BD held its annual Future Smarts conference on Dec. 7 in New York City. The program focused on the implications of massive changes this year to the North American non-alcoholic beverages landscape. New leaders have taken over all three of the largest soft drink makers -- Coca-Cola, PepsiCo and Keurig Dr Pepper -- since  2017. Acquisitions of Dr Pepper Snapple by Keurig Green Mountain, Costa Coffee by Coke and SodaStream by PepsiCo have all signaled a more aggressive approach to portfolio transformation. Meanwhile, an army of nimble and bold entrepreneurial innovators are challenging the status quo as never before. This year’s speaker lineup covered both ends of that spectrum. The following is a synopsis of material presented by large companies on the program. BD will publish a second installment in January covering cannabis, plastic sustainability and innovation.

Coca-Cola Growth Strategy. Chief Growth Officer Francisco Crespo discussed the company’s focus on adding consumers, creating more rituals around its products, and boosting revenue by grabbing a larger share of non- alcoholic beverages in order to command higher prices. “We have over four billion people living in countries where 90% of the population does not drink Coca-Cola,” Crespo told the audience. “Then we have another 1.4 billion people living in countries where between 60% and 80% of the population is not drinking Coke. We are living and talking here today in one of those countries. There is huge space to grow the consumer base and a lot of consumers to recruit. When we think about the consumer base of Coca-Cola, the truth is that we have hundreds of millions, and perhaps billions of consumers to go and recruit.” To attack these goals, Coke is using what Crespo calls the “Five Disciplines of Growth.” They are: 1) quality portfolio leadership, 2) edge,3) ritual, 4) integrated experiential execution, and 5) customizable scaling of ideas. Quality portfolio leadership means experimenting more and killing off failing ideas  faster, Crespo said. Products are viewed as “disruptive explorers,” “patient challengers,” or “purposeful leaders.” Each is expected to perform different roles. Explorers are  meant to generate “exponential growth” by way of “entrepreneurial audacity.” Challengers must gain share, move into a leadership position and “command prices,” Crespo said. Purposeful leaders “stretch the brand to more places so we can capture more consumers and we can get more transactions,” he said. Edge means taking a “consumer-centric” approach rather than a “competitor-centric” approach, Crespo said. Instead of focusing on insights about what competitors are doing, Coke is “working very hard to get our teams understanding consumers,” he said. “This requires empathy. This requires observing and reflecting and contemplating what consumers are doing, and asking the right questions. The right question is not what is growing out there. The question is what consumers want, what pain points are still unresolved and how  can I make it better?” Ritual is about understanding the motivation, behavior and context surrounding moments such as Chinese New Year. Crespo cited one example of Coca-Cola teaming up with Alibaba to give consumers a digital version of red gift packets the Chinese give to family members around the holiday. From here, integrated experiential execution kicks in, whereby marketers bring together a range of tools including packaging, storytelling, influencers and route-to-market along with sustained investment, sampling and “cutting edge supply chain” to  spur faster growth. Finally, Crespo illustrated the customizable scaling of ideas using the example of Fuze Tea, which was launched in 37 European markets in a single day in January by customizing the core offering based on needs in individual countries.

Muhtar Kent Retiring. On Dec, 6, Coca-Cola announced that board Chairman Muhtar Kent would retire from the role and the company in April 2019. He will be replaced by CEO James Quincey. In an interview the next day during Future Smarts, Kent reflected on his 40-year career within the Coke system and discussed his outlook for the company. “For all consumer goods, the landscape is changing so fast,” he said. “Any consumer goods company has to stay ahead of the consumer. The consumer wants choice, digitization, ease of buying and ingredients that are different than they were before. And the consumer wants a good taste. That’s one thing that hasn’t changed. You can’t do all of those and not have the taste right.” Pepsi Refranchising? When asked whether PepsiCo will follow suit on refranchising, Kent declined to predict, adding, “We all need competition.”

Coke Swire. Jack Pelo, CEO of Swire Coca-Cola USA, discussed the challenges of picking up significant territory from Coca-Cola over four years of refranchising. Swire Coke almost doubled its number of sales centers to 46,tripled its number of bottling plants to six and quadrupled its employee count to 6,800. Pelo did almost 50 town halls with various groups of new employees “just to make sure associates were comfortable with who we are,” he said. The transition wasn’t easy. “With the  tremendous growth, there were things that we didn’t know,” he said. “We questioned it the whole time. But at the end we knew it was going to work out and it’s worked out great. We’re very pleased with how it ended up.” Pelo said the company has grown both revenue and volume this year.

PepsiCo-Starbucks. Bryan Welsh, VP and GM for the Pepsi-Starbucks North American Coffee Partnership, noted that the joint venture’s portfolio consisted of just two flavors of ready-to- drink Frappuccino when it started 24 years ago (Editor’s Note: The JV’s first product was actually a bottled sparkling coffee called Mazagran that was tested in California and later discontinued). The category has since expanded to about $2 billion in sales, growing at an average rate of +9% between 2013 and 2018, Welsh said. In addition, bottled and canned coffee sells at a 35% price premium per ounce to the liquid refreshment beverage category as a whole. This growth has spurred an influx of competitors, with twice as many brands now as there were five years ago, he added.  Innovation.  The JV will introduce a Frappuccino  with almondmilk next year to capitalize on the fact that a third of American households routinely keep almondmilk in their refrigerators, Welsh said. The product will provide “an open door  into the Frappuccino franchise for the very first time” for those who avoid dairy products, he added. The product will be available in a multi-serve package as well. Also in 2019, the JV will launch Starbucks Tripleshot Energy (BD 10/12/18) containing 225-mg of caffeine per 15-oz can (Monster Energy contains 160-mg per 16-oz can). Flavors will be Caramel, Café Mocha and French Vanilla. Welsh said 83% of energy drink consumers are also coffee drinkers. And 30% drink cold coffee, often in cafes. Just 15% drink ready-to-drink coffee, however. “There’s a tremendous opportunity for us to drive penetration of our business to a whole new level with this group,” he said. During a question and answer session, Welsh declined to say whether the JV had plans for a nitro-infused cold brew. The Shelf. Display space also was on Welsh’s mind. “There’s a couple of things that we do need to work on,” he said. “We’ve got to create the space to allow access and allow all these new products to come to market. And we are working really closely with our retailers in terms of our key partners to make that happen. In addition, Welsh sees “an opportunity to elevate the category and the experience at retail” with new coffee aisle installations and pure play displays.

Nestlé Waters North America. Fernando Mercé, who took the reins as CEO in May 2017, sat down for an on- stage interview. He said the company has to be “extremely good” in the current U.S. beverage market operating at both ends of the price spectrum, with Nestlé Pure Life at the affordable end and brands such as San Pellegrino on the premium end. When asked about shelf space at retail, Mercé said the shift from soft  drinks toward water isn’t fully reflected. “There’s a lot of real estate that should be going to healthy beverages,” he said. “The challenge I give to the team is, it’s not just a function of paying for the space. It’s about creating consumer occasions that make sense, so the consumers are coming and they’re demanding the space in the store because they’re looking for those brands.” Mercé went on to say the company will “double down” next year on marketing and advertising spend for both its premium and mainstream sparkling water portfolios. Nestlé Waters is launching more products as well. “If you go back three years ago, we were launching on average 20 to 30 new SKUs per year,” he said. “This year we launched 200, and next  year we’re going to launch another 200. We are doing that also as we clean some of the SKUs that are of less interest to both us and consumers.” Mercé said he expects Nestlé’s sparkling portfolio to continue to grow by about 35% to 40% without specifying a timeframe.

Anheuser-Busch. Two and a half years ago, Randy Ornstein was the first employee of Anheuser-Busch’s new U.S. non-alcoholic beverage unit. Today there are 55 people across the U.S. who touch the company’s non-alcoholic portfolio. Randy manages the non-alcoholic work as vice president of Beyond Beer, a unit that now also includes flavored malt beer, wine and spirits. The non-alcohol brands in the portfolio are Teavana, Hiball sparkling energy waters and Alta Palla sparkling waters. Hiball will launch a canned cold brew coffee in January. Gaining share for the Beyond Beer unit is one of A-B’s five key strategic initiatives, Ornstein said. “We’re developing new relationships with retailers where we might not have played before, since usually the [non-alcoholic] buyers are different,” he said. Ornstein also has been working with wholesalers who have essentially started from scratch on the non-alcoholic side after losing Monster Energy distribution to Coca-Cola several years ago. “It’s our job to get our wholesalers ready, as that’s our preferred route to market and they’re our line partners.” He added: “Our non-alc vision is really to disrupt the fastest growing beverage segments with better for you options that address our consumers’ needs.” He added that the unit’s non-alcoholic business will focus on premium, better-for-you offerings that are “purpose driven.”