ATLANTA Scientists at Coca-Cola Co (KO.N) are working on developments ranging from plant-derived plastic to beverages with new textures, as the world's largest soft drink maker aims to stay ahead of consumers' quickly changing tastes.
In a series of interviews with Reuters at company headquarters in Atlanta, Coca-Cola executives described how they are trying to identify their next billion-dollar brands, toying with new beverage formulations that may even take the company beyond liquids.
"The thing that I get excited about is product forms and sensory experiences continuing to change," said Mary-Ann Somers, vice president of marketing for Coke's Venturing and Emerging Brands, or VEB, unit. "Functionality will continue to evolve, but how it's delivered and how you experience a liquid beverage continues to change."
When asked about the most unusual drinks on the market now, Somers mentioned chunky aloe vera drinks and spicy drinks like those made by Prometheus Springs, with flavors like Lychee Wasabi and Pomegranate Black Pepper.
The U.S. beverage industry has seen an explosion in drink varieties over the last generation. Bottled waters, energy drinks and sports drinks are now commonplace, with new variations popping up that claim to boost relaxation, health, beauty, anti-aging, muscle repair, mood and immunity.
This proliferation is a main reason why market-leader Coke and No. 2 player PepsiCo Inc (PEP.N) agreed to buy their North American bottlers, as they seek to cut costs and revive the U.S. market, which has been sluggish for some time.
RECIPE FOR GROWTH
Last week, Coke reported its first increase in quarterly North American sales volume in over two years, helped by World Cup promotions, but also on the strength of new drinks such as Powerade Zero and Coca-Cola Zero.
Thirteen of Coke's brands -- including Fanta, Sprite, vitaminwater, Powerade, Minute Maid and Georgia Coffee -- generate more than a billion dollars in annual sales. VEB, quietly formed some three-and-a-half years ago, is out to add to the list.
"We'd like to get in a little earlier this time," the unit's president, Deryck van Rensburg, said, referring to Coke's 2007 acquisition of vitaminwater maker Glaceau, whose $4.1 billion price tag caused a stir in the industry.
VEB has identified six new areas it thinks can give rise to future billion-dollar brands.
Coke is guarding those categories of future growth as jealously as the recipe for its own namesake cola.
"It's our secret sauce, if you like," van Rensburg said. "We see tremendous growth in the range of benefits that consumers are looking for from a beverage. In the past, you might have got it from a food or a drug or a diet supplement."
Bilal Kaafarani, Coke's senior vice president of research and innovation, said key areas of exploration were natural products for drinks -- from sweeteners to colors to preservatives -- and infusing them with healthier functionality like omega-3 fatty acids or antioxidants.
Like a corporate venture capital arm, VEB is investing in independent brands, like Honest Tea and Zico coconut water. But it is also developing its own drinks, like a new carbonated dairy drink called Vio, and bringing to the United States drinks it already sells abroad, such as a Russian soft drink it sells in New York area Whole Foods WFMI.O stores.
The company plans to announce later this year that it is bringing in an unsweetened, zero-calorie drink it already sells in Asia. Van Rensburg declined to give more details due to exclusivity and confidentiality agreements with a retailer.
VEB gets three to four unsolicited pitches per week from entrepreneurs and reviews all the new ideas every second week. As Coke's portfolio evolves, van Rensburg said he can imagine selling products that aren't necessarily liquids.
"The epicenter will be beverages, but it's possible that a snack bar or a different form -- a powder or a little sachet -- can also be part of that offering," he said.
Coke is starting a unit similar to VEB in Europe, and van Rensburg said it was "not inconceivable" for it to work in other places, such as China, where there is "a huge entrepreneurial community."
IN KEEPING WITH THE VISION
Coke's mission statement, referred to as its "2020 Vision," calls on one of the world's best-known brands to become a leader in every drink market and category, reduce water, packaging and energy use and more than double its system's revenue.
Last year, it unveiled a recyclable plastic bottle, up to 30 percent of which is made from a material derived from Brazilian sugar cane. After launches in several markets, the partial plant-based plastic makes up 5 percent of Coke's total use of "virgin resin," which excludes recycled content.
Scott Vitters, who directs Coke's global packaging and sustainability efforts, told Reuters that Coke aims to have all of its virgin resin made with the partial-plant material by 2020, in addition to an earlier goal to use bottles made fully from plant-based material, instead of only 30 percent.
"We do believe that this is going to continue to evolve and shift," he said, adding that Coke's material could even be used by other companies, including outside the beverage industry.
In three to five years, Coke expects to be able to use second-generation biofuels, such as orange peels, tree barks or plant stalks, in addition to first-generation fuels such as corn, soy and sugar cane, which can impact the food supply.
(Reporting by Martinne Geller; Editing by Michele Gershberg and Jan Paschal )