Coca-Cola Is Cutting 1,200 Jobs as Growth Stalls

Apr 25, 2017

Coca-Cola said it will cut 1,200 jobs, the latest major food manufacturer to accelerate cost-cutting efforts as the industry struggles with a weak growth outlook.

The soda giant said it would trim the jobs beginning in the second half of 2017 and carrying into 2018 as it tries to become "faster and more agile." "While these necessary changes are always very difficult, they will help us do fewer things better to lead and support our operating units," said James Quincey, who will succeed Muhtar Kent to become CEO of Coke (ko) this year.

Overall, the soda manufacturer said it would expand the company's current cost-savings program by $800 million to $3.8 billion. Quincey said the company aims to re-invest "at least half of the savings," though Coke is still finalizing a complete plan for how it will use all the savings beyond simply saying it would create value for shareholders.

Coke's move to cut jobs comes as many major food and beverage manufacturers—a group collectively known as "Big Food"—have cut thousands of jobs in a bid to trim costs and restructure their operations. Others that have cut jobs have included Hershey (hsy), General Mills (gis) and Kellogg (k). All have been under pressure to cut costs to boost cash flows because of the aggressiveness at 3G-backed Kraft Heinz (khc), which has put some pressure on others in the industry to step up their game.

The cost-cutting comes as Big Food manufacturers have found their legacy brands pressuring by a consumer trend toward foods and drinks they deem healthier, a trend executives say will only accelerate over time. Startups—which have raised billions of private investors—have built up impressive sales because consumers say they want the cleaner labels those smaller firms often offer. As a result, companies like Coca-Cola—which is highly exposed to the declining soda industry—have had to change. Coke has aimed to bulk up the company's healthier offerings by selling more Smartwater, flavored water Vitaminwater, and dairy brand Fairlie.

But the first-quarter financial results Coke reported on Tuesday point to the challenge the company is facing remaking itself. Total volume was even for the quarter because of a 1% decline in sparkling soft drinks and a flat performance for the juice, dairy and plant-based beverages Coke sells. There was some growth for Coke's waters and sports drinks (up 3%) and tea and coffee (which increased 2%).

Wall Street analysts asked Coke's executive team: are acquisitions, including for food brands to get Coke less exposed to beverage trends, possibly on the table? Quincey said that for a deal to occur, it would need to be financially attractive, and also unite a willing buyer with a willing seller. Many Big Food executives have indicated that acquisitions in the space can be a challenge because startups command valuations that are too high to justify. Coke's two big rivals each inked a bolt-on deal late last year: Dr Pepper Snapple (dps) bought Bai Brands and PepsiCo (pep) purchased KeVita.

"While we imagine we will continue to do bolt-on acquisitions, you can't predicate your strategy on [M&A]," said Quincey. "We focus on driving on what we can organically."

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