The Coca-Cola Company - Analyst/Investor Day

| About: The Coca-Cola (KO)
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The Coca-Cola Company (NYSE:KO) September 21, 2011 2:00 PM ET


Steve Cahillane - Executive Officer of Coca-Cola Refreshments USA, Executive Officer of Bottling Soda Fountains & the Supply Chain and Member of North America Business Integration Team Steering Committee

Jackson Kelly - Vice President

Unknown Speaker -

Gary P. Fayard - Chief Financial Officer, Executive Vice President and Member of North America Business Integration Team Steering Committee

Brian P. Kelley - President of North America Business Integration (NASDAQ:NABI), President of Still Beverages & Supply Chain - Coca-Cola North America and General Manager of Still Beverages & Supply Chain - Coca-Cola North America

Willis E. Lowe - President of Foodservice and Hospitality Division - Coca-Cola North America

Brian E. Wynne - Chief Revenue Officer and Vice President of Business Development & Revenue Growth Management

Alison Lewis -

J. Alexander M. Douglas - President of Coca-Cola North America and Member of North America Business Integration Team Steering Committee

Julie Francis -

Glen Walter -

Unknown Executive -

Katie J. Bayne - President of Sparkling Beverages for Coca-Cola North America and General Manager of Sparkling Beverages for Coca-Cola North America

Mel Landis - Executive Officer of National Retail Sales

Julie Francis - Former Vice President of Sales and Marketing


Carlos A. LaBoy - Crédit Suisse AG, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Unknown Analyst -

Unknown Executive

Please welcome Jackson Kelly, Vice President, Investor Relations.

Jackson Kelly

Good afternoon, everyone. It's great to see all of you once again. I guess we haven't had a group this large since about 2009 when we had our last investor event in Atlanta. So on behalf of The Coca-Cola Company and our management team, we want to wish you a warm welcome to the Houston marketplace. Really great to have all of you here with us. We're also pleased to have many members of our media community with us, as well as our investment community. And we've got many numbers of our North America leadership team here with us, both in this room and a great number of people you're going to meet as you interact and engage with them in the marketplace tomorrow.

And of course, we have Gary Fayard, our Chief Financial Officer over here, as he's mopping up a Coca-Cola. And we also want to extend a very warm welcome to all of those that are joining us live via webcast right now. And of course, we appreciate that you've taken 2 days to be with us in the marketplace. And I think and we hope by the end of these 2 days, you'll have a better appreciation and understanding of the great work that our North America leadership team is doing each and every day to advance our momentum.

But before we hear from our team, obviously as the head of IR, I just want to remind you that the comments and the presentations that you're going to hear today may contain some forward-looking statements and therefore, we need to ask you to take just a moment and read the screens.

And then with that, it's my great pleasure to bring up Steve Cahillane, our President and CEO of Coca-Cola Refreshments, and Sandy Douglas, President of Coke North America.

J. Alexander M. Douglas

So good afternoon, everybody, and thank you, Jackson. I'm proud to share the stage this afternoon with my business partner, Steve Cahillane, and to be joined by the members of our North American leadership team, who will be independently reporting on many aspects of our strategy to continue to advance our momentum here in the United States and Canada.

But before we get into it, I wanted to take a moment to reflect back to the last time we gathered with all of you in Atlanta in November of 2009. Much like today, at that time in 2009, we were in the midst of significant economic volatility. We had a rapidly changing consumer and customer environment. We continuously saw changes in what our customers needed and wanted, and it challenged our system to respond in a nimble and competitively effective manner. And just like today and always here in the United States beverage market is a very competitive environment and one where we've got to be on our toes.

There was one other thing that I think is relevant to go back to in 2009 and that's the focus of the business, what we talked about as being our principal strategy and how we were going to approach growth in the United States and in Canada. And I wanted to go back just to the actual transcript from that presentation because I think consistency of strategy is an important element to what we're trying to do. What we said is that growth in North America would be a function of our ability to seize growth opportunities by delivering better value to consumers.

And we spent 90% of our time together in that meeting when we were talking about North America, talking about how the driver, the wellspring of growth would come from our brands. And we said at the time that we'll do this through innovation and by giving consumers value in the brands and the products, the packages and the functional attributes that meet their needs. And then we would take that brand value and translate it, work together with our system to translate it into customer value, working with our customers to serve the people who shop in their establishments and to meet their needs in their lives for how they eat, play, work, live and shop.

And then finally, we talked about a third strategy, which was about capability and productivity and the importance of generating productivity so that we could create that virtuous cycle of value and reinvestment for growth in our overall business, funding consumer and customer initiatives by making our system more effective and efficient. And that's what we said in 2009 and it's what you're going to hear us talk about again today because the magic of this consumer and customer-focused strategy is not the strategy itself, but it's in the execution. And that's a key element of what we've been working on since we were last together. And a lot is still the same strategically, but also, Steve, there have been a couple of pretty big differences -- big changes as well.

Steve Cahillane

Yes. Obviously, we're very proud of the things that have remained the same because they're working for us and we're figuring out how to do more of what's working for us. But clearly, there's a very large difference and that's the transaction that we executed nearly a year ago, a transaction that allowed us to align our North American businesses in a way that we haven't had to -- haven't had the ability to do in the past and a transaction that's also brought together what I believe is a world-class leadership team, Sandy's team and my team, working together each and every day to advance our momentum. And you'll get a chance over the course of the next 1.5 days to meet many members of this management team.

Last year, when we made the decision to put our company and our system together, we did it because we wanted to be in the best possible position to grow with our consumers and accelerate our progress and our momentum against our 2020 Vision. We are becoming one strong and aligned business system that is organized to execute a more focused, value-driven selling process, enabling us to take our brands to market in the right way better than ever before in North America, our flagship market.

And what makes North America so critical to our system? Well, as most of you know, North America is a huge nonalcoholic ready-to-drink market. In 2010, about 20 billion cases of NARTD beverages were sold, resulting in nearly $150 billion in sales for the industry. We believe the total market will grow slightly ahead of population growth between now and 2020, putting annual industry volume growth somewhere between 0.5% and 1.5%.

The teenage population is expected to increase to be over 30 million teenagers by 2020, 30 million teenagers by 2020, making North America the third largest teen population behind only India and China. And importantly, a lot of what's driving this is a strong and economically powerful multicultural demographic. And like Sandy said back in 2009, our ability to capture this great opportunity starts with our strong brands and our ability to translate that brand value into true customer value. And to sustain our success over time, we'll need to continue enhancing our capabilities to sustain and repeat success.

And importantly, at the end of the day, advancing our momentum in North America will take a system wide partnership. Our system we recognize needs to be faster, more nimble, more coordinated and more consistent in our approach. Advancing our momentum will require the full range of our investments, from capital to people, to insights and everything in between. To do this, our system must have one common set of global objectives -- goals and objectives. This is why here in North America, we have built our own roadmap for growth, which all of you should have received a copy of in your registration materials. This roadmap, which is rooted in the core principles of The Coca-Cola Company's 2020 Vision, will help us reach our destination of being the best brand sales and customer service system in North America.

And how do expect to achieve this? Let me give you 3 important headlines. First, by building commercial leadership capabilities centered on collaborative end-to-end planning and executing processes focused on creating the perfect shopper experience, one store at a time, where we deliver our products in the right package at the right time, at the right place for the right occasion.

Second, by building a flexible high scale competitively advantaged consumer and customer-centric selling and distribution system and reinvesting in sales and market execution including feet on the street, on-premise capability, commercializing new package architecture faster than we ever have before.

And third, by aggressively driving productivity across our system in everything that we do, eliminating waste, driving increased returns on our capital and delivering better product supply planning and execution to deliver a competitively advantaged product supply system.

J. Alexander M. Douglas

For we truly believe that it's a tremendous time to be in the Coca-Cola business and to be a part of the Coca-Cola family. And that's mainly because we're operating in a tremendous environment of opportunity, opportunity inherent in what is a growth market, as Steve said; opportunity to leverage the most powerful brands in the world and our industry and here in North America as well; and opportunity derived from having strong plans brought to life for customers by an even stronger operating model.

When we stood before you back in November 2009, we shared with you our expectation that our business in North America had the right focus and that it was on the right path and that it was beginning to show some momentum in the marketplace. Today, we're meeting with you at a time when despite a challenging macroeconomic environment, our business has clear momentum. And momentum isn't easily gained and it's not something that you want to relinquish, certainly not in a market like the North American market, the biggest beverage market in the world.

Now importantly, while we think we're accomplishing some momentum, we also believe that it's very precious and we're extremely focused and you'll hear this from the team that what progress we've made is small in comparison to the opportunity for improvement that remains. We don't see anything that's happened today or yesterday as any guarantee of tomorrow. And so we remain extremely enthusiastic and focused about the work that we have to do ahead to get better and better every day.

Now the chart that you see offers a glimpse of what winning looks like. And it wasn't too long ago that this same chart had a number of yellow and reds and some arrows pointing down. But right now, it looks pretty good. And in fact, when you look backwards and think about our journey to this day, a few years ago, we had to acknowledge that in order to make it work in North America, we had a lot of work to do. Our brand portfolio needed to be strengthened. Our marketing capability from brand concept to shelf needed to be upgraded. Our customer service and our relationships with our customers needed significant attention. Our supply chain needed modernizing, and our system collaboration needed to be better. And today, almost a year into the formation of Coca-Cola Refreshments, Steve and I and our leadership team feel that we've made some real progress and that we're actually indeed beginning to make it better.

Steve Cahillane

And what does it look like when we really do make it better and when we get this right? I'd like you to take a look at a quote from a very important customer of ours just recently. This is the type of comment and the type of theme that we all hope to eventually hear from many, many more of our customers. But as we look towards tomorrow, we have to ask ourselves some very important questions. Are we all the way there yet? What you'll hear both of us and our leadership team say is no, we are not. Do we still have a lot of work to do to make it best? Emphatically, yes. But are we moving in the right direction? Yes we are. But do we have even more, even bigger volume, profit and value growth opportunities ahead of us? Is there more value to create in North America? Absolutely.

J. Alexander M. Douglas

Our path to making it best will center around 3 core marketing and business strategies that were created over the past few years and have remained consistent, and they are relevant and consistent today and will be for the months and years to come. And the strategy has 3 parts: building strong brands; translating brand value into customer value; and building the capabilities to sustain and repeat our success. And we believe as a strategy, it's on target, it's sustainable and may even be a little bit timeless as you think about the times when The Coca-Cola Company is at its best.

Importantly, our team will be talking about this strategy, not as a conceptual matter but in action. Yes, we are very focused taking action every day with intensity, clarity, building confidence and yes, with some success. So as we talk about the strategy this afternoon from brands and categories, to customers to sales execution and capability, we hope -- Steve and I hope that you'll see the action of it, the growth of it and the potential of it. And that when you go out into the local Houston market tomorrow, you'll see what good looks like to us and then index that against the average that exists and you see the size of the opportunity that we see. But let me just start, and Steve and I will cover the 3 buckets in summary fashion, and I'll begin with brands.

Our brand strategy really breaks into 3 parts as well. And the first is by far the most important: to accelerate growth of our core Coca-Cola trademark and our other iconic core brands. This is the essence. Our boss, Muhtar Kent calls it the oxygen of the business. And it is essential to the overall algorithm. That done well. Then, second is to grow the fastest in the rapidly growing still[ph] categories, an objective that we set several years ago that we've been achieving for a while. And then finally, to develop, test and deploy innovative new brand and business options.

You really look in this whole effort to do 2 things: to create great brands with distinctive and competitively advantaged equities; and then to be able to merchandise and execute it through a key strategy that we've been working on for the last couple of years that we refer to as OBPPC. And we take the time to have 5 letters because each step is important: occasion, brand, package, price and channel. This is part of the magic of The Coca-cola Company because this strategy was not born here in the United States, although you could say it was.

We were a fountain business and then somebody got a brilliant idea to launch bottles and cans. But it got refined and innovated in Latin America over the last decade, and we have copied and begun the journey in the United States as well. And it's rooted in the simple idea that consumer occasions can be merchandised and marketed to with segmented merchandising. As Steve said earlier, to have the right brands and the right packs at the right price in each store well activated to the occasion wherever consumers make beverage choices. And for the operation of a multi-category brand offense, it's simply vital. And Katie Bayne and Brian Wynne, who lead our category units, will take you through how the brand strategies tie to OBPPC and you can see how the value is created through an integrated all the way to the shelf marketing effort.

Steve Cahillane

The second key strategy driving our system's winning performance is translating this brand value into customer value. Simply put, we focus on creating differentiated value with and for our customers to promote our brands to more and more consumers where they eat, play, work, live, study and shop. We strive to be our customers most valued supplier, a true total beverage partner. And really much of what we've discussed about brands, and what Katie and Brian are going to continue to discuss in just a moment, reflects an intense and growing focus on translating brand value into customer value so that we can be our customers most valued supplier and we can grow faster inside their 4 walls than they're growing. And that's jacks to open if you want to be your customer's most valued supplier. When we do this right, we'll continue to win in the marketplace because that's how we win and that's where we win.

J. Alexander M. Douglas

Our third key system strategy and again, it links to what Steve has talked about for customer value and what I was talking about with consumers, is continuously building capability. True competitive advantage doesn't come off a PowerPoint slide. It comes from the ability to actually accomplish the strategy and execute it in the store. So capability building is a big theme that you'll see today and hear the team talking about, capabilities to merchandise, to enhance our collaboration, flexibility, speed to market and customer service, product supply effectiveness and efficiency, all focused on being able to serve the consumer and the customer better and better every day.

And so it's these 3 strategies that make up our agenda for the next 1.5 days. We'll begin this afternoon with a review of our brand plans as our category GMs will take you through the strategies for the sparkling businesses and the still business.

Steve Cahillane

And then Alison Lewis, who is our head of marketing in North America, and Julie Francis, who is our head of commercialization, will talk to you about how we come up with one unified plan for North America and how we link it together to again translate that brand value into customer value. That will be followed with our go-to-market team. Mel Landis, who leads our retail sales group, will talk to you about how we bring that to life with our large national retail customers. Then Chris Lowe, who runs our foodservice and on-premise organization will talk to you again about how we bring that to life in that most vital channel. And then Glen Walter, who's our head of field sales, will talk to you about how we execute that up and down the street each and every day to win with our customers.

Then after a short Coca-Cola break, Brian Kelley, who heads up our product supply organization, will talk about how we build capabilities so we can sustain and repeat in our product supply organization. Then both Sandy and I will come back up and will lead a question-and-answer session that will include our leaders and Gary Fayard as well. Following all that, Mark Schortman, who's our head here in the Southeast region, will come up and he'll walk us through the Houston market and tell you a little bit about what to expect tomorrow in this most exciting market as we take you out on a market tour.

J. Alexander M. Douglas

So there you have it. That's our agenda. Let's get started, and I am pleased to introduce the President and General Manager of our Sparkling Business unit, Katie Bayne. Katie?

Katie J. Bayne

Good afternoon, everyone. I'm Katie Bayne, and I'm thrilled to be here today to take you through a quick overview of our sparkling brands and our strategy for growth. We'll start with a little bit of a review, some business results, some brand equity changes, gains. Then we'll look at our path to sustainable growth, what we see and how we're going to go about getting after that with our new unified system. And then third, I'm going to present to you some new work, new work across the Coke trademark, which is not in the market yet and you are the first to see. And we're thrilled to bring it to you, both marketing and changes in our packaging structure and approach to the marketplace. So let's begin.

First, from a business perspective. We are delivering consistent growth. As you all know, we closed our fifth consecutive quarter of value and volume absolute share gains, not swings, and our fourth quarter of consecutive retail sales growth for the category. We're thrilled about that but that is underpinned by dynamic changes in our product and brand attributes, 2 of them I call out here.

First of all, on teens, continued growth in the leadership we have with "Is Cool," pulling away from our competitors, and as well in family shoppers, the critical attribute of "Goes Well With Food." These 2 are our highest correlated brand attributes that link to purchase intent change. Second, I'd like to do a little bit of an overview of some exciting wins we've seen in our sparkling beverage category earned over focus and commitment of the past 4 years.

This chart first shows a little bit about our trademark and how consumers are engaging in the Coca-Cola trademark. As you know in diet colas, we have commanding brand marketplace leadership with about 60% of all diet colas in a 0, no calorie Coca-Cola brand, with Coke Zero and Diet Coke. And you can see over time since 2000, as we have offered and made sure that everywhere, someone can buy a Coke, you can also get Diet Coke or Coke Zero. Consumers make the choices that are right for them and over time, changing 32% to 42% now of our total Coke trademark done in 0 or no calorie brands.

Secondly, we will continue to leverage and enhance the leadership positions we've taken in mobile and social platforms. Alison will talk about this more later but My Coke Rewards is now at 17.3 million registered households, making it the largest FMCG loyalty program on the Internet. When you boil that down, 17.3 million households, you take out those households over the age of 80 or under the poverty line and that's 1 in 5 American households engaged in an active 2-way dialogue with us about the purchasing of our brands and our programming.

We have the leadership position on Facebook with 33 million worldwide likes and fans of Coca-Cola and 10 million of those, nearly 10, are in the U.S. alone. We're learning how with Facebook as a partner to turn that on consistently, day in, day out, bringing new news and new opportunities to engage with us with our core brands. And finally, Twitter, where we launched an entity about 9 months ago, Doc Pemberton began tweeting daily. He is now the #1 branded entity on twitter, tweeting to you all right now from this meeting, I'm sure.

Third, Sandy and Steve both talked about our commitment to evolve OBPPC, our occasion-led, consumer insight-led changes to our branded, pack, price and channel architectures. I've got 3 examples here that we've worked on as a system for the past 4 years.

First of all, on the far left, our 16-ounce bottle at $0.99 has brought in 30 million incremental beverage occasions where people went out incrementally and bought our brands and participated in the sparkling beverage category, recruitment taking place in this new smaller size that's exciting the marketplace. Second, our mini cans, which we rolled out 2 years ago, with 71% of the volume in that package coming incremental to the brands of The Coca-Cola Company, from either category expansion or harnessing drinkers of other brands who suddenly found the brands they really loved in a great new size. And finally, our contour 2-liter, bringing 20 million new households since launch in the big bottle business with us, pouring Cokes all around family times and dinner tables around the country.

So innovation will remain at the core at our center and our focus in terms of bringing fresh new news around our core brands that made the take the place of packages, delivery systems as you see here or fantastic new marketing ideas. You're going to hear more about all 4 of these areas through the next 1.5 days, and then you will see it in the marketplace. So those are the key areas where we will focus to leverage and build on the wins that we've seen making a difference in our sparkling beverage category.

That focus and that commitment to our core has led to ever increasing brand strength. Here are the most current numbers on our favorite brand advantages versus our closest competitors across our core. We look at these every single month and look at the underlying attribute changes as well.

Where we will go in terms of action is to continue deliver on our 5 sparkling strategies. We've shared with you -- these with your before. Slight word changes here and there but the same 5 strategies as you've seen from us over the past 4 years. We will recruit teens and young adults and our next drinkership of all of these brands. We'll continue to enhance our OBPPC architectures throughout our entire customer base and regionally. We'll lead sparkling credibility as we take on important programs like "Give It Back" and our LIVE POSITIVELY platform, which is now embedded in every program we bring to the market for our sparkling beverage category.

We'll engage family shoppers with more clarity and more value every single day as they move through our retail partners along their purchase cycles. And we are also working on evolving and presenting great new options to sustain our strong adult drinkership as people move on in their sparkling love and may want brands with slightly less caffeine or less sweetness, brands like caffeine-free Diet Coke and our new Seagram's brand, where we've been taking a lot of action in the marketplace together as a unified system.

So that's great. That's our strategies for growth. So show me about sustained sparkling growth, how are we going to get there? Well, in order to understand how we're going to get there, it's important that we all know as a team where we are. This is our per cap on our core sparkling brands around the world. And on the X-axis, you can see basically the teens across each teen group and it is the 8-ounce per cap servings of our 5 core sparkling brands in the top 32 markets, and that's great. That's a fairly evenly developed business.

Well, when you take out China and India, you see the per cap curves move up as our developed markets have been out marketing the sparkling category for longer. And we stand at the top part of that group of the most developed markets, markets like Great Britain and Canada, Western Europe, and you can see where USA is. However, as we fully realize, there's a ton of upside in becoming what we aim to be which is the global best-in-class.

So how will we get there then? Well we're going to commit to changing the shape of that curve, and we do that in partnership with CCR. We'll do 3 things: First, we will recruit; second, we will sustain our drinkership; and third, we will continually reframe what the sparkling business is all about. So those are nice words. I like the way the curve moves.

Now how are we going to do it is the question? Well, we'll do it by clearly identifying what each brand, what each of these core brands and our sparkling business is designed to do and has as a top priority. You can see here that each of the six brands has a specific job description in our path to sustained growth. I won't have time today to go through all 6 or I would be presenting all afternoon, and there's other important parts of the business. So I will focus on Coke trademark where we have new news across both marketing and commercialization.

So let's get started with Coke. Coca-Cola's role, first and foremost, is to recruit teens but also has very important role due to the size of this brand about sustaining family shoppers.

So let's start with teens. Teens today are more complex than ever. I think about our lives and multiply it by 10 in terms of the kinds of ways that you need to engage with them to have a full brand dialogue. So instead of me standing and talking you through all the way, I'm going to show you a 2-minute video that outlines programs that are in the market today that take not just digital platforms but wire in commercial experiences, places where they can enjoy our brands and assets where we are exclusively poured and can bring alive the fun of being with your friends, for teens, and provide new meaning to what Coca-Cola is all about. So let's take a look.


Katie J. Bayne

It's a whole teen ecosystem of secret formula operating out there now. Nearly 0.5 million kids actually ended up at that end point of going through the Swelter Stop or at Live Nation concerts throughout the country last summer and the summer before. And more and more are adding more of our partners from cinema partners like AMC and Live Nation to really bring what's so great about a Coke and how it comes in and out of their lives, delivering brand equity and consumption occasions every day.

That's recruiting teens. How does Coke also reframe the category in the brand? Well, one exciting way is by really understanding how to take important partnerships like Olympics, where we are the proud sponsor of active healthy lifestyles and bringing that alive. We've learned over the past 3 years how important design is as it's the fusion of core brand equities and the actual pack, the billions that are picked up every day.

And what I'm going to show you now is a sneak peek of work well underway. Our 2012 summer is already well underway. Our new look of our Olympics collectible series packaging, much like our summer collectibles you've seen last summer or our holiday packaging, this is the Olympics packaging. I'll give you a sneak peek because it's a little ahead of the game, but I'm very excited about how our powerful lineup of 8 athletes here, diverse, powerful, all favorites in each of their sports, are going to come to life on Coke packaging throughout our retail environments next summer.


Katie J. Bayne

A lot more to come on Olympics. Coke is natural, great tasting energy coming to life in the marketplace across the summer, next summer. Look for more on that but beyond marketing programs and beyond teen-deep connection, really important way is how we're presented in the marketplace every single day. And I'm proud to unveil to you today and we're bringing to each of your rooms tonight, the latest in our evolution of our occasion, brand, pack, price, channel architecture for our immediate consumption environments, where we will launch the 12.5 ounce Coca-Cola handheld.

This bottle has a name and an importance as if like your phone or anything else that stays with you as you move around. It's not to go with big food occasion. This is the Coca-Cola handheld at $0.89, our newest user-friendly size. Of course, this will continue the great recruitment numbers that we've seen with $0.99 16-ounce, but it also allows us to take 16-ounce now up with the cost of goods pressures. You all know about 20-ounce stays bundled with food and 1-liter still provides a terrific value for our thirstiest consumers in our immediate consumption environments.

But our evolution of our OBPPC extends beyond IC. You've seen, as we've taken to our big bottle business and reengineered that a bit with the launch of contour 2-liter 3 years ago, then 1.25 rolling out at $0.99, providing an entry point into our big bottle business. And the exciting news is we have sustained big bottle total units growth as we're better meeting the needs for people who want to share and pour for their families no matter what size they are.

Finally, another piece of news I'd like to announce today, our minis have had great acceptance. What we've learned this summer, as we looked in deep detail at our pricing across our can packs, is that there was opportunity in minis. And in 6 markets earlier this summer, both Pepsi and Coke [indiscernible], we took a look at pricing change on minis. And what we found was there are many more customers interested in this pack than we were reaching. And what we found is that this new price point, which is just below $3 where we will move to and you'll see in the marketplace tomorrow, it's gone out nationally and prices are now moving across the country. We will be the first beverage company to offer on a per can basis equivalency across this, our portion control pack, as well as our 12-ounce fridge pack. $0.37 a can, roughly. You can get the portion size you want. And what we learned from our consumers, it wasn't just about calories and portion control. It's just sometimes, I just want a can and I want a little less. And our mom said, "I am just sick of finding those cans 'like me' all over the house that have about that much left in them." So for multiple reasons, people want this package and we're now going to present it in an affordable accessible way across the entire marketplace.

Moving on to Diet Coke, then, the second brand in our Coke trademark. Diet Coke's role against recruits sustain and refrain is to recruit our 20- to 29-year old drinkers, as well as sustain that incredibly strong drinkership and loyalship -- loyal drinker base of our Diet Coke consumers. We've recommitted to Diet Coke last year as we launched Stay Extraordinary and Stay Extraordinary as our campaign message is we learned and talked to 20- to 29-year olds They said, "You know, I don't need brands that are going to make me extraordinary. I already actually am. What I want is brands that help me stay that way that keep me at the top of my game." And Diet Coke's refreshing uplift is a brand just like that. And so we found our voice and we articulated it this summer in major markets across the summer, not just in television and digital, but with contextual out-of-home. This is just a smattering. It's on major markets like New York, Chicago, Miami, Atlanta. Here you see "Pairs well with going places" outside the Holland tunnel. The 2 shopping examples, you'll see some tomorrow, are in a mall in Atlanta called Atlantic Station "Accessorize your thirst" and "0 buyers remorse." Wall Street "Stimulus packaged." And then obviously outside, maybe another kind of outlet "The other iced-non-fat-to-go." This choice for movers and shakers. We're rolling that now through many markets across the country. There's a voice, there's a tone but it also ties directly to the occasions where Diet Coke is right.

I'm thrilled to show you an additional piece of that today as we found a way they'd be sharper with our communication with Diet Coke. I'm now going to show you a brand new television as some of it -- if you're watching last night, Glee, Modern Family premiere, all of the premieres this week, are starring our Diet Coke work and there are 3 new spots I'm going to show you now. First, I'll show you the 60 that rolled in the Academy Awards that sets the platform for Stay Extraordinary. It will continue to roll but we've developed these 15s. We haven't done 15s on a major brand in a while, but what they give you is a little jolt of why Diet Coke is such a great brand for all these occasions. So you'll see 3 of them. The first one targets the morning occasion. And the bridge line is "A little drive for the drive to work." The second target's your mid-afternoon lift and it's "Another word for ambition is thirst" is the bridge line. And the third is your evening warm-up, "Proud sponsor of all those lights on" as you have a Diet Coke on your way out for the evening. So let's take a look at all those together, and you can see the feel on television how Diet Coke stays extraordinary.


Brian E. Wynne

Now before I jump into this chart here, you'll recall in the video, Jen [Jennifer Aniston] mentions the number of hits that she was able to get by hurting that young man. The beauty in this kind of media is it's wonderful in terms of its reach and how fast it can get out there. We have 1 million hits in the first 24 hours, 7 million in the first week and we have over 15 million hits so far on that video. So it's just a wonderful example of kind of using new and creative ways to reach consumers.

This chart here summarizes our performance in active hydration. Again, we're measuring retail dollar share for us and our primary competitor. If you look back at 2006, you can see we're at a significant disadvantage in total retail dollars. And with the acquisition of the vitaminwater brand and the growth we have achieved on POWERADE, smartwater and vitaminwater, you can see we have made significant progress at closing down that profit pool advantage.

The next 2 areas I'm going to talk to you rather quickly in the spirit of time, the first is around DASANI, differentiating with DASANI. One of the ways we're differentiating with DASANI is with our industry-leading sustainability efforts. The DASANI PlantBottle package is a package we launched about a year ago through a major marketing campaign that included TV, print ad, home and great programming with all our major customers. Today, we've had over 1 billion consumer impressions. And more importantly, consumers are telling us it really matters to them and our brand preference scores continue to rise. Today, we are the #1 favorite national brand. We sell at a premium to many national brands. And because of those 2 things, we've been able to secure a lot of re-listings of some customers over the past 24 months, making our product available once again in a lot of outlets.

The next area I want to talk to you about is tea. In tea, we compete with 3 principal brands. In health and wellness, we compete with Honest Tea. It's a wonderful brand. We took an equity position a couple of years back, took full ownership of it earlier this year. It's a great brand that sits right on the sweet spot of health and wellness and is continuing to perform very well for us. In the area of home brewed taste, which is a huge piece of the tea category, we compete with Gold Peak, which is a juggernaut brand for us. It is a brand that's performing very well across all our platforms from chilled, shelf-stable and our post-mix business. And you can see we're growing 53%. And Nestea, competing in the refreshment tea space which, while down, is beginning to stabilize. So if you look at our tea business, we're performing really well in 2/3 of it and stabilizing in the 1/3.

In the energy category, we compete with 3 brands, 2 that we own, one where we have a licensing agreement. The first brand I'll talk to you is Nos. It's our high performance brand. It markets through properties like NASCAR. The second brand is Monster, which is a licensing agreement, and it's a brand that you're all familiar and which is performing very well in the marketplace and growing share. And the third brand we compete with which is Full Throttle, which is a very profitable brand for our system.

The last area I want to talk about is incubating for future growth. Deryck van Rensburg leads our venturing and emerging brands unit at Coke North America, and his team is tasked with identifying emerging consumer trends and helping to nurture groundbreaking brands within our system. By making investments early in these brands and nurturing them, we are positioned to enjoy future growth. On this chart, you can see a number of different brands that Deryck and his team manage. Some of those were brands that we have full ownership at this point, brands like Nos, Fuze and Honest, where we took an early equity position and then ultimately acquired the brand. Others where we remain a minority investor like ZICO and still others that we're nurturing internally like illy, Cascal and Sokenbicha.

The last 2 things, I want to give you all a progress report on our 2 aspirations. The first is we set out to become the fastest-growing still beverage portfolio in North America. And I'm happy to report that today, we are. This chart depicts year-over-year growth for us and our primary competitor in total still beverages. And as you can see, we have grown consistently over those years and grown faster than our primary competitor. The second of our aspirations was to become the most valuable still beverage portfolio in North America and today, we're not. However, this chart shows you the significant progress that we have made on our journey to become the most valued still portfolio in North America.

And we know that it's not going to be easy to be able to become that most valued portfolio. However, a number of things give us great confidence. Number one, we have great brands that consumers love. Number two, we have momentum, great marketing and we continue to invest in our brands. And number three, with the new capabilities afforded us by the integration, we believe we have new tools and capabilities that will be able to accelerate our growth in still beverages.

So with that, I'd like to thank you for your time and attention this morning and I'd like to invite to the stage my 2 teammates, Julie Francis, our Chief Commercial Officer, and Alison Lewis, our Senior Vice President of Marketing. Thank you.

Alison Lewis

Thanks, Brian and hello everyone. I'm Alison Lewis, head of CCNA Marketing.

Julie Francis

And I'm Julie Francis, I lead our commercial leadership organization for Coca-Cola Refreshments. Today, Alison and I are going to talk to you about the work that our marketing and commercial leadership teams come together to drive sustainable growth by creating value from the brand all the way to the shelf.

Alison Lewis

Let's start by backing up and looking at the complexity that exists today in the marketplace. Consumers have over 20,000 beverage SKU choices across total measured channels. That's a lot of choice. And they're more informed about those choices via technology, with 40% of the mobile audience using mobile search daily. Add to that the diversity in the U.S. with multicultural consumers making up 35% of the landscape by 2020. And you start to get the picture that the who, what, where, when and how of connecting with consumers through marketing, from brand all the way to the shelf, is much more complex and arguably, more important to get it right.

Julie Francis

You heard from Katie and Brian earlier, so you know that we have great brands. You just saw some great marketing, and we've got great diversity of packages to meet the growing number of our consumer consumption occasions. But as Alison points out, the marketplace is incredibly complex and challenging. Our jobs are to simplify the complexity, to connect our brands to shoppers in a disciplined and segmented merchandising approach that inspires shoppers and most importantly converts them to buyers. The retail landscape continues to change. As consumer needs and lifestyles evolve during these challenging economic times and because of this, consumers are frequenting all different types of outlets and formats. While Coca-Cola products are enjoyed in many of these, there are still a great number of outlets that we don't have our products in yet -- while Coca-Cola products are enjoyed in many of these, there are still a great number of outlets that we don't have our products in and let us not forget, of those that currently serve our products, there is still a significant amount of growth opportunities by expanding the depth and breadth of our brands and packaging availability. While accomplishing this won't be easy, we are building segmenting capabilities, allowing us to capture those opportunities and to drive sustainable growth.

Alison Lewis

So as Julie set up, how do we manage against this complexity to deliver against our simple mission, which is to refresh more people more often. With capability. Capability focused against segmenting and executing, with relevance and precision, to drive more occasions for consumption of our Coca-Cola brands throughout the day. Before we go much further, I want to make sure that I clarify with all of you how we define occasions and transactions. An occasion is a moment when a consumer opens a package and drinks one of our brands. There are many occasions for drinking Coca-Cola, depending on the consumer's needs. And each purchase transaction can include one or many occasions, such as Neil's refreshment on the go or fun with family and friends.

So with that as background, our segmentation starts with understanding who to target and with what brands. How we're going to connect with those consumers through marketing against important passions and occasions, ensuring our price package plans are grounded in occasion brand channel insights, creating our OBPPC or occasion, brand, pack, channel, price strategy. And managing those OBPPC frameworks through a disciplined revenue growth management approach. And finally, executing those plans in a segmented way in the outlet to ensure that we deliver and connect the right brand to the right consumers and shoppers, to the right occasion, in the right place, with the right price package bundle and the right message. All of this is done with the goal to inspire purchase at point-of-sale and to increase the value which is generated with each transaction and ensuing occasion.

So let's dig a little deeper into the first part of our capability to segment and execute, the consumer and the shopper. As you heard from both Katie and Brian, we start by sizing and segmenting the overall category opportunity. As we look at the categories, we break the category into a consumption occasion view, which allows us to identify the highest value opportunities based on consumer and shopper needs and occasions by channel. This analysis goes all the way down to the revenue level to maximize the value for our bottlers, our customers and our company. We apply this approach across both our sparkling and still businesses.

And you heard, both from Katie and Brian, how they're connecting with consumers in the marketplace. To illustrate on Coca-Cola, Katie is laser focused against winning with youth, multicultural and family shoppers. This targeting came from the consumer and shopper segmentation analysis. With this focus, we're able to connect and market to the passions and occasions that are most important to these consumers, whether it's marketing with the Olympics and American Idol, new package offerings like the 7.5-ounce multipack can or expanded customer times in multicultural outlets with the Mexican national team, FIFA World Cup or as Katie mentioned, Ingrid Hoffman, a Hispanic heritage chef that you'll meet tonight and you'll see executed in the marketplace tomorrow. We're reminding consumers why they love our brands and selling new consumption occasions every day.

This consumer and shopper segmentation leads us to clarity on our OBPPC or occasion, brand, pack, price and channel framework. As we've said, the key to our success is increasing occasions. Our OBPPC is the road map for each brand's distinct price and package offering in each channel to satisfy unique consumer and shopper needs. Our OBPPC begins with the consumer and the shopper through the identification of consumption occasions. We must focus on key consumption occasions that meet consumer needs. So to illustrate, tempting a commuter at the gas pump with a delicious ice-cold 16-ounce Coca-Cola contour bottle while he is on his way to work. We use deep insights to identify the consumer relevant occasions and we focus on where consumers enjoy our beverages, in this case, on-the-go refreshment.

Our strong portfolio of brands provides us with the perfect beverage to meet every occasion. All of our brands have very specific job descriptions as you heard from Katie and Brian, so creating that match is relatively easy for us. The package architecture comes to life when we identify which package meets which occasion requirement. So 2 Liter contour bottle, great example, the perfect package for me and my family of 5 for a lunch occasion. On price, our wide range of occasion brand pack options are priced based on the value that, that shopper is willing to pay for the value that is created. Some packages provide entry-level price points, like our 16-ounce contour Coca-Cola bottle. While the aluminum Coca-Cola contour bottle is an upscale package with a higher price point providing a sophisticated on-premise experience.

Finally, we target our occasion, brand, price, pack bundle very precisely to each channel and each customer, based on the consumers and shoppers that shop in that outlet. So with the development of our OBPPC, we've been able to focus on expanded assortment, price points, and therefore more occasions. Before we had a robust OBPPC, package assortment was quite limited, with participation against a very few package options and a very few occasions. Price points were common with very limited entry price points. In fact, on sparkling in supermarkets in 2006, we sold 92% of our volume between the price of $0.015 -- $0.01 to $0.025 per ounce. Our point-of-sale and messaging was very loosely connected to the consumption occasions. This limited the overall value that we were creating.

Today, as Sandy mentioned, we're really only getting started. Our Coca-Cola friends in Latin America are 10 years into their journey on segmentation and OBPPC. We borrowed this with pride and we're already seeing the benefits. We have a more diversified occasion-based package lineup, each with a specific role that meets a specific and important consumer occasion. We're now providing consumers with the opportunity to purchase our brands across a wide range of prices. We now deliver 90% of our sparkling volume in supermarkets across a price range of $0.015 an ounce to $0.065 an ounce. Our messaging is now tightly connected to the consumption occasion and is clearly defined and communicated through in-store point-of-sale in the right outlet based on the segmentation work on the execution front.

Julie Francis

Now, I'd like to share some examples of how the execution of our OBPPC is driving positive results in the marketplace and how it connects to our sparkling strategies to recruit, sustain and reframe. A key help to our brands is recruitment of new users. Our entry-level immediate consumption package is an example of how we're driving new occasions with teens and women while also increasing retailer's dollar sales. We've added over 30 million transactions into the small store channel while also increasing our immediate consumption share.

An example of our sustaining strategy is the expansion of what we call our big bottle strategy. With the addition of the 1.25 Liter, we recently did markets, pilot markets and we focused on providing an affordable and consistently priced package to meet consumer needs while sustaining our 2-Liter sales. The results are encouraging. The 1.25-Liter sales are complementary to our 2-Liter sales. It's driving category expansion growth and we have strong trial rates with repeat purchases well into the double digits.

As Katie mentioned earlier, we identified a reframing opportunity for our 7.5-ounce mini sleek can. This package was launched in 2009 to meet the growing number of consumers who are looking for the right portion size at the right occasion. Over the past few months, we launched at 6 different market pilots, a chance to test a new pricing strategy on this package to make it more accessible to consumers and our results have been strong, growing total category dollar sales by over 17%. What I really want to stress to you today is that by having a clear OBPPC strategy, we're able to capture unique occasions with the right brand, the right price and the right package that affords -- that fosters affordability and accessibility while also creating revenue growth.

Now let's talk about this newly created commercial organization, what is it and what role does it play in driving growth, creating one commercial system plan and building world-class capabilities. So first, what is commercial leadership? It's where we build strategies to translate brand value into customer value and the role of commercial leadership is to lead the organization by translating brand category and marketing plans into channel and customer strategies across all geographies regardless of route to market. We have category commercialization teams embedded on Katie and Brian and Alison's teams to ensure with them and work with them in the beginning that the plans that they're creating can come to life in outlet with excellence, with a segmentation strategy and a discipline, and most importantly, continue to be locally market relevant.

The category commercialization teams deliver those plans to our channel strategy and region commercialization teams who convert those into clear and prioritized sales direction. These teams are structured to bring to life the OBPPC by creating a segmented Look of Success for outlets and by creating inspirational shopper messaging and point-of-sale. Our commercial capability center of excellent teams are focused on building capabilities around category advisory services, shopper marketing, outlet presentation excellence and building capability for our sales and customer organizations. I want to pause right there to really call out that this center of excellence and those teams were for the bottling system. This is not for CCR, CCNA. We support our entire bottler system and the partnership. And lastly, I want to talk about the newly created organization, what we call planning and revenue growth management. This is the team that focuses on developing a single aligned system plan, with centralized standardized processes to enable us to act with speed and discipline for our pricing strategies and planning decisions.

Let's go a little bit deeper into revenue growth management. The main objective of our revenue growth management organization is to create value for all who touch it. And we do this by taking a disciplined approach to segmented merchandising and our pricing strategies. Our revenue growth objectives are centered on the following principles: first, it's about that long-term value creation. Teams work hard to maximize revenue and to earn price in the marketplace. There's a variety of factors that we take into consideration when these pricing strategies are being developed. The second objective is to optimize revenue growth across channels by ensuring that we're optimizing packaging, optimizing pricing in a way that's logical and coherent. This enables growth across channels to drive both our customers' revenue and our revenue.

And our last revenue growth management objective is to maximize returns through tailoring our investment strategies. We do this by prioritizing spending opportunities through a robust segmentation methodology and postreview analysis to ensure that every dollar we invest is productive. Secondly, by focusing on our customer needs, we identify the highest leverage opportunities and the most effective promotions. And lastly, we create value for our consumers and our customers by executing the power of many, which are partnerships with our retailers own brands and other leading CPG manufacturers to deliver the kind of value and bundles our customers and shoppers are looking for.

Let's take a look at how our revenue growth management strategies play a critical role in executing our OBPPC. The images and text on the left side of this page shares with you how our big bottle pilot allowed us to test our ability to segment our 2-Liter and our 1.25-Liter packages based on consumer occasions, shopper and retailer roles. The pilot was grounded in consumer insights around the right occasion, the right package size, the right pricing to ensure we're driving more transactions, sustaining households and delivering revenue for both the customer and for Coca-Cola, while also providing consumers with an affordable entry-level price point. The results have been impressive. We've grown occasions. We've expanded retailer margins and we've increased the retail per ounce. You can see in the right-hand side of the chart that we've been able to shift the demand curve outward. We're actually driving more big bottle volume at an improved price per ounce, so in the simplest way to say it, we're selling more for more. These results that I've shared with you give us great confidence that we're on the right track with how we design this new revenue growth management organization and that both our current and future pricing strategies will be executed with precision.

Segmented execution comes to life through our look of success. This is a critical component to our growth strategy in delivering our 2020 Vision. Segmentation relies on deep shopper insights, consumer research and robust customer and channel plans. We've enabled segmentation with our selling and merchandising teams in 3 different ways. First and foremost, we set clear direction that prioritizes all the different categories that we have, that we compete in, with the right opportunities at retail. Secondly, we tailor our messaging, our point-of-sale and our equipment and assortment based on each outlet's consumer and shopper needs. And lastly, with the integration, we now commercialize and sell the entire portfolio to our customers, which allows us the ability to truly, truly turn brand value into customer value. We're excited to have many of you out in the trade tomorrow where you're going to see these strategies really come to life in a meaningful way. Now, let's talk about how the integration has enabled the acceleration of our joint initiatives throughout North America.

Alison Lewis

With the integration, we now have a shared vision across our North America business. It begins with our company's 2020 Vision, which transcends our North America roadmap for growth. Simply stated, as Steve indicated, our destination is to become the best brand sales and customer service system across North America.

Julie Francis

We're now reaping the benefits of having one integrated organization. We have improved speed in decision-making areas, such as pricing and planning. We also have aligned goals across the North America business for the first time, which drives one system commercial plan.

Alison Lewis

We're leveraging our capabilities in ways that truly transform and drive our business. We're applying deep insights into our category and marketing plans and our OBPPC architecture. Our in-store execution is improving as a result of our focus on the right execution daily or RED process. And we built capabilities to transfer knowledge throughout our organization to sustain our growth for our customers, our bottlers and our company.

Julie Francis

With the benefit of our stronger internal alignment, we've been able to expand our focus and resources on our customers and their needs. We've also been able to be much more externally focused on a local marketplace segmentation opportunities and continue to be highly engaged with our community partners.

Alison Lewis

Having given you a perspective on how our marketing and commercial leadership organizations collaborate to build value from brand to shelf, with capability to segment and execute, let us show you how we brought our 125 days of summer program to life from brand to shelf.

We're going to show you a video and then we'll turn over the presentation to Mel Landis, our partner and Chief Retail Sales Officer. Thank you. Roll the video please.


Mel Landis

Hi, good afternoon. I'm Mel Landis. I'm the Chief Retail Sales Officer here at Coca-Cola Refreshments. And I'm really excited to share with you the things we're working on in national retail sales to continue to accelerate our momentum. And if you think about our organization, for us, it's really simple. It is about our partners. We strive to become our partners' most valued supplier. And I don't mean that just across the beverage landscape, I mean we want to be their most valued partner. That means that we are bringing innovative ideas that consistently drive growth for their business ahead of their growth and when there's an opportunity or issue, we want to be that first phone call because we are that trusted partner.

And we're going to do that through 3 key ways, first building world-class capabilities that drive customer value. Second leveraging one Coca-Cola voice as one system across the entire customer landscape and then delivering best-in-class customer service every single day. And as Steve and Sandy talked about, you heard them talk about kind of how we're going to accelerate momentum, right? And it's about building great brands, translating that brand value into customer value and then sustaining and repeating that over time. And we can create an advantaged operating model when we do that well as a total system, bringing the total system value against our customers. And that's what we're focused on within national retail sales. We're that glue where we translate that brand value into customer value by building winning plans for us and our customers to drive profitable growth.

So let me show you how we're doing that within our new structure. And there's really 4 key things that are different and that we're focused on. The first one is we have significantly expanded the number of national customer teams. We used to have what we call 12 total beverage teams. Today. We have over 30 fully resourced integrated teams on the ground working with our largest customers. And that's across all our channels, from supers to mass, drug, club, value, convenience retail, specialty retail and our emerging business group. So national retail sales today accounts for over 40% of CCR's total volume.

The second thing that we're really focused on is what we call one voice to the customer. This is a critical, critical change from how we used to be structured. We now represent every piece of the business regardless of distribution channel. So if you think about it in our old structure, there will be one person that may have been calling on the customer for the juice business, one person for the bottle can business, one person for the fountain business. You could go along with other divisions. Today, the customer knows they have one person to call if they want to talk about the Coca-Cola business and we can bring all the resources to bear of the Coca-Cola system by providing one voice to our customers.

The third thing we're focused on is creating differentiating value and we're really focused on 4 key areas that we believe will allow us to drive consistent, profitable growth for us and our customers. And then the last thing is really a general management approach. And again, this is a structural change in how we structured the teams. Really before the teams were selling organizations. Today, they are general managers that own the customer P&L. And with that, we allow ourselves to push decision-making and speed down at the customer level because they are empowered to make decisions.

Let me dig into 3 of those and give you a bit more detail and context as to how we're doing those. As I said, the general management approach is really a critical change for us, right? These people now own the business. The folks that are running our 30 customer teams own the P&L for each and every customer. They are 100% responsible. And not only do they have customer business management, which is really the traditional selling arm, but they have a full cross-functional team now and our expectations or we will manage the total of the customer relationship. So not only now that we sell a new item in, but we're responsible for how we get it there. We're responsible for ensuring where we place it on the shelf, we're responsible for ensuring that the shopper marketing, and the programs, are set up to pull it through. We're responsible for writing an integrated business plan across each and every customer that manages every aspect of that customer's business and is responsible for the P&L outcome for that customer and back to the system and CCR in aggregate.

The second big change as I talked about is this notion of one voice to the customer. And this really means for us one voice that's executing one commercial plan. So that's not 70 bottlers executing 70 versions of a plan. That is one system operating as one voice, executing one commercial plan. And the reason this is so important is we're operating in a very complex market. Everybody knows this. I mean, this is a postmodern market. There's tremendous complexity here. There's changing consumer landscapes, there's channel blurring, there's consolidation and centralization of customers and there are CPG companies outside of our business and that we compete with, that are getting better and better every day. If we can't show up as one integrated system leveraging the power of what this system does, with the brand strength that we have, then we will not become our customers' most valued supplier. We've got to be one system executing one commercial plan, with one voice against our customers.

And the other reason we do that well is we have a big business that we have to sell, so we need to deliver not only the sparkling things that Katie talked about, but we've also got to deliver all the things that Brian talked about. And you can't execute the immediate consumption, new strategy that Katie just showed you, if we're not all executing 12.5 ounce at $0.89, 16 ounce at $1.19, 20-ounce at $1.59 with the right point of sale shelved the right way with the right brand lineup. It's not a strategy if we don't put it into the market and execute it to drive growth. And so by operating as one system and leveraging everything we do as one voice, will bring these strategies to life to drive profitable growth for us and our customers. And with one voice, we'll do that regardless of market. So our teams are now responsible for the juice business. It doesn't matter whether that comes through a chilled distributor, at the customer level, they want to talk about the Coca-Cola business. So our teams are now responsible regardless of route to market to deliver winning customer profitable plans each and every one of our customers.

The third thing we're really focused on is creating differentiating value. And you heard Julie talk about the centers of expertise, revenue growth management, shopper marketing, category advisory services. And then you heard Alison really talk about how we've got to take those though and create segmented execution that drives brand and customer value. Well each one of those resources that are in the center of expertise in commercial also sits on each and every one of our customer teams. And our job is to take those and integrate them together to create segmented OBPPCs and Looks of Success specific for every customer, and in some cases, every outlet that the customer has.

And it all starts with the consumer. We've got to understand the consumer, the shopper and the customer that we're dealing with, who's shopping there, where are their stores located, what are the occasions people are stopping in those stores for. And then we set with our planning revenue growth management folks and we say given this landscape, customer, consumer, shopper, what are the right packs and prices and brands that ought to be in that store to maximize revenue and value and growth for us and the customer. And then we integrate into that the shopper messaging because it's great to put it there but if people don't know what it is, if there's not a compelling offer, if there's not a reason for the buyer to see that, connect with it and turn from a stopper into the buyer, then we've missed an opportunity.

By integrating all 3 of those together, we have a segmented OBPPC and Look of Success for every single customer that maximizes the value for us and the customer, every day, in every outlet. And then once we do that, if want to be their most valued supplier, they have to know we're going to execute that with excellence. And so that's when things like RED or right execution daily, that Glenn is going to talk about in a little bit, come to market. Well we know, when the customer knows that, okay, I'm going to put this piece of equipment in, and they know that our customer solutions organization is going to put that equipment in the store on that day we said it was going to go in and if it breaks, we're going to have a service tech there in x amount of time to have it fixed, then they have confidence and they want to do more with us because they know we will deliver and execute with excellence and precision in every single outlet and bring the OBPPC and the Look of Success to life.

And then finally, all of that has got to end with great customer service. It's got to start by leveraging our DSD system. It is the most powerful system. We put people in every store, hundreds of thousands of stores every single week. We can own the Look of Success like nobody else can. So our ability to get it and then execute it perfectly in every outlet is almost unparalleled. And then we now, as I said, work across both our DSD system of warehouse, the selling teams are ambivalent. We go in a store, we own the portfolio. And it's our job to bring it to life, segment it and execute it perfectly in every outlet. And then again, it's about trusted partners. When we show them the capability we're building around RED, the ability to capture how we're executing, where we're executing, what we're executing, and we show them the capability we're building through our customer care and customer solutions organizations, they bring supply chain capabilities and best practices from around the world. We're building trust that when we sell it, we can actually execute it and actually bring it to life everyday. And then we become our customers' most valued supplier.

And when we tied this altogether, we have developed what we call our customer value proposition, which fundamentally for us is, this is what we promise to our customers. This is what they should expect from us. And at the center of the wheel, you'll see four things. The first one is, it's a unique solution. So we don't want to show up and just bring the same thing to every customers, they're all different. We've got to understand what they want and bring unique solutions. And when we do that, we're going to get 3 things: We're going to get delighted customers they view us as their most valued supplier and want to do more business with us. We're going to get business-made-easy, they're going to get business-made-easy. And that is, they know that when we sign up we will execute it perfectly, whether that's back-shop things like the right payment and the right invoice, whether that's the equipment shows up on time or whether that's just we execute with precision and excellence in every outlet, they know we will be there, they know they can count on us. And if we do that, we deliver profitable growth. Profitable growth for us and profitable growth for our customers. And each one of the capabilities you saw, sits on the outside of that ring. And what we do is we decide which ones we need to do to deliver that at each customer, and it's all different. So -- but the model is the same, the promise in the bull's eye is the same for each and every one of our customers.

Let me share one other example of kind of how we think about this model and how it works, and we've got a model we call collaborating for value. But basically, what collaborating for value does is we sit with customers and we'd say, what are your issues, tell us what you're wrestling with. And the particular case I'm showing here, we had a customer that was wrestling with top line sales growth but what they actually believed was the issue, is they weren't executing well. They believe they had a top line sales growth number but it was because trucks weren't showing up on time and in full, their back rooms were inefficient, so products weren't getting out and onto the shelf. They needed more speed and flexibility in the way the supply chain worked and they thought the merchandising was wrong in each and every outlet and that was what was driving it out of stocks and eventually driving sales down.

So what we do is we take that and we map it against the things that we know we do well. So for us then, that becomes, well, how do we do a better execution in-store and develop a better Look of Success so we know actually from the start the right product is going in the right store? How do we reduce out of stocks by working with our customer care organization to think about how we take their scanned data and write real-time orders potentially as opposed to taking it off history as an example? How do we do more segmented execution so the right packs and the right stores, depending on the demographic and their shopper and who's in there? And then a better customer service model. We would tend to go out before and say, the store has this much volume because this many deliveries a week. Well that may not be right for the occasion, for the actual shopping pattern in that store. How do we flex that? It may not be more service, it may be the right service that delivers the right outcome. And then we create merchandising solutions. And when the customer says here's our issues and we develope real solves to each one of those, we deliver profitable growth consistently over time for us and for our customers.

So with that, I'm going to introduce a video and I'm going to share with you, it's from Walgreens, and they're going to share a little bit about how they're experiencing us today, but then I love at the end they're going to say, hey, that's nice but we want more. And you're going to see what they want more of. Let's run that video.


Mel Landis

As I said, I love that video because it's -- well, it's nice that he's recognizing some of the things that we're doing better. What I love is at the end he says, hey, that's nice but the bar just moved up again, because the expectation goes up every year. And just like Sandy and Steve shared, we're good but we're not great and we're certainly not our customers' most valued supplier, so we're pleased with some of the things we're doing but there's so much more we can do. So I just want to share a couple of last things and then I'm going to turn it over to my friend, Chris Lowe.

In the end, when we do all of this, this is really all about expanding our presence in every single outlet. So when we do this, what we want to make sure we do is we take these insights and we create opportunities to interact with our consumers every single day. So whether that's creating unique display opportunities, you're going to see this in the market tomorrow. You're going to see the right display with the right message and the right brands and packs. So whether that's a meal and snacking occasion, perfectly positioned in the store, the right package for that occasion, where there's a form of portion control done with snacks, so that we provide solutions for mom that maybe want snack for their kids or whether it's in the convenience store, where you see the right IC pack tied into the right occasion, creating a meal occasion for a shopper, we want to execute that perfectly and build relevance in each and every outlet.

And then we want to expand our beverage variety. So if we're going to act as one voice, then we want to sell the total portfolio and it gives us huge opportunities to expand things like Simply into small stores. We talked earlier, I think Glen is going to talk as well about how we've been able to nearly double the number of stores we've got Simply in because we now have the organization focused on it. And then last, we want to maximize every bit of space that the retailer gives us. So that means when we get a cooler door, it's got to have the right brands and the right pack, shelved the right way, priced the right way to maximize the value in that door or we've wasted space the customer [indiscernible] to use in a different way.

And so finally, what I'd say is our role in advancing momentum is really sitting right between us and the customer. It's understanding what our customers want, what are their strategies, what are their goals, what do we need to deliver. It's critically understanding our commercial strategies, what are our objectives and it's finding the links that bring that together in a way that's compelling for the consumer and the shopper shopping at that store and with that customer, and then building a plan that drives mutual growth. So we are happy we are making some progress, but we're certainly not satisfied. We have so much more work to do. But the beauty is we're starting to see where we can go and the value that can get created when we do it and it just makes us hungry to get after that more.

So thank you for your time and I'm going to turn it over to Chris Lowe, our President of our On-Premise and Foodservice.

Willis E. Lowe

Good afternoon. It's great to be with you. I'm going to spend a little bit of time talking about our foodservice operation. And the Foodservice business is a little bit unique amongst all the channels that we have. It's a big business. It's strategically important to our overall business in North America. It's a bit unique because our relationship with our customer is one of exclusive availability defined by a multi-year contract. It's a large business. Today, we pour beverages in over 450,000 of our customers' outlets. We serve our products in 3 out of 4 restaurants, in general, in 4 out of 5 restaurants in the U.S. on a chain basis. But beyond the profit and volume that, that contributes to the business, it also has a very strategic role in North America because that broad footprint gives us over 125 million consumer interactions with our brands every single day. It allows us to bond our brands with one of the more important beverage occasions, and that is with friends and food. It allows us, because its popularity with teens, to be a great attractor to build our relationship with the younger audiences and it continues to allow us to build and refine our franchise over time.

Now, fundamental to building this franchise has been our go-to-market strategy. And from the very beginning, we took a slightly different approach than others in the marketplace. And that was to be solely focused on value creation for our customers. Within the foodservice industry, beverage sales are very important for foodservice operators. Let me give you an example. A quick service restaurant might generate 15% to 20% of the top line sales with beverages and as much as 25% to 30% of their bottom line sales is a result of the beverage sales. So beverages are extremely important to restaurant operators. And our approach is to create a bundled value-creating solution for them to maximize their beverages. And it starts with a very intimate knowledge of every individual customer. What their positioning is in the marketplace, their concept, their operational needs and capabilities and from that, our beverage professionals put together a tailored bundle of the right brands, the right service configurations, the right equipment platforms, a flexible distribution model to ensure that they get provisioning on time in the way that they need it to be and marketing programs that drive overall sales.

And when we put all of that together, we maximize our customer sales and we're able to command a premium price in the marketplace. So you can imagine that enhancing capabilities is absolutely critical to our business and with the creation of CCR, we believe that we have enhanced our capabilities in a number of areas. Historically, the fountain department, as we were known, was pretty much a form -- a package form-driven business centering around post mix. But with the advent of CCR, our beverage professionals now have responsibility for all package forms in all brands. In using the OBPPC framework that you heard earlier today, we're able to look at the customer's business, look at their consumer profiles and create a structure of beverage offering that maximizes their potential, enhances their consumers' experience in the outlet and drives their overall sales in the marketplace.

Now another area that we see tremendous synergies and advantage as a result of the creation of CCR is in our vending operation. Today, we have about 700,000 vending pieces of equipment in our system. We have about 5 million consumer interactions, but historically, our vending business was spread out across our system. Today, we're bringing responsibility for the growth management of that to one place, which allows us to really create synergy in things like technology, where we're exploring electronic wallets, cashless vendings, telephony and predictive ordering. It allows us to configure our organization to improve our service capability, improve our route efficiency and make sure that we have our equipment that's out in the marketplace with the right brands, in the right locations and service with the right frequency.

Another area that we are really excited about, I would say Glen, Mel and I, is the ability to take our overall level of account management on. Again, historically, our sales organizations were separated by the organizations in which they're in. But today, as you heard from Mel and from Julie, we're centering our sales capability around one sales technology: collaborating for value. And that allows us as we collaborate together to take best practices for multiple segments of our marketplace that we serve to get best-in-class practices brought into the sales and account management capability.

But perhaps as important as that is the talent development capability that this organization provides because it allows us to begin thinking about rotating our sales and account people from the retail business to gaining experience with deep relationships in food service to sales management and our retail sales field organization. So we see this as a huge opportunity as we go forward.

Now there are a couple other areas I'd like to touch on very briefly. One is, as you can imagine a business that is defined by equipment dispensing and cold drink equipment, our service capability is of paramount importance. And Michelle Guswiler's business is really taking huge strides in making it easier for us, as we have all package forms going into outlets, to be able to marry our service capabilities to be able to meet our customers' needs within their outlet given the package form and given the service configuration needs within that outlet.

Likewise, Brian Kelley is going to get up in a minute and talk about our supply chain. But as you can imagine, as we move from just a post-mix world to a package world, the ability for us to align our supply system in such a way that we can create flexible distribution that our customers can receive our brands in the form with the service frequency that they need is going to be greatly enhanced as we create this synergy within the system.

So as you can see, what we're doing in the Foodservice business, it's really all about advancing our customer leadership, accelerating our brands and our packages and our capabilities and categories and improving our vending business. all driven by a technological bent. And I'd be remiss if I didn't talk about our most exciting new technology, and that's our Freestyle machine. This new dispensing platform that dispenses up to 125 brands uses highly concentrated ingredients in micro-dosing.

Today, we're in about 50 markets. By the end of the year, the first of 2012, we'll be in about 80 markets. And we're seeing very exciting consumer response to this and strong customer response. The customer results that we've seen today, overall, customers are seeing increases in beverage sales up in the high single-digits, and they're seeing overall sales in the mid single-digits, which means that Freestyle has the capability to attract consumers to various food service outlets.

Now I'm going to take a minute and show you a video clip, and what's unique about this is this customer is Wingstop and this video was produced by the customer to introduce this new technology to their system. Can we roll the video?


Willis E. Lowe

I think you can see that the heart of our enthusiasm and at the heart of our customers' enthusiasm is the amazing consumer response that we've seen to this platform. But beyond just a consumer's desire to interact with this machine, one of the other things that we found really interesting is when consumers interacted with Freestyle, the perception of our brands actually went up, which is really pretty phenomenal. Now any technology that's worth its salt is something that's going to be talked about, and today, we can see a tremendous amount of buzz on the Internet. 43,000 Facebook fans clamoring to know when they can get Freestyle in their local market.

Now one sort of unintended consequences of Freestyle that we're finding that's fascinating is with the Freestyle technology, we're getting deep and rich insight into what beverages consumers want to consume across the day. Because with the telephony and reporting that we get with the Freestyle platform, we know what beverages are consumed really by minute of the day. And that has tremendous ramifications as we think about new beverages, new beverage designs, regionality of beverage preferences, which allows us to really think about getting sharper with our OBPPC.

So finally, I hope as you look at the business, you can see we've got a lot of momentum, a lot of excitement in our Foodservice business. We've got a strong foundation. We're continuing to evolve and innovate and build on that business as we go forward. But now I'm going to ask my teammate, Glen Walter, who is the Chief Customer Officer for the retail region, to come up and join me on the podium. Thank you.


Glen Walter

Thank you, Chris. Good afternoon. I'm going to spend a few minutes and just touch on 3 key topics: the role of the region sales organization, the go-to-market model we've been building over the last year, and a lot of the enabling capabilities we've been investing in and then we're going to take a Coke break. I can see the gazed look of the Coke break needs out there. So we're going to do that here in a few minutes, so stick with me.

Let's first start out with the role that we play in the region sales organization. I'd like for you to really simply think of the region sales team as the execution arm of the business. So whether be what you heard from Katie and Brian from a brand-plan standpoint or what you just heard from Chris and Mel, the 20,000 men and women of the region sales organization are responsible for flawless execution across the entire portfolio in every outlet.

In addition, we're also responsible for collaboratively developing thousands of regional customer plans and implementing them across the country. And then when you speak about customers, you heard Julie mention the importance of one commercial plan. We have embedded franchise leadership organizations within each of our 7 regions to work collaboratively with our 70-plus independent bottling partners to make sure that we show one commercial plan to all of our customers around the country.

And then lastly, we're responsible for delivering superior customer service. You heard that in both Chris and Mel's presentation. And one of the things we invested in a year ago as we see this exciting new expanded portfolio across a variety of categories and a variety of product lines, is to increase the number of regions and to increase the number of market units to make sure that we address complexity and turn that into opportunity. We've got relatively smaller operating units that are closer to our customers and consumers that help us drive flawless execution.

Now let's spend a few minutes on the go-to-market model that we're in the early stages of building over the past year. Like you've heard from other presenters, it starts with a very clear understanding of our future. It's rooted in our Vision 2020 and our road map for growth, and it's got 4 simple guiding principles we follow.

The first is to perpetuate a promise that we've held for 125 years. It's about the ubiquity of our brands and making sure that we are within arm's reach of desire from our consumers. The second is something you're going to get a chance to see and learn about tomorrow and bringing to life inspirational moments for our consumers and each and every outlet aligned with the OBPPC. That drives flawless execution. And lastly, something that we feel is a true competitive advantage we're building is our culture of excellence, and it's got 3 basic components.

We hold ourselves and our teammates accountable to do the things we say we're going to do and to achieve our results in a sustainable way. We put the customer and the consumer at the heart of everything we do. And lastly, we embrace collaboration, diversity, and we operate as one high-performing team.

Underneath that are 3 strategic pillars I'll touch on. You heard a little bit about the look of success and how that translates the OBPPC into a road map of what each outlet should look like, so we'll talk about that. About implementing our global best practice in our commercial zone around RED, right execution daily. And then lastly, about leveraging the full breadth and depth of our portfolio across a variety of routes to market. And then lastly, I'll chat about some of the investments we've been making over the last year and some of the enabling pillars that underpin -- enabling capabilities that underpin those pillars.

So let's start out with the look of success. So you've heard some exciting news in the room today. We're going to get out in the marketplace tomorrow, and you should appropriately challenge how you get 20,000 men and women to bring to life the right OBPPC across hundreds of thousands of outlets.

Well, the look of success is exactly how we do that. It allows us to deconstruct the elements of the OBPPC into segmented execution so that each and every one of our teammates know exactly what's expected of them by outlet to define flawless execution. And it also ensures that each and every one of our brands is in the best possible position to be purchased by one of our consumers.

You'll also get a chance to see what RED stands for, what that's all about. Because once we do that, we need to objectively evaluate how we're doing, and RED is our scorecard. It's the core of our selling machine. We're able to deconstruct that look of success into a series of RED questions, so it can objectively evaluate how we're doing in each outlet. And where we have opportunities, we simply translate those things into RED action plans. It goes into the continuous loop you can see there, and RED is all about doing the common things uncommonly well in every single outlet.

And lastly, we're building on our go-to-market capability. So you're going to see a handful of these tomorrow as you are out in marketplace. And the first one is very new to CCR and it's exciting. It's about building on our Simply juice portfolio. Mel mentioned it. We started out the year and said we were going to double our points of availability across the Simply brand, and we're well on our way to achieve that goal. And you'll see from our front-line associates that regardless of who takes the order or how the product gets there, they own that outlet. They own whether it be the messaging, the pricing, the positioning on the shelf, flawless execution.

The second component will be something we're doing right here in Houston. It's a test with our customers to improve customer service. We've actually taken our traditional DSD merchandising team, and we've applied their labor force across the entire portfolio in an outlet. So we can sweat that asset and help bring a better service to the customer to close costly out of stocks.

And then finally, it's something that we're really excited about, and we call it on-premise acceleration. For a year now, we have invested tens of millions in hundreds of feet on the street to call on our on-premise and traditional trade channels. The on-premise is critical for our growth. It's where we grow our brands, one serving at a time and create that enduring bond with our consumers. And as we've looked at where our business stands today, whether it be the business we call on from a direct standpoint or the business where Coke products are sold through wholesalers or third-party distributors, this expanded portfolio we now have in our arsenal has a huge opportunity.

But we're doubling down on our enthusiasm because as we look at the entire outlet universe, we know that there are hundreds of thousands of outlets in the U.S. today that don't sell any Coca-Cola products whatsoever. By investing in feet on the street, it allows us to reach that untapped growth.

You're going to get a chance to see tomorrow an investment we've made, again, millions of dollars in the right tools and technology to arm our front-line sales force with the equipment to be successful, whether it's being more efficient and effective in the outlet or more effectively communicating the brand programs and bringing to life some of the ads you saw from Katie and Brian right into the outlet level. You'll see what we're doing with our tablets and how that's linked to our global platform.

We also believe another key investment for our growth model is about talent, and we're now approaching our fourth year in our university talent program. We feel we've got to have a robust pipeline of men and women who are the future leaders of the Coke system. They embody and exemplify the characteristics that tie to our culture of excellence, and we want to make sure we've got a robust pipeline across the system every year.

We bring them into the business. We allow them to have sales territories and learn our business from the ground up. They then get an opportunity to lead teams at an accelerated rate within our model, and then can go off into brand or products supply or customers or a myriad of different careers within the system.

And then you heard a lot about investing in capability. When we face the brutal facts, we knew we needed to improve our sales capability in the region sales team. And starting earlier this year, we invested millions in a dedicated sales capability team, whether it's teaching our teammates on a weekly basis about shopper or consumer insights, or about our selling systems or about features and benefits on our brand. Whatever allows us to convert that brand value into customer and consumer value, our dedicated sales capability organization is driving that each and every week.

So when you look at the overall structure of the region sales team, we feel we're investing for sustainable growth. Whether it's the capability team I just mentioned, or whether it's investing in additional customer service capabilities or feet on the street, which will continue to go after our traditional trade, or looking at additional investments in technology and information. We've been able to standardize our routines around the region sales team, and we talked about pushing on productivity. That's freed up over 3,000 days of productivity in the region sales team for our leaders to spend time leading, teaching and coaching and executing in the marketplace.

And then lastly, one of the things I mentioned earlier was the importance of one aligned commercial plan, one Coke system to our customers. We're going to continue to invest in a dedicated franchise leadership model that allows us to collaborate and build mutually agreeable plans with our bottling partners.

So I'll go ahead and close with where I started, back to our foundation. I hope what you've seen is a sense of optimism in our future. But we have a very real kind of I would say a healthy level of dissatisfaction with our results. Our team is very humble. They are very hungry, but they are 100% confident that there has never, ever been a better time to be a part of the Coca-Cola business in North America than today.

So I appreciate your time this afternoon. I'm looking forward to be able to spend some time with you in the market tomorrow. And with that, I'd like to now invite you to join us outside for a 15-minute Coca-Cola break. Thanks so much.


Unknown Speaker

Please welcome Brian Kelley, Chief Product Supply Officer.

Brian P. Kelley

Good afternoon, everyone. I am going to wrap up the presentation portion of the afternoon before closing to Q&A, and I'm going to talk about what we're doing in our product supply system to create a competitive advantage.

You've heard a lot today about building strong brands, creating commercial capability, making sure that we have the ability to bring it to our customers in an effective way. And I'm going to talk about how do we create that capability to sustain it and repeat it from an executional standpoint with our assets, with all our products, with our processes. And so we'll go through in some detail what we're doing in the product supply system and the journey we're on to recreate a new product supply system since the integration occurred.

If you look at one of the fundamental premises behind the integration, it was to combine activities and processes and assets from a number of entities and really do 3 things. First, we had to make sure that we can present one face our customers. And you heard Mel and Glen and Chris and a whole group and Julie talk about that. The second thing we had to do is we had to make sure we could leverage scale, and we had scale at CCNA. We had scale at CCE, and we had scale in the BIG in Philadelphia bottler that we had bring together. And finally, we knew, because our customers told us, that we had to integrate the thought and the action of how we bring our processes to the customer and how we deliver productivity for ourselves as well as for our customer and how we improve service.

And so creating a competitive advantage in our product supply system is really all about making sure we can deliver great customer service. In fact, not just great. We had to elevate our expectations on customer service, and we'll go into that. We had to make sure we could deliver the synergies and the cost reductions that we knew were inherent in the activity we did with the integration, and we also had to make sure that we could deliver world-class quality, safety and sustainability. And so we're going to go through all of those. But we really had 6 priorities as we pulled this product supply system together. And think of it, we had 22 distinct owners of a product supply system that couldn't have possibly been integrated with different economic owners.

And what we're able to do first and foremost is built it for growth. You heard a lot of talk today about building a segmented OBPPC. We have to have a product supply system that can deliver that, and that means deliver more SKUs. Today, we have 2,000. Soon, we'll have double that. We look out 10 years and say by 2020, we will likely have 4,000 SKUs. How do you have a product supply system that can deliver that and deliver it with the service and with the efficiency that we need?

We had to integrate the manufacturing facilities, the logistics, the planning, across the entire U.S. And I'll show you what we're doing and how we're in the process of doing that. We had to make sure we set excellence and standards in every market across our over 600 facilities in the U.S., and we'll talk about have we looked at that integrated set of facilities and how do we bring excellence every day in each market within each facility to each customer.

We also talked then about how do we create a culture where we have best practices we can share across the organization that which is occurring in one place but if not known or occurring everywhere. We'll go through that a little bit. Fundamentally, we had to have common systems and metrics, which we did not have. Obviously, when you have economic ownership, it's different. You have different metrics, different financials, different processes. And so we need to pull all that together.

And then finally, we had to have the best talent. We had to have the best people and the capability of continually developing the best people. And so that's what we try to create when we integrated this into a product supply system that we now have as the CCR product supply system.

Let me do a little definition first. There's really 4 components, 4 operating components to our product supply system. The first component is our manufacturing capability. We own 78 plants. There's 2x that number if you consider our co-packers, other bottlers in the system that we have to work with and integrate as well, although that's not in the economic ownership. We have 6 manufacturing processes, more than 290 lines.

But we also then have the field operations piece. That from the sales center and which we now call distribution centers out, where we have 416 of them. Again, you add-in the other bottlers and we have over 600, where we deliver over 5 billion cases, 22 million deliveries each year.

And so it's a large organization then that has to be planned. We have those 2,000 SKUs I mentioned across 7 product categories, lots of inbound raw material, lots of management that we have to do to make sure that we can capably plan and sustainably deliver every day for our customers. And then finally, we have a $13 billion buy for our system. We have the recycling business, and we'll talk a little bit about what we're doing in sustainability with recycling and bringing it altogether so that our bottlers can participate with us in our system with what we call our Coca-Cola bottlers' sales and service groups, CCPSS.

So that product supply system is a large team, and it's been integrated, where we have 35,000 teammates across the U.S. where we can deliver and now have to deliver in a seamless and simultaneously way sustainably in a consistent manner for all of our customers. And I'm going to talk about 3 cultural mandates, 3 things that we knew we had to do in order to improve our ability to do it the same way, the one Coca-Cola way every time. We're going to talk about the power of standardization. We're going to talk about "The Genius of AND" and you've heard a lot about that and we'll talk about how it applies to our product supply system. And we're going to talk about a zero-defect mentality, how we elevate our expectations everywhere.

Now to become a competitively advantaged product supply system, we knew that we had to forge all of the physical assets, the processes, the products together to get the kind of return we knew we could get from these assets and with our customers in these process. But we knew we had to change the way we think. We had to change the way we lead, change the way we act, change the way we execute, because we didn't execute as one holistic system. And that's the change that we're in the process of delivering, and we're doing it with 3 cultural mandates.

The first and perhaps the most important one, and we talk about it every day. In fact, the slides I'm showing you are the slides we share every day across our organization. It's the same slides. The power of standardization. The power of standardization is all about defining a one Coca-Cola way to make sure that we have standard operating procedures that we have common metrics that we have common processes and similar financials everywhere we deliver, in every facility every day.

The whole idea of standardization is to reduce variation. Our customers' experience our variation, and it's what dissatisfies me. Once we reduce variation, then we can make improvement. It's very hard when every facility is doing something differently in a different way to make improvement. The whole idea is to standardize and then everybody can move, and you can much more easily share best practices. Let me give you an example.

I mentioned we have over 400 warehouses. And those warehouses, while they're in different markets, most of them do almost identically the same thing. We have to receive. We have to load and stack. We have to stage. We have to deliver to our customers every day in these warehouses. And we didn't have common processes across all of them, but we know there's 97 processes in the warehouse. And we're in the process across all 400-plus of them standardizing those processes and make sure that we have common metrics, consistent metrics. We can now measure every warehouse we do every day. We can see where they stand versus one another, and we can continually improve the process of delivering for our customers every day from a warehouse. We know that when we do it well, there's $20 million of savings alone annually just in this process here in the warehouse.

The power of standardization, we talk a lot about, but what we've learned as we've gotten into this is the power is actually what we call now the network effect and here's what we mean. Often, when you talk to a group in a facility, it's hard for them to see the power of what they do when they make a 1% improvement. And so we talk a lot about the network effect. A 1% improvement in your manufacturing cost at your plant, if everybody does it when we standardize, it's worth $20 million to us.

A 1% improvement in fuel usage. Every time we do it with every fleet shop across the 400 facilities, every time we improve 1%, your contribution is $2 million. We have a $2 million improvement every time we make a 1% improvement. When we do water usage, and we tell every facility how do we get from 1.7 to 1.6 in terms of liters per water used that we use for every beverage. We know that every time we reduce 1% of water, we reduce 300 million liters of water. That's Atlanta's water for one week. And so that's a 1% improvement, and that's what we call the power of the network effect. And what it does is it links everybody individually to the power of this very large, very now integrated in the process of being integrated network.

So the first one is about standardization is about reducing variation. This next one is zero-defect mentality is all about taking that reduced variation and then shifting the mean, improving it. And here's what we had to really increase everyone's expectations. Zero defects is what we want. You don't get there overnight, but if we don't have a vision for 0 defects, we never get there. We don't mean 1 out of 100. We don't mean 1 out of 1 million. We mean a zero-defect mentality. Our brands deserve it, our customers deserve it and we have to deliver it. And we have to deliver it, as Sandy and Steve said at the start, in a sustainable way and a repeatable way. And it takes setting new benchmarks, engaging every single employee and every associate in the act of improving and getting to 0 defects.

Now one of the terrific things we find is that somewhere in our system, in every metric we have, we have world-class. In fact, just yesterday -- we measure warehouse out of stocks every day. We measure it every day for every facility. Yesterday, we had a facility, in fact, we had an entire market unit of 8 warehouses achieve 0% out of stock, 0. 8 of our 415 facilities were able to do it in Pittsburgh, the Pittsburgh MU. Every facility needs to be able to do it.

The whole idea is how do you get everybody thinking about it. Well, it's much easier to think about it when you have a group already doing it and can deliver 0%. Now there's no way they deliver it every day at 0, but they will and that's the mindset. And so the whole idea of the zero-defect mentality to make sure we're improving every day.

Finally, and here in the product supply system, we love this concept of "The Genius of AND." Now it probably wouldn't be as well received in the plants and in the warehouses if we use video and tape. But I'll tell you, it's equally as effective when we go in and we talk about this because virtually, all of us can do one thing well.

When we say reduce costs, we can reduce costs. When we tell people improve customer service, we can improve customer service. The genius really comes in being able to do both and do both well. And so for every synergy target we have, we couple it with a customer service target. For every sustainability target we have, we couple it with a customer service or a cost reduction target. The idea, be lean and green, introduce new items and reduce breakage, damage and loss. Achieve the synergy targets and improve customer service.

Great product supply systems do this, and that's what our system is in the process of doing. Now we've got a long way to go, and as you've heard from everybody on the team thus far, we have an appropriate amount of modesty to say we're not there yet. We've got a long way to go, but we're making progress. And so that's how we talk and think about "The Genius of AND."

So how are we doing? Is it making a difference yet? And so we're going to show you in the key metrics we look at in the product supply system how well we're making progress. And we're not satisfied yet, but here are some of the key metrics. We measure on time in full. This is what percent of the time do we deliver a perfect order.

So just to clarify this, if a customer orders 1,000 cases and we deliver 999 of them on time and in full, but we miss one, it's a 0. So this is saying what percent of our on time -- of our customers' orders are on time in full. And you could see the blue line was last year. We began the integration and you can see from January 1, which is what this is tracking, you can see we've made improvement. We've made 9 points of improvement, from about 75% up to a little more than 76% today. 76% is not something yet we're pleased with. We've got to long way to go to do even more for on time in full percent. But it's much better than where we were.

Also, you'll notice in that red line that it's in control, it's much more in control instead of having all the variation. It goes the same with warehouse out of stocks. We track out of stocks, as I mentioned, everyday in every facility. We've had a 45% reduction in out of stocks since the beginning of January since we pulled this together and begin integrating. And we've been able to do the out-of-stock reduction and you'll see soon without any impact on quality, without any impact on cost, as we continue to look deliver our synergy savings. And so here on warehouse out of stock, again, you can see the red line is this year versus the blue line last year, and you'll see us continue to improve this.

Now what does it mean for a customer? And so we thought we'd bring an example, an exact example of specifically how this all comes together to make a customer's satisfaction with us much, much better. So this is an example of a national food service and on-premise customer, a large one, and it's tracking from January. We have the results January through June here on these charts that we'll show you. And we sat down with the customer, and we sat down with Chris Lowe because a customer came to us and they weren't satisfied with our service.

And so we collectively set on the left-hand side our on-time performance scores, and they said you need to be at 98%. We committed on March 1 to be at 98%. You can see we've been in plus 95% -- 99% since the start, and it continues to be in that range in June. On the right-hand side, you see the fill rate performance, and we continue to be above 99% to their specification of 98.5%.

What's important is what we learned as we did this because often, running a DSD system, you think about minimum case drops and you think about the cost of doing those minimum case drops. And so we begin to look at what actually happened if we let the customer simply order what they want, tell us when they want it and we meet it, and we have an expectation that we're going to meet it regardless of what its impact is on us because we actually learned that the impact is much less than we thought from a cost standpoint. So here's the actual numbers.

Basically, in 2010, you can see the red bars are the average order size and those order sizes kept growing as we are delivering bottle can to this customer. And you can see in 2011, the gray bars, those started to go down pretty quickly as the customer got confidence as we are increasing our frequency of delivery. And so on the right-hand side, you see average days between delivery. What's amazing is that for a very, very small operational change we made, we have dramatic improvement in our customer satisfaction and we have a customer that's growing 3%.

And so a very small cost that we spent. We're out there. We're servicing everywhere. We've already got the truck. We've got the fixed costs we're delivering. It's another stop. It's instead of having 9 days between orders, it's having 8.2 days between orders, between deliveries. What that means is a dramatic improvement in customer satisfaction, a minor cost to us and a terrific example of "The Genius of AND" when we bring all of this directly to a customer and improve their satisfaction. And that's what this is all about. That's why we did it, and this is a terrific example of why and how it can actually work.

Now from a quality standpoint, we've been able to accomplish somewhat the same, although some of these don't change as quickly. You can see our quality performance since 2004, and this is measuring our complaints per million. For every million bottles consumed, how many complaints do we get from the consumer? And you can see we've reduced it by 20%.

And we've reduced it by 20% by focus on very, very small items across a wide variety. It's incremental improvement in every single brand in every single area. And this is a combination of effort across everybody you've seen today. Everybody, from the brand teams, who are working on the packaging and working on products to reduce this. It's about the customer service team and the sales teams making sure we all understand what we do to impact our quality. And so we're making progress in quality, but it's not enough. We have very high expectations. And you can see by the chart here where we are in the range of 2.5. We think we can get 1 point out of that over time, and it takes a long time. This is a journey that we're on. This is not something that happens in a month or two.

Sustainability. We've made progress in sustainability. We continue to have high expectations for what we want to deliver in sustainability. We have 2 goals from a water standpoint. First and foremost, we want to replenish 100% of the water used in our products by 2020.

Now to give you an example, last year, we replenished 3.2 billion liters. 3.2 billion liters sounds like a lot. It's roughly -- it's less than 15% of the total water we use. So we have a long way to go, as most companies do, to get this to perfection. But we know what it is we have to do to make the improvement here.

It's the same with our water use ratio in our plants. We measure how many waters in to create 1 liter, how many liters of water in to create 1 liter of consumable beverage and we've shared publicly that we're at about 1.72 exactly in North America. We actually lead here in North America, the Coke system. We have an efficient means of using less water, but we know we can get better and our goal is to be below 1.7.

It's the same with the recycling process on packaging, whether we look at aluminum or we look at PET. Both of those operations, if you think about recycling, have 3 components. It's the process of collecting, retrieving the used cans and used bottles, converting them so that they can be reused again and then getting them back into some usable and renewable resource, whether it's a new bottle or it's a T-shirt or a park bench or carpet. It's putting it back to good use. And so it's a little bit make sure we can collect, can convert and can recycle. And we're learning where we add value and where we have the most leverage as Coca-Cola certainly is on the collections side. And so you're seeing us drive up our ability to collect more of these used beverage cans and PET cans.

We also want all of our plastic bottles, all of our PET bottles, to have some components, some element of recycled content in it and bio content in it and that's PlantBottle, what we call PlantBottle by 2020. That's another goal that we set out.

Now I think everybody knows of some of the challenges that we have with vendors and coolers. They all have compressors, which all use refrigerants, and those refrigerants, the single most harmful is HFC, the hydrofluoric carbon, that's in there. It's very damaging to the environment. And so we've committed to be by 2012, 50% of all new purchases will be HFC-free. We'll be using CO2 as a refrigerant, and there are many solutions and our entire industry and supply base here has to help us and work with us to get this improved.

You're going to be able to see the cooler there in the middle that you see on the slide when we get out and see the trade show. You'll be able to see one of these coolers and exactly what it can do in reducing emissions. It's also very affordable. It's one of the things we had to consider as we design all the new coolers.

Now there's some other things that we're doing on the sustainability front that are actually really exciting. We have fuel cells now up and operational in 6 of our facilities. And basically, what they're able to do is give us 1/3 less expense on the fuel side. And so if we look at energy, this provides, for instance, off-grid, cheap, clean energy for us in a state like California that's challenged, in a state like New York, both of which give us a financial benefit for putting them in.

And so we're using UTC and Bloom Energy fuel cells. We're using them not only to power our plants and our offices. And by the way, these in some cases can reduce the use on the grid by 30%. That's what we're seeing in California, up to 30% reduction, which is very helpful for many of these metropolitan areas. We're also using these in forklifts. We're testing out in California as well these same fuel cells to apply to fuel cells, the same to apply to forklifts, the same mentality. It's not the exact same product.

Fleet. I mentioned we have 750 alternative fuel vehicles, mostly hydro vehicles. We have some handful of all electric vehicles. It's actually the largest fleet of alternative fuel vehicles in North America. We learned yesterday that we're the second largest in the world. There's a company in China that has 100 more than we do. But we're very committed with this. It's also a terrific billboard for our brands as we drive around New York City, as we drive around L.A. in all electric vehicles or in hydro vehicles like this. It's a terrific advantage for us.

Now we have to deliver all that service improvement and sustainability and safety, but we also have to deliver the synergy plans that we've committed them that we did as part of this integration that we knew were certainly benefits from the integration. And so we approach it in a very rigorous way. We have 14 synergy campaigns that we look at and review each week. We have hundreds and hundreds of projects going on across all of these. We've mentioned many times we have a $350 million annualized target by 2014 as a result of the integration. We will generate $140 million to $150 million here in 2011. Anything we do above that is certainly there to help us offset commodity costs that I think everybody knows are rising.

And so as we look at infrastructure, we look at manufacturing, we'll look at some of the other things that we're focused on. We thought it might be interesting to spend a little time to talk about infrastructure and how it actually relates to our planning and how it relates to the integration that we've laid out.

Infrastructure is actually quite interesting because some of you have maybe seen this map. This is the current Coca-Cola product supply system infrastructure. And so with over 700 facilities, it's fairly easy for all of us to say that you wouldn't build this exactly today if you started today. We all know that. And like many companies, we certainly wouldn't build what we have today after 125 years in business.

And I know because a couple of you have mentioned, Gary has mentioned over time that we have a lot of facilities in some places. It's true. We have 18 facilities in Southern California, 18 facilities in Southern California, including plants, including distribution centers and including offices. And that goes for New York and Chicago and all large metropolitan areas as we've organically built this terrific system.

But we know that this infrastructure has waste in it, and this infrastructure can better serve customers if we think ahead 10 years and say what should it look like, how it will have to deliver our products and our processes in a way that's new. And so we've gone about a very, very thorough analytical process to define what is our infrastructure of the future and what does it need to look like, and I'll explain what we've done.

Basically, we've taken the current state, and we've looked at this entire infrastructure and we said what's its cost, what's its capability, what's its utilization, what are the assets employed. And we've said then, what will it look like over the next 10 years? And so we went through a process. We started with the U.S. Census in 2010. We plotted out the U.S. Census and population growth by ethnicity and demography and laid it out through 2020 with all the help and all the work of some of the real pros that we have here at Coke, who can really plot and predict what population growth will be. We then applied that to what beverage consumption will be. Because as demographics change and ethnicity changes, we know that our product consumption changes with it.

Now here is what was really unique and we think very, very helpful about this. We've actually done this by in 3x3 mile plots across the U.S. So we've taken the United States and we've broken it down into 34,000 3x3 mile plots. And we can lay out from 2010 to 2020 what happens to consumption, what happens to population. And then in those same 3x3 mile plots we lay out, what are our assets? How many fleet do we have? What trucks do we have? What distribution capabilities do we have? What's the miles to deliver the product from the plant? What do we need to produce?

And so when you lay all that out, you can predict what is your infrastructure and what does it need to look like by 2020 or 2025, and then compare it to where you are today and build a plan to get there. And we've done that work, and we're in the process, very early obviously, of beginning to relook at and reshape the infrastructure for the future.

But let me give you a look a little more in-depth right here in Houston. We took the City of Houston, and we break it into 3x3 mile plot. And we're able to look at the consumption plots, and therefore, the population and consumption plots and then what are our needs here in Houston as we design the future infrastructure. Everything from our plants, all the way to our logistics and fleet and what kind of fleet will we need to deliver this. And so that's how we have developed an infrastructure plan for the future, and we're well along the way to thinking that through and beginning to execute.

So that gives you a little more insight into the infrastructure planning we've done. We've got a lot of work to do. We are at the very beginning of this, but it's exciting because we can lay out what we think is the infrastructure we need for the future.

But it all comes down to what we think of as operational excellence. We need a culture. We need a culture that thinks about standardization, about "The Genius of AND" and about a zero-defect mentality and that's what we're doing. We define operational excellence as getting in and engaging every single associate across our organization in continual improvement and making sure each of them understands how they individually impact all of the measures that we've talked about and the metrics that they get and see every day.

And that's really what operational excellence is, and we have a very thorough process for being able to show how do we identify those opportunities. We have a steering committee on which Steve and Sandy and Gary sit that we report out to, to be able to show the progress on the infrastructure as well as the synergy as well as delivering customer service. And so we're able to make sure that we're on the way to deliver 2020 from product supply system.

So that's the product supply system. We know it's all about standardization. It's about "The Genius of AND," and it's about making sure we elevate our expectations everywhere. We know we can be better, and we will.

And so with that, thanks for the time and attention. We will now ask Steve and Sandy, Jackson and Gary to come up and begin the Q&A. Thank you.

Gary P. Fayard

I hope the last few hours have been informative. What I would tell you is that I personally, and I think speaking for the company, are very, very proud of what we've been able to accomplish, the leadership team that we've got in North America now and where we're going. We've got a long way to go. But again for all of those in the leadership team, for Steve and Sandy, thanks again for everything you've told us today.

Now we've got about 45 minutes or so. We thought we'd just be open for Q&A. Now there aren't a lot of rules to this Q&A other than as follows. For years, I have met with every person in this room and I have reminded you that North America is only 20% or 25% of the company and don't you want to talk about the rest of the world. And you would all, without exception, spend at least 80% of the time wanting to talk about North America. So I expect us to follow the same rules today, okay.

But at the break, I just thought I would throw out some topics that you might want to -- you might be interested in because at the break, I'll tell you what I was being asked that I did not answer. Because I wanted to answer -- all of us answer it for everyone here, hear all of your benefit. What are you seeing with the consumer in today's environment?

Well, that small pack's interesting, but is it cannibalizing? Tell me about what's that do to transactions, gross profit throws? Well, with the consumer sentiment, do you need to retest it again, Steve? Interest rates, exchange rates, commodities, tax.

There are lots of things on your mind. It's obviously a really tough world out there. I can tell you the start of the discussion, I'd rather be standing where I am in this environment than anywhere else. There's a tough world, but we're in a pretty good place within that. So let's go to Q&A, and they're ready.

Question-and-Answer Session

Gary P. Fayard

Yes, and the other thing I would remind you, this is being webcast. So we need you to speak into the microphone so it will go out, so everyone can hear the question.

Unknown Analyst -

Okay. My question is about one of your charts on demographics and sparkling beverages. And the consumption in the U.S. is lower for the younger age groups than for older age groups. And I'm wondering, to what extent have your share gains so far over the last 2 to 3 years been boosting that younger demographic as opposed to the older ones? And then can you tell us anything about what you expect that line to look like in 2020? Will that younger age group be up in line at that point with the older age group? I mean, is that the real opportunity for your growth?

J. Alexander M. Douglas

That's a very insightful question. I will give you 3 headlines, the U.S. versus the rest of the world. U.S. versus the rest of the world 10 years ago did not do as good a job at recruiting young people into the brands. Our packaging and everyone in the room knows it. This is industry-wide, not just Coke. It was generic. Marketing was fairly boring and the packages were too big. And so we were focused on trying to deliver Nielsen results every month, and that lead to commoditization of brands and poor recruitment. That hurt the front end of that curve. The second thing is the strength. We have a very good Diets and Lights portfolio here that's unique. In 1981, 1% of Coca-Cola trademark were Diets and Lights. 2011 K, I think it's 42%, 42.4%. And that's elevating the adult side of our curve versus the future. As you look ahead to 2020, I think it's safe to say that we want to see that lower end increase. We want to maintain and build and extend the strength of the adult curve, and we hope to lift the whole thing to reframe, and that's what Katie's three-part recruit, extend and reframe is all about.

Unknown Analyst -

But you need to participate in [indiscernible].

J. Alexander M. Douglas

I would think the biggest percentage delta would be the front end of the curve, but remember that those consumers get older. And one of the nicest things about this business if you do your job today is that you get to earn that business over a lifetime. And so part of the reason why you saw so much energy from the brands about recruitment is that well-recruited consumers ultimately, particularly when you use devices like My Coke Rewards, which keep them in your portfolio when they're shifting categories, become a customer for life. And so the leverage in the whole model is the early part of the recruitment. But we're not wanting to push down the middle and the end, so you'll see the most change there. But hopefully, you'll see the tail elevate and the whole thing step up.

Unknown Analyst -


J. Alexander M. Douglas

I think -- Katie, you can help me with this. But I would say the biggest part of our share improvement has been youth recruitment. But Coke Zero is a young adult brand. We've got it very, very surgically positioned away from Diet Coke. So that when you look at the penetration numbers of Coke Zero and Diet Coke, there's only about 20% overlap. And Coke Zero, therefore, has been very incremental for us. Katie, you want to comment some?

Katie J. Bayne

Yes, I think finding the voice again for the brands of the Coke trademark, a new youthful voice for Coke, the innovation of Coke Zero, which has been category innovation, bringing younger male users who really wanted a full Coke taste and 0-calories and then combining that with the new execution pressure across our immediate consumption channels and our food service channel, those 3 combined have indeed gain share against lower age group part of the per cap curve. But we're also seeing gains in that older age group as more and more Americans, as they age, are looking for sparkling solutions, too.

J. Alexander M. Douglas

So percent increase, yes, probably weighted to the younger end. But where all the cases are, we've been getting pretty balanced share growth across the portfolio.

Unknown Analyst -

So all of this sounds very enticing, but what does it all amount to is the question. So what can we expect in terms of growth in North America for you guys? And I say that in the context of -- I think it was Steve who said 0.5 or 1.5 points of volume growth. Of course, no mention of the price mix there. I'd love to get a little more detail there. As well as a mention you made, I think, of '06 to '10 of 2% growth in sparkling. So how should we think all of this, all this great efforts you're putting together, all this great investment that you're putting into marketplace? What does that amount to from a still's growth perspective all in and a sparkling growth perspective all in as we go forward in North America?

Steve Cahillane

Yes, I think we said time and again that we believe -- I think the important headline is we believe in North America's growth market. So if you look at NARTD, and we believe we can grow it 0.5% to 1.5% over time, we would expect to be the drivers of that growth. So we're not going to predict what our volume growth will be over time, but we plan on being one of the drivers of that growth. And therefore, we would expect to perform better than that. In terms of our revenue, we will continue, and you saw in all the examples, a very consumer-centric approach. But the positive benefits that accrues back to the company is not only better brand marketing, better targeting, better recruitment and all those things. It's also a profitable strategy. Because when we segment the right way and when we go through all these different offers, we allow ourselves to capture more value per transaction. And so when we think about value per transaction, value per occasion, value over time for each and every one of these consumers that Sandy said when we recruit them and we keep them, they're extraordinarily valuable over time. So we would expect our revenue and mix to continue to improve and our volume performance to again outpace the industry. And I think you can probably back into some fairly predictable types of conclusions of what our expectations might be over time.

J. Alexander M. Douglas

And then Steve, when you say beyond that against our productivity profile that we'd expect to leverage our expenses as well, creating a healthy growth picture at the bottom line?

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Realizing that it's not completely apples-to-apples comparison, but if we look at your North America operating profit and compare that against Pepsi's, it looks like you're still about $500 million or so below the profit that we're seeing from Pepsi's numbers. So I'm just wondering, how do you close that gap? What are some of the drivers in terms of what the benchmarking will tell you why the difference is hard to begin with? How do you close the gap? Is that a function of you coming up, or do you think the competitors will come down?

J. Alexander M. Douglas

Well, we strenuously avoid talking too much about our competition largely because we find that the value for the company, consumers and customers, comes from getting better ourselves. But if you did a comparison of the beverage profitability, the 2 systems, I think you go pick the number where you think it was 5 years ago, we think it's about half as big today. The biggest drivers of it were convenience store, blue-collar performance particularly Mountain Dew, which is a very strong brand, and Pepsi system and then the Gatorade acquisition. Our strategy, which is about creating value for our shareowners and for our customers and consumers, is all about growing our core brands and our iconic brands, winning the growth picture on the way to most valuable in the still categories and building capability. And I'm not saying that to just hit messages. That's how we have achieved the relative profit shift that we have over the past few years as we just worked really hard to doing that well. And so as you look ahead, you take that down to tactics. So 16 ounce, $0.99 immediate consumption Coke has been a really strong part of our convenience store attack plan. The expansion of packages in Foodservice is an enormous part of that. vitaminwater was an important acquisition, but it wasn't the driver of that hydration share gain. At least the acquired volume wasn't. It's what we've done with it because we got it. That multiplied in and POWERADE combined has helped really cut into that active hydration gap. And then finally, juice has been enormous for us. But in the end, we're not achieving those gains by thinking about anything other than being better and better and better at what we're trying to do. And over time, to the extent that we can maintain the momentum in sparkling, continue the really exciting progress in juice and in active hydration. And then as Brian talked about, pick up tea and energy, and we've got some exciting things happening in tea, particularly with Gold Peak, we think we're going to be competitive. But we've got to keep executing well, and we're a long way from bright.

Unknown Analyst -

First of all, I just wanted to clarify a comment about leveraging expenses. Is this in the next couple of years? And what I mean by that is above and beyond synergies and above -- and past all the commodity swings, do you actually see a sustainable formula for that?

Steve Cahillane

The answer is clearly yes. I mean, we're well on our track this year to achieve our synergy target of $140 million to $150 million. Well on track for the $350 million by 2014. But on top of all that, we're also leveraging a whole lot of productivity initiatives, one of which is what we call ownership cost management, which is a program that we started in CCE and we have in Coca-Cola Refreshments and Coca-Cola North America, which is a productivity program where when done extremely well, you can look at your controllable expenses and world-class is if you can grow those can controllable expenses at half the rate of inflation. Brian talked about a number of productivity initiatives that many of them are a part of the synergy targets, but they will live long afterwards in what we call continuous improvement initiatives. And we've got an awful lot to go after there because again, when he showed you that map there's -- as he said, you wouldn't start from scratch there. So we're going to have productivity programs well into the future as far as I can see. Now we're also going to have investment programs well into the future as far as I can see. But what the beauty of it is we have so much productivity that we see in front of us that things like Glen talked about and Mel talked about in terms of feet on the street and customer capability and so forth, we have fuel for that. So we'll have leverage, but then, well, that leverage will create choices for us in terms of how we reinvest to continue to build capability and how we think about the type of operating income that we want to create and the value that we want to create in North America.

Unknown Analyst -

Great. And I had just a quick question for Katie, probably on the cola segment. If we're looking at NARTD as 0.5% to 1.5% growth rate, can you frame the cola segment of that in that context? Give a little history and a little forward-looking?

Katie J. Bayne

I don't have the math in front of me right now. But by far and away, as you know, colas are the biggest section of the NARTD business. We believe they will remain so on the growth trajectory on Zero, as well as the work we're seeing in Coca-Cola connecting, again, in different sizes and different packages with more people drinking more frequently as well as Diet Coke now showing signs of growth. We see upside in colas and in Coke trademark specifically, but I don't have the breakdown for you right now between that 0.5% to 1.5%.

J. Alexander M. Douglas

One pile on I'd give you is that you can think of a brand growth model as you got population, which is the performance of the broadest possible definition of the target, then the penetration within that population, the frequency and the amount. We're significantly downsizing packaging. You saw it all day. And the reason is, is because, and it gets to one of the things that Gary brought up, is the state of the consumer. The consumer is operating in 3 or 4 big prisms: health and wellness, value, sustainability and in the United States, hyper multiculturalism. And for us, refreshment then is not about gluttony. The way we're going to succeed today is to give people cool packages that allow them to make choices. And we went to an incidence model copying our Latin Americans where, the way we get paid by our bottlers is a percent of revenue. So we're not addicted to super sizing to drive our model. We're in the refreshment business. And so you're going to see a little bit of a drag in the amount per serving when you look at unit cases. But what you want to see from us to be able to believe is that penetration and frequency is robust. And the reality is the net number of consumers that are buying Coca-Cola is growing again for the first time in a number of years, and it's a huge part of what's driving our performance in the market relative to the industry. And so I would say growth for sure in those first 2 metrics, maybe some short-term drag in amount, but watch sales revenue, which will be healthy and has been for a couple of years. And so that's part of what makes the algorithm that Steve talked about work.

John A. Faucher - JP Morgan Chase & Co, Research Division

Sandy, if I could just sort of follow-up on that because you guys are talking about how sort of volumes are going to get better. Can you walk us through as you look at those package size choices that you're making? So we look at a 16 ounce versus 20 ounce and say, well, the value per ounce is the same, the cost of delivery is the same, the packaging cost is roughly the same. And so as we look at it from a profit standpoint, we struggle to figure out how the downsizing in the shorter term is going to pay off from a profits standpoint. So can you walk us through sort of where the math is off on that? And then sort of following up on Alex's question from a volume standpoint. If you guys are going to downsize the ounces per occasion, what's the runway on that? Is that a 3- to 4-year transition where we look at volumes coming in below that 0.5% to 1.5%? Is that in the 0.5%? Can you sort of walk us through how long this is going to take, if you're 10 years behind, where they are in package choice in Latin America?

J. Alexander M. Douglas

Well, and Julie, I'm going to ask you to pile on to explain the math here because I think it's your function. But I think the short perspective is that the velocity of bottles is growing at a rate that allows us to make more money. And if you study what was going on inside of immediate consumption, call it, before we got serious about this, you had a fairly steady and really horrifying decline. Because I'll ask, let me just take a small poll, how many people in this room have bought a 20-ounce carbonated soft drink in the last week? Okay. About -- penetration of about 20%. How many of you have or would buy a 16- or a 14- or a 12-ounce for $0.99 if it was available? Everybody's being very cooperative. That's 90%, plus or minus. The point is, is that when you apply that math to your question, you get an excellent financial outcome. The thing I want everybody to understand is that the journey of rightsizing packaging is a perpetual journey. What matters is, is that more people are drinking you more often and they're paying you more money. That's what matters. And part of the question everybody ask is how can I believe in sparkling growth? The answer is if more people are drinking you more often and paying more money, that is growth. Now if you're milking something and it's getting smaller and less people are drinking less often and you're pursuing something like the cereal companies did a lot of years ago, that's not growth. But we don't view that, that way. And so we're going to end up going where the consumer goes aggressively. And to the extent that we can see more people more often for more money, we don't feel any urge to try to upset the apple cart there. And we're happy to show you. But Julie, will you comment some more on?

Julie Francis

Well, you actually -- you did a great job of talking about that, but I do want to add. The only thing I would add is that you talked about packaging and transactions. You heard from Glen, you heard from Chris and we say this with all sincerity. There are millions of outlets that we're not in right now. If you go to a quick food service, so take any -- take a sub shop. There's a sub shop that is really, really fast at delivering subs, and that's the majority of their business. When you call in, you're not purchasing beverage. They're delivering subs that are not purchasing a 20-ounce for immediate consumption beverage because they don't have that occasion in that outlet, and there's thousands of outlets. With the integration, you have Simply hugely, hugely successful brand because of the complexities of the route to market, it's chilled. It has to stay a certain temperature consistently over time so the route to market is complicated. There's over 4 million at-work outlets that don't have Simply in them right now. Together with the integration, when you solve to order the cash, you solve the sales, you solve the route to market opportunities, you have an opportunity to penetrate the brand and package availability in both current outlets and within outlets that we don't have. And tomorrow, for those that are on the route going out in the market, just look around all the strip malls and look at all the different types of formats that are out there to be penetrated, whether it's a strip mall that has plastic surgery and health services and the entire mall is that type of outlet, people want to be refreshed there. They're waiting for an hour. There's opportunities there. Look at the national specialty retail outlets, where traditionally you hadn't sold anything in a small hardware store or an office store or a party supply store. Now they're looking to us and consumers are looking for that occasion for us to help them with. So we are confident that there's a lot of growth in the outlets that we're in and then this expanded availability that's out there now.

Steve Cahillane

Yes. And If I could pile on to that because I think that really is a big opportunity and we'll be very thoughtful about the way we pursue it. So it's not about putting as much steel out there as we possibly can. But it's about finding those locations where people would love to be refreshed and we can do it in an economically, efficient way. But John, the other thing I'd say, and Sandy said this, but I want to underscore it for those who maybe didn't follow the same way. When we were staring at our immediate consumption 20-ounce decline 3 years ago, they were high single digits. And it looked like it was going to continue kind of in perpetuity. There wasn't an end in sight. And there's a lot of people, there was a lot of skeptics, when we came up with our 16-ounce strategy at $0.99, who said that's a really bad idea, especially for the bottlers, especially for CCE at the time, because what you're going to do is you're going cannibalize all the way down and we all know how much your profit is wrapped up in the 20-ounce bottle. But what we found through very good merchandising, very thoughtful merchandising, is what it did was it got a lot more people reengaged to actually go into the outlet, whether they were pumping gas or wherever, the $0.99 offering got people very excited to go in. And what we found is our cannibalization rate was actually even lower than we had modeled. So it was a net win for us. And our entire media consumption business improved dramatically. And interestingly, our 20-ounce trends improved. So our 20-ounce trends improved, which makes you, or you can make the argument then that the 16-ounce was 100% incremental. So now, we're looking at this the same way and saying faced with a lot of headwinds, is 16-ounce at $0.99 sustainable forever? And the answer is no, it's probably not. So we're executing the same strategy. We'll bring our 16-ounce up, 16-ounce offer up. And I believe what we're going to find is people have really fallen in love with that package size. I have. It's my favorite package size. But there's going to be a whole lot of people who will still be enticed by the value offering and the very cool nature of that handheld bottle, who will come in and explore it, And we believe in the totality, what that will offer is, is it a product for everybody's desire and occasion? And we believe the math will actually work for us compared to what otherwise might have been.

Unknown Executive

I mean, I know there are other questions. But the one thing I think Steve hit on there that's so right, and we've been writing about and thinking about the declining sparkling beverage business in the U.S. and saying it was going to go away. But the reality is that what we did was for a very long time, we really did a bad job with the category. The packaging was too big. It was generic, And we're constantly focused on very, very price-oriented merchandising. And so we gave up the edges of it. We gave up the meals occasionally. We gave up the on the go. I mean, Coke has always been affordable refreshment. And because we were fighting for cheap 12 packs and 2 liters in supermarkets, the price of the 20-ounce Coke went from $0.79 in the middle part of the '90s to $1.49. And all of a sudden, it was more expensive than the sports drink category and all these other categories. And so it was a combination of what we were giving people in terms of excitement and package choice and fit, coupled with the fact that we are making discounts in supermarkets while we were overcharging where we were building the brand. And all of that kind of conspires to create a problem. And addressing it will involve addressing consumption curves and executing like we mean it for more than just a couple of months or quarters. And the net effect is we like the sales numbers, we like the recruitment numbers, we feel we have a 5-year plan for immediate consumption that we put together to figure out how we're going to migrate halfway to 2020, and we feel pretty confident that it's going to work because of the results we're getting, not because of some hockey stick at the end.

Unknown Analyst -

Steve, Sandy, question about brand innovation. We didn't hear a whole lot about that today. So I was wondering if you could talk a little bit more about how you think your capabilities there stand today? How they might change in the future? And then a related point of acquisitions tea, I think, is a priority, where is your thinking on acquisitions outside on your major categories.

Unknown Executive

Okay. Mark, thanks for the question. I would say -- let's start talking about brand innovation and let's break a paradigm. What everyone thinks when Mark says that I think is what new products are you going to come out with. And there's a whole element of that. There's research going on in sweeteners and other areas. Let me give you the 3 innovations that you saw today that were in the whole meeting. Innovation number one is OBPPC. That's a significant innovation in merchandising the beverage category. It's a process, it's a capability, it's the growth model, and it's really innovative. My Coke Rewards was 17 million users. That took a lot to build. That was very innovative. The extension into social media and the way that these big epic programs are being built and extended down through Facebook and out into that whole teen element that Katie was talking about is very innovative. And all those are brand building innovations. And that's where the money is. You can't chase the next thing and let your core rot out from under you. The math doesn't work. And so I would start by really focusing on the innovation that you saw in brand building and marketing because they're big things and they drive big numbers to get bigger. Now the opposite side of the coin is to your question, we didn't spend a lot of time on Derrick Van Rensburg's venturing in emerging brands area. But his job is to build the next billion-dollar businesses. And so he's out there playing and part of the strategy for BED is to make failure cheaper. Because part of what we study is it takes 10 years to build a good brand, and you have to be willing to do some at bats, and you have to be willing to fail. And so whether it's eco, whether it's illy, super, super premium coffee or east meets west and sokenbicha, those are all ideas. Honest, we've been quietly building Gold Peak following the vitaminwater incubation model with Gold Peak, and nobody's been that interested in it but it's starting to really move. So we've got a lot of things kind of in the oven. And then there's the whole R&D area, and priorities around that are in sweeter and in packaging. But I think you can expect us to be very focused on those 3 strategies of building iconic core brands, being fastest growing in the high-growth, and then innovating. But the first one is job one because without it, the math doesn't work.

Unknown Executive

I was going to pile in a couple of additional things. In the packaging arena, we think that there is tremendous upside for PlantBottle and even next generation PlantBottle, whatever that might be. It has related to resurgence in our Dasani business. There was a time not very long ago, like last year, when people were saying you could not get any value out of case pack water, or even single serve water. And what we found by continuing to focus against PlantBottle is in fact, that wasn't true. Now it's not a huge amount of value, but it is value and it's a premium above what others are getting and it's allowed us to get re-listings in Kroger and Wal-Mart, which last time we checked, are 2 pretty big, significant customers. So around the whole packaging technology fronts, there's a lot of excitement. Chris talked just a little bit about Freestyle. And we're in the infancy of Freestyle, 50 markets going to 80 markets. But the results are compelling. And when you think about the fountain business started 125 years ago, and it's seen innovation along the way. But I would argue this is the first breakthrough innovation, truly game changing. And it's in front of us it, and it's ours to execute right now. So we don't need another big idea in Foodservice right now. We've got a gigantic one in front of us. And then the third thing I'd say, and it was in Katie and Brian's presentation, and it's building out what Sandy's talking about, when we build our iconic brands, it's hugely important. But the whole way the world is moving mobile, especially young people, everything that we're doing, everything that they're building has a mobile component to it. And you saw that little neat thing with the Freestyle bar code, that's real. That's not in somebody's imagination. It started in somebody's imagination, but it's really being rolled out in the marketplace right now. So I think we actually -- I'm feeling very, very good about where we are in the innovation space. And we, together, share a view, all of us share a view, that if you look for the silver bullet all the time, like the new product offering that's going to be double your business, Apple is really great at that, and created a tremendous amount of value. But we're first and foremost about building the iconic great brands that we have in new and innovative ways. And we think that that's going to be a continued way that we're going to win in the marketplace.

Unknown Executive

But I think we -- I think it's also true, we've been the fastest-growing, still, company in North America for over 3 years every quarter. So that we think you can walk and chew gum at the same time, but you've got to be focused on brands and customers to do it.

Carlos A. LaBoy - Crédit Suisse AG, Research Division

Sandy, you've had to design the architecture of a company-owned bottling model, but you also have to design the architecture of a future re-franchise model. My question is how close are you to completing that final design of a future model? And as you go through this experience you're going through right now, what might be some of the principles of this model that you want to preserve for the long-term?

J. Alexander M. Douglas

Well, the first thing I'd say is I am not designing the company-owned integrated model. The person on my right is, and doing a pretty good job of it, I might add. As far as the future, what I would say is that Steve and I, and Gray Lindsey, and a team of leaders are working with the U.S. bottling system to identify the road forward. If you look at principles, I think Muhtar has been pretty clear about this, we think the franchise system is absolutely the right system. We love it. And you can find that people, it's not an outside the U.S. thing, I mean, the smallest bottlers in the U.S. have been growing for 3 years. So we think the franchise system works, we just don't think it can be static. And so some things you saw today were scaled customer management, very important principle. Scaled product supply system, very important principle. But the incredible power of local touch, operating off of a collaboratively built set of brand and commercial strategies, so think local touch and scale where they both make sense. And then finally, an evolved partnership model, where everybody shares in the value in a fair and equitable way. And we think those principles work looking ahead, and it's a work in progress. And we're not racing to it. It's not something that Muhtar says he wants done by Thanksgiving. It is something that we are doing very, very collaboratively with our bottlers. And I guess all I would tell you is I'm really excited about the way that the principles will drive the strategy. And I have a lot of personal pride about the 69 Coca-Cola bottlers that aren't in this room and the teammates that presented today, and I think there is something special going on here. And I think you'll end up seeing a system that's different and that's fit-for-purpose for 2020 and beyond. I only have one thing to add to that in terms of principles. Partners who think about investment and how do you invest to create future, long-term sustainable growth is a key component to that as well.

Unknown Analyst -

In your last earnings call, it was mentioned that you'd be investing over $25 billion over the next 5 years in markets worldwide. And I'm wondering if you can give some detail as to the breakdown of these investments by market.

Unknown Executive

$24 billion in North America.

Unknown Executive

Number one that was a system number so that was a company in the bottlers, primarily bottlers. And Jackson be happy to give you a breakdown on that.

Jackson Kelly

Yes, we'll follow up with you on that. I think it was 5 in Mexico, 3 in China. We had 2 in Brazil, some in Russia, Africa, North America. But we'll follow up and give you details because it varies also over time, 2-year, and 3-year and 5-year periods. Don't be shy, we have 7 minutes left.

J. Alexander M. Douglas

Can I make a comment too, while you guys are thinking of your next questions. One of the other things I hope you saw today and I think Steve and I both prioritize this a lot is chemistry. This is a business of people. We have over 70,000 colleagues who put on red jerseys every morning to go out and win for their customers and consumers. And part of what I hope you felt and what you can push on when you're out in the marketplace is, how is this team doing, and what kind of roadmap do you see for talent? I can't do what Katie and Brian and Julian and Alison can do. We are excited about the team all the way down to Glenn's comments about university recruiting, which is something that Steve's championed, and I'll let him comment on people. But people is a big part of the innovation here, too, as we look ahead.

Unknown Executive

Yes, I mean, the University talent program is really the long-term sustaining part of our people program. And if you think about going on a college campus, especially today, we have a really big advantage. It's unfortunately continues to be a very challenging economic environment. And it's very, very challenging for university graduates right now. And you know what, we're hiring. We're hiring a lot. And we get to choose because of the environment, but also because we're Coca-Cola and we've got an iconic branded company as well as coupled with lots of iconic brands. And now a great platform and a great infrastructure to bring these people in. I mean, we're hugely excited about the level of talent that we've been bringing in. And I can tell you every time I talk to them very, they're a very, very diverse group of a talented people. I leave feeling somewhat scared because they bring the bar up and you better bring your A game each and every day when you're filled with a room of bright, eager, incredibly talented people, who come from so many different backgrounds and then therefore, offer so many different perspectives. So we're really proud and excited about the team that we're building here in North America together.

Unknown Executive

Any other questions?

Unknown Analyst -

I was curious to get an update on the consumer because it's interesting seeing the popularity of Freestyle and immediate consumption and all these packages. And I'm just curious how much of the speed for growth and maybe some of the buildup you've seen recently do you think is coming from initiatives that you've put in place, versus maybe some firming, if any, at the consumer level?

J. Alexander M. Douglas

I guess my only comment would be it's a dynamic environment with the consumer. I mean, this economy has -- I mean, I'm not trained to tell you what's going to happen, but it's tough out there. And there are a lot of reasons for it. But we think that if you want to stay focused on the consumer and think in prisms through which you have to look at your business, well-being, value, sustainability and multiculturalism are the prisms. And if you do those things well and you market, and sell, and execute better than anyone else, particularly, as Gary said, at the beginning, and Muhtar said this all the time, I mean, thank God we're not in the big heavy-duty appliance and other kinds of businesses. I mean, we sell moments of pleasure, cents at a time, billions of times a day. And so we can. We can operate in the prisms that we're living in. But I would say that every time we think the consumer is fully back, something happens that makes their life more difficult. And we have to keep responding. And that's why we're so focused on making sure segmented execution works because we've got to have value where value is needed and premium where premium can be enjoyed. And we're not afforded the luxury of choice on that.

Unknown Executive

The only thing I'd add to that is to your question, I don't feel a tailwind. 1.5 years, 2, 3 years ago we felt the headwinds. Things stopped getting worse and then we thought started to get a little bit better. But today, they stopped getting better. So it's not helping, but it's not hurting anymore. So Muhtar said a number of times the consumer in North America is fragile. And I think fragile is a pretty good word to describe it. Housing is not getting any better. Construction is not getting any better. But things have stopped, jobs in general are not getting any better. But there's not a sign that we see that things are going to slip -- that it's going to get worse all over again. So we have to keep doing what we're doing, as Sandy said, run our play. We've been able to grow in an environment without a tailwind. And like everybody, just part of the nature of being Coca-Cola and the patriotic company we are, we want those tailwinds. We want America, and we believe in America. And I for one really do believe in the medium and long term Americas best days are still in front of them because of innovation, entrepreneurial culture, and it'll happen, and we'll keep running our play until such a time as we can enjoy a tailwind again.

Unknown Executive

So with that, any last pressing questions? In the last couple of minutes we have?

John A. Faucher - JP Morgan Chase & Co, Research Division

FX. What we've seen -- I'm going to stand up because we only got 1 minute left. What we've seen is the dollar strengthened, obviously, fairly significantly across the board the last few weeks, and it's fear, risk aversion all of those kinds of things. I think 1 of 2 things is going to happen. I think either the present European Bank and all as of yesterday is right and Greece is going to be okay, they're going to save it with euro bonds or whatever. And they're going to save it, and then I think the dollar will start to weaken again over time, euro will be range bound probably a little bit, and the rest of the currencies will start strengthening again. Don't ask me for percentages because if I knew I would have to be standing here working. Other would be if something does happen around Greece and let's say there is a default, or whatever, God help us if it is. If there is, remember, Greece is only 2.5% of the EU's GDP. So I think if it was, I think my prediction of what will happen is the markets will significantly overreact. The Euro will weaken significantly. Dollar will strengthen. It will be in overreaction that will not last anything like last time and it'll start correcting probably, my best guess, in 6 or 8 weeks. But in that overreaction, you're going to see dollar strengthen, exchange rates get worse, commodities probably fall, start to free fall. So you've got a couple of different scenarios, and I'm just playing scenarios with you now. That could happen. It all could all be stable. We don't know. And we are basically right now going through and evaluating, and hedging our bets against all those scenarios as to what could happen. So we don't know. And I think the best thing we can do is from a treasury point of view, we're hedging our bets on things and we're actually taking out coverage on lots of things over the next few months around the currency side. We'll see what happens on commodities. But the best thing we can do is try to protect what we got. But then run our play as Sandy says. We're going to run our play, and the world does what the world does. But that's at think where we are. And that's the best I can say John. It's a guess. It's anyone's guess today as to what will happen. Hopefully, they will get Europe fixed. So with that, you saw, I saw some terrific people from North America and CCR today, but you only saw about half the team. The other half of the team are actually here as well. So if you really want to deep dive on juice, there's a guy right there who could tell you everything there is to know about juice. If you want to know about Customer Care, right there. So [indiscernible] is back there if you want to talk about innovation around new products. So check -- find them and talk to them because there's a lot of other talent that would love for you to talk to while you're here tonight.

Unknown Executive

And we'll be at the reception tonight, between 5:30 and 7:30.

Unknown Executive

Exactly. Yes.

Unknown Executive

So with that last question, that concludes the webcast as well. And now I'd like to bring up Mark Shortman to talk about our data more in the Houston market. Thank you.

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