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.
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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