The Coca-Cola Company (KO) Redburn Atlantic and Rothschild & Co. Consumer Conference – (Transcript)

The Coca-Cola Company (NYSE:KO) Redburn Atlantic and Rothschild & Co. Consumer Conference Call June 20, 2024 8:00 AM ET Company Participants James Quincey – Chairman and Chief Executive OfficerDamian Gammell – Chief Executive Officer, Europacific Partners plc Conference Call Participants Charlie Higgs – Redburn Charlie Higgs Okay. Welcome back everyone. I’m Charlie Higgs, one of the Consumer Staples Analyst here at Redburn in charge of the soft drinks companies and the food companies. And I’m delighted to welcome along today, James Quincey, Chairman and CEO of The Coca-Cola Company, for a discussion on how the transformation sets it up for faster, more resilient long-term growth. Behind us, we’ve got many of the company’s brands, some of or if not the strongest brands in consumer staples. It needs no introduction. They sell in over 200 countries with 200 bottlers. It’s been delivering 8% organic sales growth over the past five highly disruptive years, with 2% coming from volumes. Last year alone, they added over 3,200 customers a day. So it’s a growing system. And delighted to welcome James today to talk about some of the transformations that have driven that marketing, brand, et cetera. Question-and-Answer Session Q – Charlie Higgs But maybe I want to start with is on the consumer side of things. And perhaps you could just give us your sense of the consumer today, the health of the consumer, but then also how your consumer segmentation tools have evolved over the last five years. We hear a lot more about weekly plus consumers, for example, to help you deliver resilient growth under all operating environments. James Quincey Sure. There are sort of two questions sort of bundled up together, so I’m bound to get one of them. Let me start with the state of the consumer, and then we’ll come on to how segmentation and how capability is enabling segmentation. I mean, firstly, the state of the consumer, we talked about it on the first quarter earnings call. It truly is a moment of the cup half full or the cup half empty, depending on what you want to — which bit of the world you want to look at. In aggregate, there’s still a very robust global economy out there and robust consumer spending in total. Certainly, as you saw, we were continuing to deliver volume growth and a normalizing level of price mix. So there’s some pretty strong consumer spend out there. Now obviously, some of that is under pressure in some pockets. So if you’re in the lower end of the income spectrum in the US, you’re under pressure from inflation. You can take one of those inflation baskets where it’s looked at the inflation by the basket you buy, depending on which income decile you’re in and it’s pretty high if you’re at the bottom end in the US. And you can see that pressure coming through, saw that pressure coming through in QSR restaurants and a number of areas where footfall or basket size was under pressure and, of course, consequent behaviors like looking for affordability. So I think that’s very — we talked about it in the first quarter on the US, and I think a lot of people have come out and kind of highlighted that is one area. To some extent, that is also true in Europe. There’s not as much dispersion of the income spectrum in Europe, but I think there’s some of that in Europe. And now there are variants across the different countries, but Europe is pretty good with, again, people under pressure in that bit. But then if you want to see the glass half full around the world, you’ve got places like Latin America, where the consumer is in great shape. Very strong growth. India, the same. Parts of Southeast Asia. So for every kind of slightly off-the-median story you want to look at, there’s one of the other side as well. So and I think the reality is it’s likely to always be that way. If everyone was doing well everywhere, the only thing that could happen is it could go down. So I think we’re in a pretty good place in terms of the overall consumer. I’m sure that will continue to change and evolve over the coming quarters and years, but robust consumer globally. And I think the segmentation journey, there’s always been the kind of the holy grail thought of the marketing to one, being able to market and talk to each person individually. And if you went back 20 years or so, or maybe even only 10, there just wasn’t the information and the mechanisms to do that. And so you could fantasize about ever-increasing degrees of segmentation and perhaps even sometimes generate the analysis to do it. But the ability to actually market and execute against it was much more limited. But I think what we’ve seen over the last 10 years or so, is really the coming into being of not just the ability to analyze and identify consumer segments but to actually be able to act on that information and insight, whether it be in the marketing, the product design, and reaching them where they want it to be reached. So I think it’s really the realization of a much more tangibly segmented opportunity to market and sell to people. That wasn’t physically possible perhaps in the past, and now it’s much more so, and there are lots of examples across each bit of the spectrum as to how that actually happens. Charlie Higgs Perfect. And earlier this year at CAGNY, you also introduced this concept, I think, of the consumer need states. Things like refresh, enhance, delight, connect, et cetera. And you’ve long spoken about having consumer-centric portfolio and wanting to take bigger bets around that. Can you maybe just flesh out this consumer need state? Are there some that offer faster long-term growth in this? And do you have any gaps, do you think? James Quincey Do we have any gaps? I mean, of course, we have gaps because we’re not number one in every category in every country, and not every category exists in every country. So there is, ultimately, if you want to be total beverage, there is a journey to go on in establishing those positions. But the segmentation in that sense is really looking at the big need states. Because notwithstanding the comments about being able to segment consumers, you still, when you’re the Coca-Cola company, need to look for scale. And whilst you might be able to identify lots of segments, it needs to ladder up to something big in terms of delivering against a brand or a category. So it’s not that those need states, refuel, et cetera, et cetera, are — we’re absent in one and we’re all concentrated, like we distributed across them, we’re very focusing understanding them and then breaking them down into how different consumers are acting and responding within the segments. Ultimately those drive scale brands. We’re not going to be in the business of zillions of small things. We’re going to be in the business of putting together consumer segments that add up to something big under brand heading. Charlie Higgs Great. And then obviously, it’s been a very turbulent five years, a lot has happened. I wondered if you had any changes in thought in any of your categories on the long-term growth prospects. For example, coffee, I think, is now a bit more around selective prioritization, whereas in sparkling, it’s been under just a renaissance in arguably mature markets like the US and Mexico? James Quincey Yes. There I would distinguish in the way you put the question between what’s the category attractiveness and what do we need to do next. I think the long-term category attractiveness actually, the beverage industry in total and each of the main categories or each of the main consumer segment is there. And actually, one of the things I always, I’m sure it was in the CAGNY that we always put out there is, actually, the beverage industry has a vast runway of growth ahead of it. If you look at — and you can go and look at the slide in the CAGNY day, the developed world — in the developing world, 20% of the people live in the developed world. Roughly speaking, they pay money for seven or eight out of 10 drinks they buy. And we have a relatively small share of that. But in the developing world, they only spend two out of every 10 drinks that they actually spend money on and we have a single-digit share of that commercial beverages. And so what that tells you is actually the predominant feature of the beverage industry is it’s yet to be created. The beverage industry is yet to be created and it will be created in largely in the developing economies. So there’s actually a huge runway ahead. And so I see the industry itself as profoundly attractive going forward. And actually, the categories within it, all having robust growth potential. Some slightly more than others, I know that we’ve changed the numbers a little bit in the last seven years. But it’s fractions of the margin like plus 1% here, 6% instead of 5% or 4%. The categories will have their attractiveness. And then within that, the things like saying, okay, coffee selected players there. I mean, really, this is a new category from our point of view. The industry is huge, has been growing rapidly and is profitable even though it’s relatively fragmented. We have to learn to walk before we can run. And so by the selective product it’s like we are not going to certainly run around and try and do coffee everywhere without knowing what we’re doing. Similarly, we think that Fairlife. Look, we need to get it right in certain places before we start trying to expand into lots of other places. And that’s really what the selective prioritization in that case is about. It’s not a comment on the industry attractiveness, it’s a comment on what do we need to do next so that we can think about where are we going. Charlie Higgs That’s good so great because I love Fairlife, and I’d obviously love you to send Damian some Chicagoan cows. But how do you think about scaling brands across this incredibly powerful Coke bottling network you have to drive faster long-term growth, also being mindful of not perhaps destabilizing or reducing the resiliency of their supply chain? James Quincey Yes. I mean, scaling brands is, the first starting point is just because it works in country A is not a reason that it will work in country B. There may be many of the same consumer needs retail needs, et cetera, et cetera, but you have to say why is it going to work in this country. So, yes, we want to scale brands. We would rather have more global brands than to be a stable of lots of top 200 countries worth of local brands, just the business we’re in. And so we do look to expand. Clearly, step one is working out whether the brand actually has a unique reason to exist in the next country and a reason to win. And it’s not just because it’s from The Coca-Cola company, that’s not going to cut it. As it relates to categories like Fairlife, there, the supply chain is a factor. There are a number of categories where supply chain is important. Perhaps most locally is the Fairlife. And so what exists in the US as features of the dairy market there is not the same in Europe. US farms tend to be much larger, the ability to process milk is, I mean, the scale of some of these factories is they’re huge. I mean we’re building one in New York State at the moment. I think it’s $650 million, one factory. I think it’s number four or number five, I can’t remember. But these are mega facilities. And so they’re not going to just plunk down anywhere in the world. And so there is a question of whether the supply chain is there to bring some of these products at the scale they need to be in order to make the make the economics work. Charlie Higgs Interesting. And then maybe on to invest in the business. You’ve long said investing behind the top line is a key priority. How do you think about investing kind of that core very strong brand portfolio, whilst also taking strategic bets in kind of up-and-coming categories a bit like the alcoholic ready-to-drink. And then on the flip side, kind of what is the decision-making that you and the bottlers make when you say now is the time to stop investment a bit like bulk water in China late last year? James Quincey The stopping doing things tends to be the easier one to identify, because it’s largely going badly. That’s kind of easier to spot it out. Okay. Well, no, we’re not growing and we’re losing money, and we have no share, like why are we doing this? And so in the middle of COVID, we actually reduced the number of brands by half. And that even that was quite painful. But in the end, it’s like a bit small, it’s not growing, it’s got no share and it’s irrelevant in the category and doesn’t make any money, let’s get rid of it. And so those as I said, in a way of the easier decisions if you can’t find a path to growth and profitability. Deciding where to invest next, the system, the beverage industry and the nature, it’s kind of an optimistic industry like. We’re in the business of selling some optimism, some joy, some happiness that it’s positively orientated industry and a set of categories. And one of the features of that is people see lots of opportunities. So generally speaking, we see more opportunities then we have, it’s like going to the buffet, right? The buffet is big like how do I not pile it all on the plate? Well, it doesn’t all fit on the plate. And so of course, there has to be some degree of process of saying, okay, where are we going to prioritize like, what do we need to do to fix the basics on category X and countrywide. So we actually have a relatively robust process of looking across all the countries and all the categories and saying, okay, where does the money need to go? What are the priorities for the next step of the journey in terms of building out the portfolio around the world. And that’s the harder part because people can see more opportunities than the money or time or human capability to actually execute on. Charlie Higgs Fascinating. You mentioned the brand trim back in 2020, where you cut down in half, a few hundred. I wanted to move on to innovation. And again, around this slimmer portfolio, how do you maintain that experimental mindset, whilst also being mindful of not leading up to a long tail that you used to have? James Quincey Yes. I mean, our biggest not — maybe not our biggest problem, but certainly, one of the problems we had is we were not sufficiently disciplined in terms of curating the things that weren’t working the long tail. So not only was the comment about getting rid of half the brands, but we have a lot of SKUs because each brand can have multiple SKUs or variants, flavor or package. And so being ruthless about curating the portfolio is one of the hardest parts of innovation. Actually, in a way, it’s easier to come up with an idea. You come up with an idea on a way to market, a product, in terms of its ingredients, it’s flavors, the brand idea or whatever it is, you can come up with ideas and there are a lot of ideas out there. Clearly, the more powerful ones tend to put together multiple elements of innovation at the same time. But the chances of it working perfectly the first time are low. Very few product innovations or even new companies got it right with the first idea they had. They tend to have evolved in some way, shape or form and honed in on the best rounded out solution. And so the challenge becomes in curation, distinguishing between those that are not doing well, but have the seeds of future growth and success, and those that are just not doing well. Clearly, you have the ones that are failing. And that therein is the hardest adjustment. Because if you look at studies of the beverage industry,and you go back, and there was one down on the US, which looked at all launches over some long period of time and there were like 10,000 of them. And you could cluster them into the best 10% all the way down to the worst 10% and show what their sales performance was over 10 years. And of course, by 10 years, the best were like in the $1 billion brands and the worst moved out of the market. What’s interesting about that analysis is the difference in the sales line between the top 10% and the bottom 10% was almost nothing in the first three years. And it was still pretty small in the 4% to 5%. And so this need for patience and really trying to distinguish between which ones are gaining loyal and evangelical consumer bases of consumers and which ones are just struggling along, is actually one of the hardest parts of the innovation in managing innovation in the beverage industry. Charlie Higgs Fascinating. And then as a system, you sell a pretty staggering 2.2 billion servings a day. On my math, it’s about 800 billion a year. So 800 billion data points going on around the system. A few years ago, you also moved it to more networked organization with platform services. So I’d just be interested on your perspective on just the sharing of data in the system to try and enhance your revenue growth management tools and how that’s benefiting the resiliency of your top line growth? James Quincey Yes, yes, we sell a lot of product, I mean, 2.2 billion 8-ounce servings every day. It’s a lot of physical product. Just as a matter of reference, that comes out of about 1,000 factories for the Coke system globally. So there’s — it’s a huge physical system. It’s — we’re serving, I don’t know what the number is like 30 million retailers every week. There’s a huge amount of data points. And of course, as everyone’s into data these days, there’s an opportunity to drown in it. What we have to focus on is not just getting the data and linking it together, but doing something with it. And so as it relates to RGM. So the idea of really having the best strategy on what’s the price per brand per pack by channel for the occasion that’s being marketed to. Clearly, having that data, we’ve got vast amounts of internal data. But the optimization of that revenue growth management strategy and the channel strategy is not just about our own internal data, it’s also about linking it to external data about what’s happening. And that then can be brought together in, effectively with AI, which is a wildly overused term, which I was trying to avoid saying, but let’s just say put the AI word out there, bring it all together and do something that is actually very powerful. If you went back 10 years and you were in an emerging market and you’re a mom-and-pop retailer, of which we serve tens of millions each week, in order to order your beverages, you had to wait for the Coke sales person to turn up and then you would have a chat with them. They would enter it, in the old days on to paper, and then into onto a handheld device of some type. What you can do when you bring together your data, the external data, particularly the forward-looking stuff and AI is you’re going to do two things. You can both give the retailer a predictive order form. You can do all sorts of things. You can come in and use a camera to scan the store and tell you on what they need to order. But essentially, it’s all variants on the same idea, which is you can provide them with a predictive order on what they should get, which firstly is more right than human like intuition and, secondly, allows the salesperson in the store to do account development activity. So it’s a win-win. And it doesn’t replace the salesperson. That’s not the strategy we’re pursuing. We’re pursuing the two together strategy. And where we’ve implemented that, we’ve demonstrated we get a sales uplift. And the second benefit is the retailer can now just connect to the Coke bottling platform, so they forget to order something or whatever. So and so from down the street says, I’m having a birthday party can you order the extra whatevers, they can just go onto the platform and add to the next delivery. So the data linked with the platforms on IT have vastly increased the potential to interact with retailers in RGM, and also to optimize what they’re buying and the inventory they hold, not just for us but for them. Charlie Higgs Yes, I think from memory, the bottle is — B2B platforms grew 20x from 2019 to 2022. It’s just phenomenal. But maybe moving to the topic of the bottling system. It does feel as an outsider that everyone now is much more aligned behind the idea of growth and top line growth. It feels very aligned you’ve obviously been in the system a lot longer, I think, 1996 or so. So could you perhaps maybe just characterize how the relationship with the bottlers has evolved and how — what your assessment is of it today? James Quincey Yes, I joined a long time ago, ’96. Look, the relationship with the bottlers is — and then you can ask Damian, because he’s on next in CCEP. He wanted to make sure you save some questions for him. Look, the relationship with the bottlers, in the end, we both have the same objective. We want to have a growing, profitable, successful business centered on the brands of the Coca-Cola — like it’s the Coca-Cola bottling system. So when it has gone off track, in the end, it was largely, in my mind, a lack of the company doing its job. Because it exists to help create the framework and the strategy that then makes it attractive the bottling partners to invest capital to pursue growth and profitability. And I was lucky to join the Coke system in a part of the world which was actually very effective at the time, which is the Latin American part of the operation. And so in a way, what you have seen over the last 20, 30 years is each part of the world getting more and more centered on with both in it for growth and moving out all the things that get in the way of us succeeding together. And I think that’s what we’ll be able to do. It’s — I hope we don’t reach the day when we have nothing left to argue about. Because actually, the power of the franchise system is being able to leverage the different points of view and create something better. Charlie Higgs And then within the company specifically, there’s been a big marketing transformation led by Manuel over the past few years. You shifted to this new Studio X and network system. And I think about two-thirds of your spend now is on digital. Can you maybe just outline, what have been some of the key benefits of moving to this new Studio X system? And then just in the one-third that is still traditional advertising, your view there on how you improved the return on spend? James Quincey Well, let’s start at the back end. The return on spend is a function of two things. One, what are the consumers paying attention to. So you — there’s no point advertising on digital if they don’t have the phones or vice versa. And so one is what are people actually consuming. And two, what is the price were being offered by the media owner or the vehicle of the thing relative to how much airtime we get. And so there is an interplay between it’s not spend on digital because it’s more effective at any price, no, there’s a price at which — there’s a market clearing price between the different media platforms. In the end, some are much more effective for certain things, check. But the price is also there. So we’re very focused on what do we want our marketing programs to achieve and diligently making sure we get the right return on investment to whichever platform it goes. And so it’s about the effectiveness of the platform, but also what are they charging us and working all those things through as well. I mean the marketing transformation, in a sense, the social media and the digital consumption by everyone with their phones, was a transformation we were late to. And we were late for some, in a way logical reasons, but we were late. And really Studio X has been about catching up and getting back on the forefront. Because if you think in the long trajectory of history, this is just the latest transformation in what people consume. I mean if you look at when we started doing marketing, we were one of the first companies to do coupons in newspapers. Take this to the soda fountain store and get one free. Then they were outdoor advertising. Then it was radio. Then it was TV. Each of these waves, we were right at the front of. And if you look at the emergence of the Internet and social media and digital advertising, up until about, 2015, maybe a couple of years later, but in those 15, 20 years up to 2015, the 100% mix of media, television and radio and outdoor, did not change. There was as much television and radio and outdoor in 2015 as there was in 2000 say. What had changed was it went from, whatever it was, 20% newspapers to zero, more or less. And you had 20% in search. Because the specificity of I’ve got a car to sell in Minnesota and I’m advertising in the local paper and then I can put it on a platform like Google and sell it through Google. It was a very specific need. But when you — when the TV was still effective, it was not a world we had participated in a lot because we didn’t need to sell cars in Minnesota, we were selling Cokes 2.2 billion a day, like I only need to go one by one throughout. And that made us late to the social media revolution. And so the transformation has been about catching up and getting on to the front foot, which we’ve done with some of the, okay, the whole transformation has got us there. And it was a painful journey in part because we were optimized for the strategy we were pursuing. We’re going to buy media. So we had thousands of agency, where there’s a marketing process which looks like this. And so they — someone in procurement broke it down into all the pieces and they bid out each piece, which made it, yes, it made it cost effective, but finishly complicated and very hard to change. So that had to be broken down and taken away and a completely new process put in, which has now been much more effective. Charlie Higgs Yes, I think proof in the pudding for me was Sprite in the US, number one brand with Gen Z, millennials I mean. James Quincey Yes. Ahead of all competitive brands. Charlie Higgs Yes. I want to just talk about refranchising. And you’ve stated publicly your ambition to be the world’s smallest bottler. I think after selling the Philippines to CCEP, the bottling assets was about 12% of your sales. So can you maybe just talk us through what are the characteristics you look for in a partner when deciding whether or not to refranchise in the bottling territory? James Quincey Yes. Bottling partner, we’re after people who want to be long-term investors in the Coca-Cola business. We want people who have, and generally, we’re talking about, I mean, I’m talking ownership now, because then you get into the management. Long-term investors in the Coca-Cola system, they understand the nature of a franchise system and all the pros and cons and the way it works differently to a vertically integrated company. They bring something to the table in terms of the locality that they’re going to be over. One of the great strengths of the Coke system is, yes, we’re global with all these great global brands, but we’re also profoundly local. And in many parts of the world, that’s still very important. And so really having a connectivity to the local environment, the consumer, the retailers, the stakeholders, is very important for us. And then they bring the capabilities and the willingness to invest in the right talent for management. And once you get those things, you can put together a great bottling system. And so, yes, we’ve been focused on becoming the world’s smallest bottler. We’re getting close, even though it’s 12% of our revenue. Really, at the end of the day, if you look at the global bottling system in terms of volume, we still own about 3% of it, which, given that we were at almost 40%, is a substantial shift. Charlie Higgs Yes. I want to talk about the talent in the business where you also got a very strong bench. And I think one of the great hallmarks has just been how willing you are to show your leadership team around the world. How do you and the Board of Directors think about developing kind of the next level of leadership that are going to propel the company forward for the next 138 years? James Quincey Yes, absolutely. I mean whether it’s the Board or me or the executive leadership team, I mean the focus on talent. The one thing we spend most time on at the executive leadership team is on, what we call the, PDF, people development forum. And also with the Board, we have a tremendous focus on the talent pipeline in its aggregate, the talent pipeline by individual, when you’re looking at the top 50 or 100 people, and who can ultimately make it to the top table. And the Board has always been very focused on this question. It hasn’t always gone smoothly for us. And so I think they’re very clear on what they need to do to make sure we continue to focus on driving talent development, driving the culture of the enterprise and stewarding that from the Board level. And then the executive leadership team has to make it happen. And I think partly, as you said, we give more people the opportunity, for example, to meet with investors and analysts. But that’s all part of developing the next cadre of leaders. So we’re very intentional. We’re very focused. Obviously, we’re a very global company, so we look to move people around, but it’s absolutely top of mind. Charlie Higgs Perhaps this is a addendum to that. I mean what kind of culture do you think you’ve been driving specifically within the company that’s perhaps different to your competitors? James Quincey I mean I don’t want to — I can’t really go and say all competitors on this or that. But look, the one thing I’ve been very focused on is when we started this transformation, we said we needed to get back to growth. Because we had spent a decade at 3% revenue growth and $2 EPS, and now we’ve more than double the revenue growth rate and we are almost on our way to $3 EPS. When you have a large, the more successful you are, and we’ve been around for 138 years. The more successful you are and the longer you’ve been around, the more, the larger you get and, therefore, gravity takes hold. And what appears in the center of the organization is a black hole. So it sucks everyone in. And so the bigger and the more successful you are, the more the culture turns internally. Because it just becomes very big, and it takes a huge effort to actually coordinate internally. And that’s true, in my mind, is true of companies, governments, institutions, all sorts of things, which is why a lot of people try and have the idea of the portfolio of smaller companies. So that is something that’s going to happen by nature. But it’s not that we wanted to get rid of all our culture. We need to recognize that effect, recognize the deep pride that people have been working for the Coke company. So we’re not — we don’t need to change and constantly try and push to correct everything. We need to focus on supporting one aspect, which is what not — which has been used by a number companies to say the growth mindset. And to really say like talking to ourselves is not going to be successful, we need to focus on the growth mindset. And it’s very simple. We need to be curious. Like there’s a famous speech written by Robert Woodruff, who’s kind of the eponymous, not quite the inventor, but the creator of the Coca-Cola company as we understand it today, who wrote a speech on the 50th anniversary of Coke in 1936. And the headline of the speech was the world belongs to the discontented, which is so profoundly true at Coke. If you win and everything is great, then got to be discontented and look for the opportunities going ahead. But that’s all driven by a degree of curiosity. Curiosity about the consumer outside or curiosity about the retailer or just curiosity about whether all the reports you’re producing internally, anyone’s reading or not. What are you curious about. The second one is to have some degree of impairment or productivity. Curiosity is great. Okay. Now I see this thing, but if I do nothing with it and tell no one about it, okay, it’s kind of intellectually interesting. So there has to be some degree of proactivity to go and do something with it. The third one was don’t automatically assume that you’re the first person who’s ever had this idea in the history of the world. The chances are someone has thought of it before and done something like it, at least try and find out what they did and what mistakes they made before you make the all the same ones, at least make some new mistakes. So try and have a degree of inclusivity of like looking around the enterprise to see what’s happening. And the last one is, which is very much about the transition from a TV ad centric world to a social media centric world is don’t wait to perfect it. If you make five TV ads a year, if you take an extra week, making it better, just like when you make a movie, nothing really goes wrong. You can make it perfect. But in social media, the trains already, I mean, it’s like everything has moved on. You need to be able to iterate much faster. So we just said, growth mindset, those four characteristics, just push on those. And if we can keep pushing on those, then we will avoid the kind of we can just stay slightly ahead of the gravitational effect of the black hole. Charlie Higgs Excellent. And then the last one from me is just looking back on your time of CEO since 2017, what have been some of your proudest achievements throughout the organization? And then going forwards, what are some of the biggest opportunities that investors should take away from for the Coca-Cola Company? James Quincey Well, I think the accomplishment, I think, is simply put that we’ve got back on growth track. As I commented, we went from growing at three to growing more than double that. But it’s the revitalization of the Coke system. It’s not just about the company, it’s about the bottlers. If you look at the performance of the bottlers over the last seven, eight years, it’s all there to see that we have put ourselves back on a growth trajectory as the company collectively as the Coke system. But I go back to the speech from what Robert Woodruff from 1936, the biggest danger in being successful is you get comfortable. And so the most important thing is to start thinking what are the opportunities that to be discontented, not in a miserable and kind of annoying way, but in an optimistic way about what’s ahead of us. I made the comment earlier about the beverage industry is actually yet to be created. If you think about all the consumption, whatever it is, eight drinks a day from the 9 billion people, the vast majority of those are not commercial beverages yet. The opportunity is huge ahead. Huge ahead of us. And we need to be discontented with today enough so that we create an even better tomorrow. And so that’s what I think it’s all about. It’s getting us in that mindset to keep driving it forward. Charlie Higgs Perfect. James, thank you very much. James Quincey Thank you. Thank you. Charlie Higgs Now I’m delighted to welcome Damian Gammell, the CEO of Coca-Cola Europacific Partners, the world’s largest Coca-Cola bottler, hot on the heels. Damian Gammell Thanks, Charlie, for putting me on after James. I don’t know what I did to upset you, but how do I follow that? So anyway, I’ll do my best. I’ll do my best. Charlie Higgs Well, we’ve got a nice slide here that very nicely encapsulates just the enormous transformation that’s again happened at CCEP, where, over the last five highly disruptive years, not only have you averaged 5% organic sales growth with 1% volume, but you also found the time to pull off the Amatil transaction and then the Philippines. So I think as this slide shows, it’s now a very different diversified business, both geographically channel pack, which offers faster long-term growth. But does it also come with more volatility? Or is it more resilient, do you think, than the past? Damian Gammell Probably a combination of both. I think we’re definitely more resilient because we’re more diverse and we’ve grown into a business that was predominantly Western European, which is a fantastic place to be in the beverage industry and expanded into markets that have a different growth profile. So from that perspective, we’ve opened CCEP up to a higher top line growth. Obviously, when you get growth in some markets, you do have to leave with a degree of volatility. But I think when you look at the shape of the business now, whether it’s by brand, by geography, by pack, by country, by channel, it’s so diverse that we get resilience. So we can have an up and down summer or period in one location, but consistently achieved that top line growth, which we’ve guided to 4% and so far beating it. So that’s good. Charlie Higgs Yes. And I don’t know if it says on the slide, but you’re now an organization of 42,000 people, up from 24,000 a few years ago, with some just incredible talent added. For example, in New Zealand, on the Canada Cup, the world’s best bottler in 2020. How do you think about sharing this great knowledge across CCEP to maximize the benefits from a top and bottom line perspective? Damian Gammell Yes. Obviously, being part of, I mean, James laid it out. I mean, we’re part of the system. So even with other bottlers, we share lots of ideas, right? So I mean we have lots of global meetings every year where we get together with Hellenic or CCI or US bottlers or Latin America. So there’s always been a culture of sharing within the Coca-Cola business. And I think that’s one of the strengths. And it’s very competitive. So James talked about discontent. You want to be in a meeting where there’s lots of bottlers in the room, they can get pretty ugly in a nice way. So we’re super competitive. And I think that forces that sharing because people really are, to James’ point, curious, but they want to win. So from a system perspective, we kind of came in, in a good place. Clearly, internally, moving to different time zones, having a more longer flights, my market visits. So there’s some complexities. But ultimately, what we found, particularly with Amatil, was when we bought a business all of our colleagues, they just wanted to be part of a bigger bottler that was committed to the long term, believed in the business, believed in the brands. And we were very fortunate. We kind of unlocked all of that optimism through the transaction. And I think that’s the great thing about the Coke business, people join for the brand and they stay for the people. So it is a bit more complex. But ultimately, it’s super exciting to have markets like the Philippines, Indonesia, Papua New Guinea, Pacific Islands. I enjoy my market visits in London and Paris. Papua New Guinea is just a bit more interesting when you get there. So it’s not a bad problem. Charlie Higgs You kind of answered it there. My follow-up was going to be, I remember in the kind of the depth of the pandemic, all the bottlers kind of came together. And I was just wondering kind of after the pandemic, is that kind of increased collaboration and sharing? I mean CCEP is renowned as one of the best executors in the modern retail channel. Like is there more sharing going on with the bottlers these days? Damian Gammell Yes. I think, I mean, the good thing about the bottling business is every bottler thinks they’re the best. And I think that level of competitiveness for more franchise territories to be a bigger part of the Coke system, that drives that sense of stealing, learning, copying, and that continues. I mean, we do it throughout the P&L from a procurement perspective to our global procurement network. So we maintain really competitive purchasing power. I think the area that we’re now doing it more that we didn’t do enough of is on digital and technology. So I see a lot more conversations now around how do we share more data insights, what other bottlers are doing on platforms, frontline sales tools. So probably that’s the area that I think we’re spending more time on now. When we get together, we generally talk a lot more about technology, technology capability, digital than we did previously. So that’s probably the focus at the moment. Charlie Higgs Perhaps just on that topic of digital. We obviously hear a lot about RGM and you’ve even gone further with the revenue margin and growth management. Can you just talk about the runway there, but then also the other side of digital that maybe speak a bit less about, such as digitizing the production facilities, the finance function, the areas there that you see that can, again, help you drive stronger top line growth and reduce volatility? Damian Gammell Yes. So we’ve — we came under a little bit of pressure on our gross margin through COVID. Our business moved more to retail. And at that time, we kind of recognize that we needed to make more money and make more margin in retail. And that’s why we changed from revenue growth management to revenue and margin growth management, because you can’t really separate both of those. And that’s been a key enabler of our growth. And I think it’s really important today because there’s lots of consumers that need support to enjoy our brands. So being able to manage pricing and packaging at a level that you don’t lose consumers or shoppers. And you’ve seen that across other categories where private label or retailer brands have made big inroads, that hasn’t happened in their category. And that’s really down to being very choiceful around what pack at what price and what location. And obviously, all the technology and data insights that help us make that decision are really, really important. So there’s still a long way to go. If you visit the supermarket in the UK today, we probably have about 200 SKUs. You can buy Coke today in the UK from 50p up to GBP12, GBP14. And in between that, there’s significant packaging that allows you to access either for the occasion or a price point you want, and that’s really critical. And if you go back to 2016, there was probably two packs that were 80% of our business. And now, as you see in that slide, we spread it out much more. That’s all really driven by RGM. On the other side, we’ve got 101 factories. We operate in over 30 countries. A lot of the people in our business are on our supply chain and front end. So there’s a massive productivity opportunity. And we are in the middle of a very enjoyable journey moving to S/4HANA SAP, a fantastic event. If you haven’t gone through it, I’d invite you to try it. And as painful as it is and somewhat expensive, it’s the last piece of the puzzle for us to really finish our integration because we are operating today on really three different systems. We’ve got Western Europe, the old Amatil business and now the Philippines, and that journey will allow us to move everything onto one platform. And we’ve committed a productivity program of $350 million to $400 million of savings and that’s all coming from unlocking productivity on the back end of the business. Not the frontline sales, we’re growing that, but really in our supply chain. Charlie Higgs Excellent. And on the topic of kind of digital and data, as we just heard from James, Coca-Cola Company has a fantastic array of data. You’ve obviously got incredible levels of store level data as well. How do you kind of marry these two data sets together to maximize the top line revenue-generating possibility? Damian Gammell Yeah, I’d say we’re getting better, but I think we’re still at the beginning of that journey. I think we got distracted a little bit by probably a conversation you’ve all had about creating a data lake. And I kind of, a lot of people drowned in that, to be honest. You focus on putting so much stuff in, and by the time we get all in, you can go, well, why did we start this journey and then what can we do with it? So we’ve now kind of moved to more insights driven. So with — particularly with Manolo and the marketing team around what’s the problem or opportunity we’re trying to solve and then what insight do we need to help us do that. And then based on that, then you can go and find the data you need to make the decision. And I think being much more choiceful through that lens allows you to go a lot quicker. It avoids massive cost and just putting everything into a central kind of repository that no one can figure out what to do with. But I’d say we’re only at the beginning of that. I mean we’ve got great customer insights, great consumer insights. So the combination is powerful. Yes, so more to come. More to come on that for sure. Charlie Higgs And kind of on that theme, I asked James the question, so I’ll ask you. How would you characterize your relationship alignment with the Coca-Cola Company? I mean from the outside, it does feel like it’s stepped up a level throughout the pandemic and shareholders would have seen some of the tangible benefits of that such as the Amatil deal and then the Philippines. But what is perhaps some of the less visible benefits of the enhanced alignment? Damian Gammell Yes. I don’t think it’s good for my career if I give a different answer to James. So I think James is great. He’s amazing. So I mean, I think fundamentally, on top of what James alluded to in terms of the shareholder mindset, the long-term mindset. I think having been in the business quite a while. Probably the biggest change is how our financial performance is now integrated. So we call it instance pricing. I mean it’s basically that both value streams are linked to the best price we can get for the consumer. And I think that’s fundamentally changed the system because it really put everybody in the same focus, which is really around quality growth at the top line. Prior to that, it was more volumetric. So you would see a lot more kind of lots of 24-pack cans for a cheap price, a lot of 2 liter, and that led to that very narrow pack mix that I talked about earlier. When the system moved to saying this is it’s all about shared consumer value. That changed everything. And I think that is still probably one of the underpinning strength of the business is that despite that we’ll have rouse or we might kind of have a different opinion or which is also a strength because it keeps both sides, I think, on top of the game, the fundamental creation of value in both companies is driven by the same metric. And to me, having been in the business a long time, that’s lots of things have changed, but that’s probably the most significant one for me. Charlie Higgs Excellent. And perhaps just on the theme of relationships. I want to move on to your relationships with your customers and the joint value creation strategy, where, for a number of years now CCEP has been the largest value creator in Western Europe. I think you’re now also the largest value creator in Australia, New Zealand and the Philippines. And I think you mentioned recently your products are very profitable as well for retailers. So long story short, CCEP is great for retailers. What benefits does that confer to you and CCEP from kind of a pricing or a shelf space perspective? Damian Gammell Yes. I mean, I think, it’s critical that you make money for your customers, right? So I think if they make money and grow, it’s always a better place to be. So we’ve — when we set up CCEP in ’16, I’d say the category in Western Europe was a bit unloved by our customers. It wasn’t growing, so it wasn’t as attractive as we felt it should be. So we set a metric to be not just the number one in beverages, but the number one value creator in FMCG. So ahead of all of the CPG. And I think that’s that was a high bar, but it kind of transformed the way we thought about our category. So on that journey, a couple of things have happened. One, the category is growing. Western Europe is growing every year. It’s growing in volume as well, which I think is really important. It’s not just revenue. We’ve taken pricing probably versus the market where we probably priced at around 60%, so we were very choiceful coming out of COVID on how we manage that pricing in a segmented way. So we’ve been pricing behind the market because we’re very, very conscious around affordability and growing households and growing penetration. But most importantly, as we’ve taken pricing, our retailers are generally taking a little bit more. So if you go back over the last 10 years, retailer margins in our category have probably moved from mid-teens to mid-20s. And I think that’s important because when you get relevance for your customers, you’re a big part of their profit pool. You’re a big part of their growth. And as we come with more innovation, whether it’s on brands or packaging, you’re also a bigger part of the excitement that they want to bring to their shoppers or their consumers. So critically important to grow the category. Critically important to make your customers enjoy good margins. And then I think they’re very open to whether it’s new promotions, a new brand, more space in store. And I think if you walk around Western Europe now, if you walk to the beverage category, historically, you would have seen juice, water and soft drinks probably at equal space. If you walk around today, you’ll see soft drinks and energy, in particular, and the other two categories because they didn’t grow, they didn’t deliver margin, have been under huge pressure. So it’s something [Technical Difficulty] and I think we’ve — we’re providing, particularly on brands like Fanta and Sprite, a fantastic taste experience with no sugar. So that’s been a big enabler in our portfolio, and it’s not our core business where we generate a lot of profit and a lot of growth. Obviously, we’re now looking at categories like ARTD. We were fortunate when we bought Amatil that we inherited a business that had a big ARTD portfolio with Beam Suntory. So at the time, we had no experience in that category. They’ve been in it for 16 years. So that opened their eyes to the profit of that business or that category and its growth profile. So that’s something we’re excited about in Europe. We’ve launched Jack Daniel and Coke in the UK. We’re launching Absolut and Sprite, and there’s more to come. So that’s a very different category, very close to what we do in terms of supply chain and customers, but a very different consumer. So mainly sourcing from beer and other alcohol. So I think our energy business continues to do really well. It’s a very dynamic category. We have a good tea business in Europe. And James talked about it, we’re really excited about coffee, but we haven’t cracked the code yet. So some more to be done there. But lots happening across the portfolio. Charlie Higgs Maybe just a follow-on on the kind of the energy drinks side of things. Obviously, you had incredible growth volume driven as well, mid-teens over the last few years. Just how much further is there to go with the energy drinks portfolio? And maybe could you just touch on, I think we’re launching Rhinestone shortly, your views on that as well? Damian Gammell Well, I think we continue to look at the US and see what’s happening in the energy category, which is from a per cap and innovation kind of leading the charts. So we’ve seen Celsius to well, so similar type of product for Europe with Rhinestone, so we’ll launch that. I mean the category is very dynamic. And I think it’s all single-serve. So it’s very little promotional pack. So it’s all high priced. Very innovation-driven, right? So when you look at the energy portfolio today, massive amount of flavor innovation. Sugar free has come in. And they’re probably more recent compared to our core soft drinks, right? So I see that growth certainly in Europe, Australia and New Zealand in that mid-teens for the next four or five years. On the back of that innovation, it’s definitely playing to a consumer need state and it’s extremely profitable for us and our customers. So that helps. Charlie Higgs Perfect. And then on the other side of the coin, CCEP over the past five years has been doing a lot of brand trimming, 60% SKU cuts in Indonesia, bulk water in markets like Australia, Germany, Spain. Can you maybe just talk about how do you think about balancing kind of trimming the portfolio to optimize growth with the Coca-Cola Company’s overarching total beverage company ambition? And then the second part of the question is with things coming off the shelves, what have you been putting back on the shelves to get the double benefit of enhanced growth? Damian Gammell Yes. So I mean, I think to grow the top line in a sustainable way, you have to get rid of the products that are taking up space for your customers, for you, your sales force that you don’t see a sustainable value journey. And so like easy decisions for us for bulk water, not a great use of water, which is a very valuable resource. We got out of beer, cider, full beverage spirits where, it’s not what we do, and the margin structure wasn’t great. I think that’s been great space. And then I think the conversations we have with the Coca-Cola company is like what goes into that space. And for us in Europe, it’s FUZE Tea is doing really well. You’ll see a lot more focus on Powerade. The sports category is a great category. It hasn’t really been given a lot of attention from us, honestly, in Europe. Despite that, it’s still a great category and a great brand. But if you go to Australia and New Zealand, you’ll see a massive sports category or in the US. And the consumer is different, but the need stays the same. So Powerade going in there. FUZE Tea’s going in there. Clearly, innovation on our core, particularly flavors on cola. So when you look at that growth algorithm, getting rid of the low-value distracting brands just opens up space and resource. And that’s a iterative process every year. Every six months, we’ll review our SKUs, and then we look at what’s coming down the line. And then basically, that comes out and then something else comes in. Yes. Charlie Higgs Perhaps just linking on to that, maybe you could just pivot a bit to Indonesia. We obviously see some big SKU trims and I think also optimizing the cost base. Are you confident now that you have the right platform in sparkling ready-to-drink tea to really take Indonesia to the next level? Damian Gammell I’m very confident on sparkling. I think the work we’ve done on our packaging mix. So affordabilities came in Indonesia. So you got to hit that price point. So you got to be at IDR4,000, we’re now at that with a 250 ml on our sparkling business. We were in 1.5 liter at IDR15,000, which was too expensive, we’re now at 1 liter. And we’ve also brought Zeros to Indonesia. And then some of our customers, Zeros are 30% of our mix and we never expected that to be successful. So on our core sparkling portfolio, I think we’re in great shape. And it goes back to Fanta, Sprite Zero in particular, great tasting. We’re still working on our tea proposition. We’ve got the right price point. We think we can get a better product. We’re actually looking at some tea propositions out of Latin America that we feel could just further improve the consumer experience. And that’s probably the next journey in Indonesia and our portfolio and we hope to get that landed this year. And then I think from a pack price product perspective, we’re in great shape. And then it’s really about execution and building that brand love. So sparkling great. Tea, a little bit more work. Charlie Higgs Interesting. And then maybe just pivoting slightly over the sea into the Philippines, your newest market. I mean what attracted you about the Philippines market, in particular? And I guess the second part is like what can you and your partner in the business AUV bring to the Philippines? Damian Gammell So I think maybe start with the second part first. I mean I think we bring that long-term commitment, a really healthy balance sheet so we can invest in that business for growth. And I think certainly to the employees that they’re part of the world’s biggest bottler and we’re that long-term focus. I think our partners bring local insight, local connectivity. Also really welcomed by our employees because, obviously, our partner has got a great reputation in the Philippines. And it’s a very dynamic and diverse market. So having someone there that you can connect with and discuss opportunities, challenges with for us has been really beneficial. So a great partner and a great relationship. What attracted us is, I mean, it’s the best business in Asia for the Coca-Cola system. It’s quite unique. It’s the first market outside of the US to have Coke. So it’s over 110 years old. It’s a sparkling culture. So when you go there, they love sparkling soft drinks, they love brand Coke. It’s big. It’s got big per capitas. It’s profitable. It can be more profitable, so that’s what attracted us. And I think it’s got a legacy and an infrastructure. For me, I always looked at it as being a market like Spain or Mexico or Turkey. That’s just one of those global Coke markets. Yes, and obviously, we felt it would be a great addition to our Indonesian investment. So we could learn a lot from the Philippines. Its per capitas are dramatically higher. Yes, so very fortunate and grateful that we could get that opportunity. Charlie Higgs I think probably by the end of this year, the company would have delevered back down. So it’s kind of 2.5, 3 times net debt to EBITDA range. Can you perhaps just talk about your appetite for further territory M&A? And absent any M&A what that could entail? Damian Gammell It’s good James’ in the room when you ask me that question. So, yes, so we’re about a year ahead of our deleveraging. So we’re really happy that we get back to that 2.5, 3. Yes, I mean, we are — we love the Coke bottling business. That’s kind of what we do. So getting more territories is always in our mind. It’d be crazy not to be when you look at the valuation for our shareholders when we do that. I also think we create more value for the Coke company in terms of different top line growth and alignment. So we’ll keep looking. I’ve said to a few investors it’s a bit like the Monopoly board though. So that’s pretty much houses and hotels everywhere now, so there’s not a lot left to put your marker on. So we’ll keep looking. Absent that, obviously, we’ll look at our capital allocation plan in the year, probably in September with our Board and then make some decisions on what we do with that. So but clearly, our first priority would be to add to the family, but recognizing there’s probably a lot less than it was five or six years ago. We’ll consider other uses. We have taken our capital guidance up to 5% of net revenue because we think investing more in our existing business is the right thing to do. So some of that excess cash will go back into capital. But that, again, fuels that long-term growth ambition. Charlie Higgs Perfect. And then I think the last one from me, and then maybe we’ll open up to some Q&A around the floor, but kind of a similar question to what I asked James. I mean since you’ve been CEO of CCEP, what would have been perhaps some of your proudest accomplishments? And what do you think investors should take away is perhaps the biggest opportunity going forward? Damian Gammell Well, I think, the biggest opportunity is growth and profitable growth. So when you look at our categories growing, our market share position within the category, pipeline of innovation, obviously, we’ve got very good share positions in our markets that give us value creation. So there’s a lot of reasons numerically to, I think, to really enjoy the business and enjoy investing in the company. I think the biggest kind of change when I look back when I came back to Western Europe in 2016 and I think what I’m most happy with is the culture. So there’s a culture of growth. There’s a culture of competitiveness and positivity. We’re making more money for our customers. We’re making more money for our shareholders. We’re growing. We’re innovating. So for me, that’s the most important. So I know for investors, that doesn’t appear in a factsheet. Eventually, it does, one way or another. But if you meet our people or you meet our customers, I think that’s the biggest change. It’s just a much more positive growth mindset business. And obviously, as a CEO, it’s a lot happier place to work. So you see a lot more smiles and that just makes everything easier. Charlie Higgs Perfect. We do have a mic going around. Are there any questions? If not I can definitely carry on. We’ve got one over there from Chris. Unidentified Analyst It was alluded to earlier, but the Coca-Cola system is moving towards total beverage. In terms of the role of alcohol within your portfolio, Brown-Forman called out how brilliantly executed Jack Daniels and Coca-Cola have been in the Philippines. You mentioned that you’ve got out of beer. I’m just trying to understand perhaps the Coca-Cola system’s view towards alcohol as an incremental volume and profit driver? Damian Gammell Yes. I think our forays in the alcohol previously were mainly through licensing our brands out of Australia. So low margin, high expectation from the brand owner and a huge distraction. So very, very different business. Ready-to-drink is brand partnership. So it’s a different platform. I think when you see Jack Daniel’s and Coca-Cola on the can, it just looks really cool. And a different margin structure. So I think for us, getting into that space and alcohol is very near to us in terms of capability and even things like supply chain, canning lines, so some of the basics of our business, and it’s generally the same customers. So when you look at full-bottle spirits or beer, you’re kind of moving a little bit further away from our core capability. And with that goes margin and with that goes focus. So I’m really happy with the alcohol ready-to-drink because it’s close to us and it’s branded. We had Beam Suntory in Australia for 15, 16 years in that space, so we can really — we really understand margin and how it works. So I’d expect more in that space. Yes, because I think that’s where we can make money. Charlie Higgs Jay? Unidentified Analyst Charlie is going to ask another question then I might as well ask a question. And Apologies in advance if I’m a bit irreverent. A number of people in the Coke system even have told me that if you start with a blank sheet of paper, you wouldn’t invent the Coke system we have today. Do you think the system, the Coca-Cola company operates today is fit for purpose for the future? And if it’s such a great system, why hasn’t any other FMCG company invented the same system? Damian Gammell Jay, I can have a go. James, I forgot that. So I do think, I mean, looking forward, I think it’s definitely fit for purpose. I have no doubt about that. I mean I’ve been in the business long enough. The challenge would be better as an integrated company. And is there a lot of complexity and cost because we operate a franchise business. So I’ve been through those conversations. Personally, we’ve had them with the company, it’s an obvious question, right? So but what I think we’ve done, which is unique is the value creation that supports the two systems is unique. You generally don’t see that in other categories. And I think because of that, that discontent and the power of multiple balance sheets and multiple leadership against the same objective is really powerful. And I think what’s very different between us is if you look at the slide, we’re half retail and we’re half away from home. And there’s no other category with that profile, not even beer. So it’s probably easy to be integrated if 90% of your revenue is in retail, right? And it’s probably easy to be integrated if 90% of your business is away from home, like a beer business. When you’ve got a business like ours, which is kind of spread across both, I think the power to franchise model just works. I think it challenges us as a leadership team to recognize the flaws in the model. So things like data and analytics and sharing. So I do think it puts pressure on us to continuously look at it and say, well, if we are an integrated company, we would do this quicker. So how do we do it quicker and not be integrated? And for sure, there are some downsides, that’s probably one. James Quincey I would add a couple of thoughts. On the — would you design, the way you’ve designed it, One of the things that we have pursued in the refranchising is that refranchising projects should have industrial logic to them. If you look at some of the consolidations in the past, they were financially orientated or opportunistic rather than synergistic from an industrial manufacturing or distribution point of view. So I think while we’re not perfect, we’re in a lot better shape than we were. The second thing I would say is if you add together the market capitalization of the company with CCEP and the other public Coke bottlers that combined market cap makes us the largest consumer product system in the world versus everyone. And so we are the winners in terms of value creation. Why others don’t follow us is perhaps a question that should be more directed at them given we have the largest market cap. I would just complement what Damian said because I agree with that with it is also a strangely unique physical business. If you’re in many of the consumer products industries or actually even a number of other the beverage industries, the sweet spot in terms of numbers of factories and degree of localness, tends to be very few factories. I mean there are relatively few razor factories in Europe. There are relatively few pet food factories. There are relatively few distilleries. Because the nature of those manufacturing sites lends themselves to massive manufacturing scale relative to logistics. That’s not true in the nonalcoholic ready-to-drink beverage industry. There’s — and certainly it was not true when it started and even is not true now. So there’s a strange sweet spot in terms of numbers of factories and warehouses relative to where the tens of millions of consumers are that make us a much more distributed system that does not lend itself so much to that kind of vertical integrated. And the last thing I’d say is a franchise system that works well, as can be shown by market cap, can work very well. But when it doesn’t work well, it’s worse than being vertically integrated. So it’s one of those things where there’s no perfect world, and you’ve got to make it work if you want to outrun the vertically integrated. And in the end, the benefit is you get two halves who are very good at something different. The company is good as a set of things and the bottlers are good and a different set of things and the magic of the franchise system is bringing it together. Whereas most vertically integrated companies orientate around being good at one thing and that’s why I think the Coke system works. Charlie Higgs Don’t know if James can ask a question there, but if not. James Quincey Charlie, now we’ve got the microphone, we get our own go. What do you think is the biggest thing that’s changed in the consumer products industry since COVID? Charlie Higgs I would say the power of TikTok with millennial, Gen Z is something that I would have never predicted coming along. I know Coke has done a limited edition Coke creations brand there to capture it. But just the shift of retention where pre-pandemic, you had all these avenues, you could have your attention in the pandemic, your attention is solely on your screen and just the incredible adoption there. And what it’s meant in the consumer packaged goods industry are trying to adapt towards collecting these eyeballs effectually the younger consumer to drive the next wave of sales growth. Again, something Coke has done phenomenally well with recruiting younger Gen Z consumers, as we were talking about earlier, with Sprite in the US. If you don’t capture that next very much changed consumer, the young end, how do you drive the growth for the next 20, 30, 50 years. So I’d say that for the biggest one. And then I’ve got probably one last question for. Damian Gammell I thought it was done. Charlie Higgs For Damian. So CCEP is one of the forerunners in terms of sustainability in the sector, well, and in the Coca-Cola system. We’ve got a nice Sprite label-less bottle there. I think you’re the number one bottler in the system when it comes to rPET in Europe and the Amatil business is basically on vertical from an rPET percent of total, since you took it on. So could you perhaps just talk about sustainability as it pertains to both being an opportunity for your company and taking costs out of the business with lightweighting to improve margins? Then also some of like the key challenges you see over the coming years, particularly in some of the markets like Indonesia and the Philippines. Damian Gammell Yes, it’s a big part of our story because it’s important to a number of key stakeholders. So our people care. So if you look at our employees and we talk to them, our customers care. I think consumers care, but won’t pay more, but they care. And obviously, in Europe and globally, regulators and our community. So for us, it’s a key embedded part of our strategy right across the business. So if you go through our P&L, we look at ESG all the way through. So it’s not a standalone event, it’s very much embedded, and I think that’s why we’ve made a lot of progress. We were, I think, one of the first companies to put it into our incentive plans. And when I think about it, what’s good for ESG is good for the P&L eventually. So using less energy, using less water, reducing the number of pallet movements, lightweight in your packaging right across. We can link a good ESG strategy is also really good for the core business. And over time and we see it moving as consumers value brands more that are more sustainable, that will also pay out. Not quite there yet, but it’s moving. It’s obviously different by market. I think if I look at the challenges in Indonesia, it was fundamentally about collection. So we had to just start taking back packaging. So at the moment, we’re collecting about 80% of all of our packages in Indonesia, and that’s in two years. So we need to get to 100. We’ll be there next year. Once we do that, then obviously, we can reuse, obviously, recycle. We’re very excited about what aluminum is doing now in terms of recycled aluminum. That will be a game changer for us in terms of CO2. But ultimately, we’ve got to continue on that journey to net zero by 2040. We’re on track to hit our 2030 plans. We’ve got a ventures arm of our business that invests completely separate to our core business that’s predominantly on sustainability initiatives. So that’s like CO2 extraction. I saw a preform last week that was just created from extracting CO2 from the atmosphere. So early days. But I think there’s going to be a lot of transformation in that space through technology and innovation that will allow us to get there a lot quicker. So it’s exciting. As I said, our customers value with our employees. I’m pushing hard to get consumers to really evaluate more. That will happen sooner or later. Charlie Higgs Perfect. Well, that’s a great point to end, Damian. Thank you very much for those insights. Damian Gammell Thanks, Charlie. Thank you. James Quincey Thank you.

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