands, generated the highest growth rate we've seen since 1998. Coke Zero, in particular, has been a huge winner. 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, we sold close to half a billion cases of Coke Zero globally. That's roughly the same size as our total business in the Philippines -- one of our top 15 markets.

These kinds of developments make us very bullish about the global beverage industry and where we're headed. Over the next several years, the $650 billion dollar nonalcoholic- ready-to-drink beverage industry is expected to grow faster than the world's GDP. In fact, nonalcoholic beverages are expected to grow faster than cosmetics, alcoholic beverages, packaged foods and household care.

This vitality is being shaped by three important global mega-trends -- all of which Japan has experienced in a significant way.

The first trend is urbanization. For the first-time in history, the majority of the world's population is now living in urban areas. Over the next decade, 65 million people annually will migrate to urban centers. That's roughly the equivalent of adding a city the size of Tokyo to our planet every 180 days.

The second global mega-trend is the rise of middle-class consumers in markets around the world. In the BRIC countries alone, the middle class will grow by more than 700 million people by 2020. That's two markets the size of the United States!

The third trend is the natural conversion to ready-to-drink beverages that comes with on-the-go, urban, middle-class lifestyles. This conversion results in ready-to-drink beverages becoming part of everyday life.

For our industry, it all comes down to a future of more consumers, with more money, drinking more beverages... and with greater choice.

Nowhere is choice more prevalent today than in Japan. Our Japanese portfolio now consists of 200 different still and sparkling beverages. Teas, coffees, juices, enhanced waters, energy drinks, functional beverages, breakfast drinks, sports drinks and sparkling soft drinks are just some of the offerings in our Japanese portfolio. When you factor different packaging formats, we have around 1,000 individual Stock Keeping Units (or SKUs) in the market here at any given time. That's an amazing amount of choice -- and one that calls for constant innovation.

It's an investment we're willing to make.

In markets around the world, consumers are demanding -- and responding to -- greater choice. Over the past few years, 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.

Most importantly, we're seeing balanced growth. 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, BRIC and emerging economies will account for over 60 percent of the global beverage industry's profit growth -- up from a third today.

At The Coca-Cola Company, we feel ideally positioned to benefit from all these trends shaping 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 supermarkets like AEON here in Japan to individual kiosks. And we have an a 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 megatrends I spoke of -- have had a major impact on our business. This past quarter, for instance, we saw 6 percent volume growth worldwide and in Japan we recorded our sixth consecutive quarter of volume growth.

To capture even more global opportunities, we're zeroing in on 5 critical priorities.

1. Accelerating the growth of our core sparkling beverage business.
2. Expanding our still beverage portfolio.
3. Leveraging our balanced geographic portfolio.
4. Expediting our innovation pipeline of products, packaging and equipment and...
5. Enhancing our system capabilities of consumer marketing, commercial leadership and franchise leadership.

We're addressing these priorities in the spirit of "constructive discontentment." We see the glass as half full.

Around the world today, our company and bottling system partners command $80 billion dollars of a $650 billion dollar -- and growing -- industry. There's more out there for us. Much more.

The health and vibrancy of the global beverage industry, in many regards, is a perfect metaphor for the future of the global economy. In fact, fewer industries are more integrated into the global economy than nonalcoholic 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 Hokkaido. 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 one of our new teas in Japan -- Ayataka.

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. In our case at Coca-Cola -- we think of it as serving up little moments of pleasure, 1.5 billion times a day around the world.

As you may have gathered by now, I am an unapologetic advocate of free trade. 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.

Thirty years ago I went to work for The Coca-Cola Company -- a company that has been participating in the global economy for nearly a century. I've had the fortune to work in the U.S., Italy, the Netherlands, Britain, Turkey, Austria, and China and now back in the U.S. for The Coca-Cola Company. 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. It's what made the Japan miracle of the past half century possible... and it's what will make developing nations around the world grow in the years ahead.

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.

Trying to stop the momentum of globalization is not the answer. 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 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.

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. 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.

It's much like the philosophy espoused by Japan's great mountaineer, Ken Noguchi, who says when it comes to environmental problems you can't give up. "You can't do it all by yourself"... he says... "but when you can bring a group of people together, anything is possible."

Solving society's largest challenges takes real leadership and partnership among business, government and civil organizations. 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.

Sustainability is something that Japanese society doesn't take lightly, either. In and by itself, the national call to cut carbon emissions in half by 2050 is an extraordinary goal.

I read a report recently that said as many as a third of Japanese adults regularly make purchasing decisions based on a company's values and actions towards environmental sustainability.

We saw Japan as an early adopter of the green movement back in the 1970s. Working with community leaders, Coca-Cola helped launch the Keep Japan Beautiful campaign.

Perhaps our most ambitious green effort in Japan is our goal to replace over time nearly 1 million vending machines with HFC-free units.

This summer we plan to showcase our latest innovation in eco-vending at the G8 Environmental Summit in Toyako -- an event that we and the Hokkaido Coca-Cola Bottling Company are helping support. At the summit we will demonstrate the e-40, a breakthrough technology that we developed along with Fuji Electric and which uses proprietary Coca-Cola technology.

The e-40 is an HFC-free vending machine that is 40 percent more energy efficient than our current machines. Indeed, it is now the world's most energy efficient vending machine. We're very excited about this project -- another wonderful innovation from Japan.

This follows in the wake of similar work we're doing to create lean-and-green supply chains across our system, including the consolidation of redundant distribution systems and working with our Japanese suppliers to promote green and efficient business practices.

Japanese society is clearly expecting more from 21st century global corporations as it continues to seek out lifestyles of health and sustainability. And we feel it's merely a sign of more things to come.

We believe that a true 21st century global company is one that must be a fully engaged and functioning member of society. Japan's deep respect for community has taught us much in this regard.

As we continue to expand our business around the world... As we continue to look for new opportunities in the global non-alcoholic beverage industry... As we continue to demonstrate our leadership in helping build sustainable communities... The Coca-Cola Company will always look to this great nation as a source of inspiration and pride.

Like the global beverage business itself... we're incredibly proud of Japan's past and we truly believe in her exciting future.

Thank you for your time and attention this afternoon.