Earlier this year, Coke announced it was discontinuing Odwalla, the once-popular smoothie brand it purchased in 2001 for US$181 million.
More recently, Coca-Cola announced it was discontinuing its Zico Coconut Water brand. While Odwalla had almost 20-years to thrive within the Coca-Cola system before it's execution, Zico was given far less time to thrive: Coca-Cola's Venture & Emerging Brand business unit only purchased that brand in 2013.
The news that Zico was going away was tough for me to hear: I led the launch of Zico in Canada while I was at Coca-Cola. But I get it. Cutting poorly performing SKUs and brands isn't new, and it isn't a bad thing: doing so allows you to direct greater focus and resources to your core product offerings. In fact, I was responsible for the Odwalla brand in Canada for two years while I worked at Coke, and one of the first things I did when I inherited the brand was to rationalize the portfolio. We went from a dozen or so SKUS to just five core listings, and that decision helped us significantly reduce write-offs from product that were going unsold, maintain our core listings with key retailers, and redirect our Odwalla marketing support to higher-priority brands.
"Killing your Zombies" is a great thing to do... but it's only part of the solution.
The other part is figuring out how your brands became Zombies in the first place.
A few years ago, I completed a course from Harvard Business School Online called, Disruptive Strategy. The course was fascinating, and taught the theoretical frameworks necessary to understand how new companies are able to disrupt established companies... and why established companies usually fail to prevent their own demise.
I can't summarize the 8-week course in a single blog post. But I can use the Zico situation to illustrate some of the theory, including why Coke seems to always find itself with so many zombies.
Let's go back a few years. Coca-Cola (and it's rivals) are under increasing pressure from society for selling sugar-filled beverages that contribute to a growing obesity problem. And the pressure is hitting them where it hurts -- their revenues and profits -- as consumers are turning to healthier beverage options.
Enter Zico Coconut Water, an all-natural brand founded by entrepreneur Mark Rampolla. Zico eventually catches the attention of Coca-Cola's Venture and Emerging Brands group, a division formed for the purpose of identifying and making early investments in small companies on track to become the next big thing. Coke takes an 18% stake in Zico, with a firm commitment to eventually increase ownership to 100%... providing Zico hits key sales milestones.
Why would Zico do this? That's easy: money. Presumably, lots and lots of money, although I don't think the final sale price was ever publicly disclosed.
The more interesting part of the deal is why Coca-Cola would want to acquire Zico.
In theory, buying Zico made perfect sense for Coca-Cola: it was faster and easier than building coconut water capabilities from scratch, and Coca-Cola could use their marketing prowess and scale to bring Zico to the masses. Plus, investing early into a promising company while it's still a start-up allowed them to avoid over-paying for the brand once it became more established, a mistake many argue they made when they acquired vitaminwater for a whopping USD $4.1 billion in 2007.
That's the theory, anyway.
In reality there's a significant problem.
There are only so many feet of shelf space available in a given grocery store, and the coolers don't have rubber walls. In other words, there's only two ways to bring a new beverage product to market: you either convince retailers to give your beverage (or beverage category) more space at the expense of competitors or other categories that are failing to show consistent growth, or you sacrifice some of your existing products in order to make room for the new ones.
So what's the problem, you ask? The problem is the fact that Coca-Cola (the company) was built on Coca-Cola (the brand). All of the systems were designed to support brand Coke. All of the metrics are designed around brand Coke. And the systems and metrics designed for Coke often won't work with smaller-sized brands: if everything you currently do is built for massive scale, a smaller-scale brand can't ever expect to compete, and never has a chance to be a priority.
Further, Coca-Cola is the name on the building, and the name on the top of employees' paycheques... and nobody who values their career at Coca-Cola is going to suggest changing the systems, adjusting the metrics, or reducing space for brand Coke in order to allow new brands the chance to flourish.
That same thinking also extends to marketing investment: there are only so many brand dollars to go around, and if the choice is to sacrifice a Coke execution in order to create a proper Zico launch campaign... well, you can guess how that goes.
So in the absence of a significant and sustained marketing investment, the Coke sales force does the best job they can. They try their best to convince retailers to create new coconut water sections, and to feature Zico prominently within them. And while they can't remove any Coca-Cola facing from the stores' existing coolers to make room for Zico -- sacrilege!! -- they try to place additional coolers in stores to give Zico some place to live.
This works for awhile. The launch is successful, and bonuses are paid out. But without sustained marketing investment, consumer interest in the brand wanes. Eventually, retailers are wondering if all that coconut water space can't be put to more productive, more profitable use... and the space is inevitably sacrificed to make room for the next big thing.
Rinse, and repeat. Rinse, and repeat.
To Coke's credit, they've at least begun to acknowledge that Zombies exist within their organization: in July 2018, Chief Growth Officer (at the time) Francisco Crespo wrote a blog post called, "Success, Failure and Zombie Hunting: Maintaining our Growth Momentum by Refining our Portfolio". The blog defines Zombies as, "products and packages that, despite our best intentions and efforts, have not grown over a three-year period", and tells us the company had, "started issuing quarterly zombie lists to our top 32 markets."
Great...except stating that a brand hasn't grown over a three-year-period is meaningless unless you also tell us what the marketing investment for that brand has been over that same time-frame. A reduction in marketing support is almost always going to lead to a reduction in growth: it's a self-fulfilling prophesy.
According to Morning Brew, "in Q2’s earnings call, Coca-Cola CEO James Quincey said over half of the company’s 400 brands had “little to no scale” and accounted for only 2% of total revenue. That’s despite a prolific zombie-killing effort in the first half of 2019, when Coke phased out more than 275 products."
Yikes.
It's utter foolishness to think that you can launch a brand, then expect it to thrive without continuing to nurture and support it. We would never think to do this with a plant, a pet, or a child... yet somehow, we think that brands have the ability to magically flourish on their own without any form of continued support.
But they don't.
Without support, a brand will die... except that unlike plants, pets, or people, brands don't actually die from a lack of attention. They just continue to exist, lifelessly... like zombies.
Don't celebrate killing your zombie brands before you truly understand how what you did to make them zombies in the first place.
- dp