Coca-Cola shares have plunged following its president’s resignation. It’s little surprise. Coca-Cola’s moves towards diversification through alliances and joint ventures have not been popular with the investing community, while it’s also facing a major threat from the giant that will emerge following Pepsi’s takeover of Quaker. Coke should focus on stabilizing its core business before distracting itself with new ventures.
Coca-Cola’s share price has fallen approximately 17% from its high of $64 in August 2000, closing at $50.20 on March 5. The stock has experienced a continuing downward trend in light of market skepticism toward implausibly optimistic financial prospects and continuing reorganization that indicates a business still in flux. The company’s president Jack Stahl, who resigned yesterday, was not fired but had played an integral role in devising the company’s new structure.
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Rather than focus resources on building and developing its core soft drinks business, the global giant has instead chosen a diversification scheme in which its operations will be divided into four business units – Americas, Asia, Europe/Africa and New Business Ventures. The moves have been met by a cool response from the investing community.
Coca-Cola has been trying to re-establish investor confidence. It’s recently made a strategic agreement with Disney to market beverages globally under the Disney brand, and another with Proctor & Gamble to form a stand-alone enterprise focused on developing and marketing healthy juices and snack items. The latter signals Coke’s attempt to cash in on the ‘Frito-Lay phenomenon’. Pepsi, the world’s number two soft drink maker behind Coke, has also experienced decreased soft drink revenues – but its line of Frito Lay brand snacks has been a major cash cow for the company.
Especially as ally P&G is also running into sales difficulties, Coke now finds itself fighting an uphill battle, especially in the snack food area. The pending Pepsi/Quaker Oats combination will continue to dominate the market. Unless Coke can stabilize its management structure and re-establish profitability with its core brand, its alliances and partnerships may well simply create more complications and diversions for the struggling giant.
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