Coca-Cola (KO) is a global leader in the nonalcoholic drinks industry. In fact, the company is the largest beverage company in the world. It offers hundreds of soft drinks, fruit juices, sports drinks, and other beverages. You'll probably know the company from its most known brands like Coke, Diet Coke, Fanta, Sprite, Powerade, and Dasani.
Given its status, it's no surprise that the company is a major powerhouse in the global economy and is one of the corporations on the S&P 500. So it's only natural that the amount of ad dollars Coca-Cola spends is high—a vital strategy if it wants to keep its stellar reputation. This article highlights Coca-Cola's history and commitment to advertising. Keep reading to learn more.
- Coca-Cola is a globally recognized brand and household name.
- The company still competes against other beverage makers and brands.
- Coca-Cola spends the most on global advertising and marketing than any other soft drink producer.
- The company averaged about $4 billion each year on advertising between 2015 and 2020.
Coke: A Brief History
Coca-Cola was founded in 1886 in Atlanta, Georgia, by pharmacist John Pemberton. The company's initial success came with the soft drink that made it a household name—a combination of cocoa, the kola nut, and carbonated water to make a soda fountain drink. Even then, branding was on the forefront of Pemberton's mind. His bookkeeper and partner, Frank Robinson, perceived that two Cs would be better for branding, leading to the birth of the Coca-Cola name.
The company owns and licenses more than 500 different brands of nonalcoholic beverages which are sold in more than 200 countries. It partners with a series of bottling partners, distributors, retailers, and wholesalers who help bring the company's products to consumers.
The company's stock trades on the New York Stock Exchange (NYSE) and had a market capitalization of $185.8 billion as of May 15, 2020. Coca-Cola reported revenue of $37.3 billion for the 2019 fiscal year, an increase of 9% from the previous year.
Because of the highly competitive nature of the beverage industry, large brands like Coca-Cola must spend on multi-channel marketing campaigns. This means that if Coca-Cola does not advertise consistently, it will lose market share to other large competitors like PepsiCo (PEP). This is even more important as consumers turn away from sugary drinks due to health concerns, leaving soft drink brands to amplify their creativity to stay in front of consumers.
Large brands like Coca-Cola must spend on multi-channel marketing campaigns in order to boost sales which results in shareholder value.
Coca-Cola's Commitment to Advertising
The so-called cola wars can spur an advertising arms race of sorts. Remember the Pepsi Challenge? Coke's rival launched the campaign in 1975, asking people to undergo a blind taste test between Pepsi and Coke to choose the one they prefer. It was a great gimmick—one that helped put Pepsi on the map. It's just one example of how large brands in the beverage industry try to outspend each other in an attempt to solidify and gain market share.
Coca-Cola has made a yearly commitment to large ad spends. It commitment to advertising has been fairly consistent between 2015 and 2019, spending an average of $4 billion each year to market its drinks to consumers around the world. The company spent roughly $4.25 billion on global advertising in the 2019 fiscal year—a big chunk of which went to market Coke.
This large budget allows Coca-Cola to gain a competitive advantage in several key areas. Its spending and strategy help 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
Coca-Cola's brand value is estimated to be roughly $80.9 billion for the full 2020 fiscal year. Its market share, at least in the U.S. is almost 43%. This is due to the company's advertising budget. But how does the competition stack up?
Let's look at Pepsi, the company's primary rival, which had a market cap of $188.6 billion at the end of the May 15, 2020, trading day. Pepsi has spent roughly the same amount of money on advertising as Coca-Cola since 2015—about $4 billion each year. But keep in mind that Pepsi is much more diversified and owns a number of different food brands as well including Doritos, Fritos, Sabra, and Ruffles. In April 2020, the company announced it would reshift its advertising focus and reduce what it called nonessential advertising.
Advertising in Alcohol Companies
Leading alcoholic beverage companies also found a direct correlation with advertising spend and market share, namely breweries such as Anheuser-Busch. In 2018, Anheuser-Busch spent $1.5 billion on global ads—the most recent statistics available. 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 already decides to purchase beer, their brand preference can be influenced by advertising. Ad spending in the alcohol industry 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.