The Coca-Cola Company (NYSE: KO) is a global leader in the beverage industry that offers hundreds of brands, including soft drinks, fruit juices, sports drinks, and other beverages. It's natural that the amount of ad dollars the brand spends is high given its reputation.
- Coca-Cola is a globally recognized brand and household name, but it still is competing against other beverage makers and brands.
- Coca-Cola is the largest spender on global advertising and marketing of any other soft drink producer.
- In 2018, the company spent a whopping $5.8 billion on global advertising, dwarfing its next rival PepsiCo by nearly $2 billion in spending.
Coke: A Brief History
Coca-Cola's initial success came with the soft drink that made it a household name and dates back to 1886. Even then, branding was on the forefront on the mind of its creator, pharmacist Dr. John Pemberton, who combined cocoa with the kola nut and carbonated water to make a soda fountain drink. His bookkeeper and partner, Frank Robinson, perceived that two Cs would be better for branding, and so the name Coca-Cola was born.
Due to the highly competitive nature of the beverage industry, large brands like Coca-Cola are required to make large spends on multi-channel advertising campaigns. This means that if Coca-Cola does not consistently advertise, it will lose market share to other large competitors, such as PepsiCo, Inc. (NYSE: PEP). That's has bearing more than ever now as sugary drinks are on the decline, due to health concerns, leaving soft drinks brands to amplify their creativity to stay in front of consumers.
This spurs an advertising arms race of sorts, where large brands in the beverage industry try to outspend competitors in an attempt to solidify and then gain market share.
Coca-Cola's Commitment to Advertising Spending
Coca-Cola has made a yearly commitment to large ad spends. In 2018, the beverage manufacturer spent an incredible $5.8 billion on global advertising and marketing, or 18.3% of revenue in FY 2018, up slightly from $4 billion in 2017.
This large advertising spending has allowed Coca-Cola to gain a competitive advantage in key areas. Its advertising spending and strategy has helped it successfully introduce new products into the marketplace, increase brand awareness and brand equity among consumers, increase the knowledge and education of consumers, and increase overall sales.
Comparison With Competitors in the Beverage Industry
Coca-Cola has far surpassed much of its competition in terms of advertising spending over the past three years.
In comparison to Coca-Cola's yearly spending, its main competitor spent $4.2 billion on global advertising and marketing, or 6.5% of revenue in FY 2018. The third competitor in the industry, Dr. Pepper Snapple Group, Inc. (NYSE: DPS), the owner of the popular drinks Dr. Pepper and Snapple, spent just $500 million in 2018, which has been fairly static over the years.
Through the first quarter of 2019, Coca-Cola's brand value reached $80.9 billion. It's market share, at least in the U.S. is 42.5%.
Comparison to Leading Alcohol Companies
Similar to the beverage industry, leading breweries such as Anheuser-Busch have also found a direct correlation with advertising spend and market share. In 2018, Anheuser-Busch spent $1.5 billion on global ads. Although ad spending has a direct correlation to market share, it actually doesn't increase the size of the overall market.
For example, if a consumer has already made a decision to purchase beer, his brand preference can be influenced by advertising. Ad spending in the alcohol industry, similar to ad spending in the beverage industry in which Coca-Cola operates, does not induce consumers to purchase a soda or beer if they had not already wanted to purchase one.
This supports the importance of ad spending in the beverage industry, where brands need to outspend competitors' brands so that consumers who already are looking for a soda are induced to purchase a Coke over a Pepsi.
Ad spending in both the alcohol industry and the beverage industry does not influence the purchasing decisions of consumers who aren't already participants in those industries.