Keynote Speech by Muhtar Kent at InterBev 2008

Muhtar Kent, President and Chief Executive Officer, The Coca-Cola Company
Las Vegas, Nevada
October 20, 2008

As prepared for delivery

Thank you... and good afternoon, everyone.

What an honor it is to be here today and participate in this great forum.

You know, in many regards, InterBev is the perfect metaphor for the American beverage industry.

It has long and storied history -- going back to 1921.

It has transformed along with consumer tastes, preferences and market dynamics.

And like most of us, it has come up against its share of challenges in recent years.

But it's fighting back... and ultimately will emerge stronger and more relevant than ever. This year's summit is proof of that. All of you should be commended for your support of this conference and our wonderful industry.

When Jack , Susan and Joe invited me to be part of InterBev 2008, I jumped at the chance to be here in Las Vegas -- a city that personifies the American spirit of big hopes and big dreams.

You see, I too have big hopes and big dreams for our industry here in the United States, as well as globally.

I also know that all boats rise with the tide. Indeed, long-term, each of us is only as strong as our industry.

I want to talk about that this afternoon. Specifically, I want to look out over the next decade or so and share with you some thoughts on where we in the Coca-Cola system see the beverage industry heading -- and what we can do collectively as an industry to be better prepared for the future.

While no one has a crystal ball, I think it's safe to say we will continue to live in times of great paradox.

Our future over the next decade will almost certainly be defined by severe headwinds... and unprecedented tailwinds.

Today, those headwinds feel more like a Category 4 hurricane.

It's tough out there. I know it. You know it. It's probably true that it will get even tougher before it gets better.

It's been tough for a while. Some of the challenges we've been facing have been lingering for more than a decade.

Consumer and customer preferences and expectations have shifted dramatically.

Regulatory and NGO pressures have intensified.

Commodity and energy costs have soared.

And now, of course, we find ourselves in the midst of the biggest financial crisis since the Great Depression.

As scary as it sounds -- we've been in this place before and we prevailed. And we will prevail again.

In fact, the mood in America today is very similar to what it was 30 years ago when I graduated from university in England and moved to Atlanta to work for The Coca-Cola Company.

Fuel prices were spiking. A recession was draining our confidence. Across America there was widespread fear that we were losing our global political and economic leadership.

Many people feared that a surging Japan would cripple American industry, jobs and the U.S. economy. Even greater numbers of people were worried about their jobs being replaced by technology.

But the system didn't collapse, did it?

In fact, America got stronger... much stronger... and that's because this great nation did what it has always done best -- America innovated and reinvented itself.

And we can and have to learn from history -- that the past is indeed prologue.

In the process of innovating and creating a technology and service-driven economy, America replaced 40 million antiquated jobs with 80 million new high-paying and high-skilled jobs between 1980 and 2000.

In those two decades, we witnessed a unique creation of new wealth and ideas -- all because of innovation. -- All because of the entrepreneurial spirit and vitality of a nation that cultivates diverse cultures... and people... and points of view.

The beverage industry and our suppliers have been right in the heart of this innovation.

Think back when you first joined this wonderful industry.

Even if it was just a decade ago, there was still no viable bottled water category or ready to drink tea or coffee categories. Enhanced waters and energy drinks were non-existent. Nutraceuticals and functional beverages were still the realm of science-fiction. Calorie-free sparkling beverages were still at a very early stage of their development.

But all that's changed.

The people and companies represented in this room today -- all of you -- have created what is, in essence, a new industry. You've created an industry that supports more than 3 million jobs across our supply chains and nearly $300 billion in economic activity right here in America.

That's a noble calling... and a noble mission. And even with the formidable challenges we now face, I know of few industries that possess the same degree of creativity, passion, genius and determination as the American beverage industry.

These attributes, I believe, will bode well for us as we weather the current economic storm and other obstacles we can't control.

And they are even more important as we tend to those areas we can control, like better execution, innovation and leadership.

Now is the time for us -- collectively -- to focus on those things we can control.

I recognize that there are no easy solutions.

But I also know we've never had a greater incentive to reach down deep and push the envelope further than we've ever pushed before.

Ladies and gentlemen, we -- you and I -- are part of a truly incredible industry -- the envy, really, of the consumer packaged goods space.

Over the past several weeks I've had numerous conversations with industry analysts, investors and journalists. Several of them asked me about InBev and Anheuser-Busch and if we intended to expand Coca-Cola's business beyond non-alcoholic beverages.

The answer was simply... no.

As a system, we have always been -- and always will be -- in the business of non-alcoholic ready to drink beverages. This is where we excel. This is what we do best.

Most importantly, I believe this industry has just scratched the surface of our potential. There's so much more out there for us -- globally and right here in the United States.

And to illustrate this, consider the sparkling beverage category.

Nearly three years ago at the CAGNY conference I got up on stage and said sparkling beverages had a strong future here in North America and around the world.

More than a few audience members thought I was from the Flat Earth Society. A lot of folks were saying that sparkling beverages were a dying category.

I'm proud to say Coca-Cola proved them wrong.

We had a wonderful innovation up our sleeve in Coke Zero® -- our biggest product launch in 22 years.

Last year, we sold nearly 450 million unit cases internationally and we are well above that number this year.

Coke Zero is central to driving our sparkling beverage leadership. It's bringing people back to the sparkling beverage franchise while generating great interest among new consumers.

In fact, today, Coke Zero now ranks as one of our dozen-plus billion dollar brands and it has single-handedly revitalized our sparkling beverage business here in North America and around the world.

I don't believe for a minute that Coke Zero is an anomaly for our industry. With the right formula innovations... with the right marketing... with the right occasion-brand-pack-price architecture... with the right point-of-sale activation -- there's no limit to what we can do with refreshing sparkling beverages.

They are the oxygen of our industry, and for us to continue to thrive sparkling beverages must always thrive.

I also want you to think globally for a moment because ultimately what happens to our industry internationally will influence the strength and long-term sustainability of the U.S. market -- and vice-versa.

I recently had the pleasure of discussing this with Fareed Zakaria, the noted foreign affairs expert and author of the current best-selling book, The Post-American World. If you've read his book, you know that Mr. Zakaria is not suggesting the economic demise of the United States.

In fact, far from it. He believes the U.S. will prosper tremendously from the rise of the rest of the world if we position ourselves correctly... if we innovate our business and educational structures... and if we continue to embrace open markets and the cultural diversity that has made this nation so strong.

It's the same, really, with the beverage industry.

Over the next several years, the $650 billion dollar global non-alcoholic- ready-to-drink beverage industry is expected to grow faster than the world's GDP.

By the year 2020, our industry will likely be a trillion dollar business space. The current global macro-economic upheaval, while painful, will not materially change the picture in 2020.

In fact, non alcoholic beverages are expected to grow faster than cosmetics, alcoholic beverages, packaged foods and household care.

This vitality is being shaped by three important global mega-trends -- all of which the U.S. has experienced--and continues to experience-- in a significant way.

The first trend is the rise of middle-class consumers in markets around the world. In the BRIC countries alone, the middle class will grow by more than 700 million people by 2020.

By 2020, an additional 250 million people will be added to the middle class in other developing nations. As many as 50 million more people will be added to the middle class right here in the United States.

When you combine all of this economic clout, the world will be $20 trillion dollars richer in 2020 -- nearly two markets the size of the present-day U.S.

The vast majority of these middle-class consumers will reside in urban areas. Urbanization is the second trend shaping the global beverage industry.

For the first-time in history, the majority of the world's population is now living in urban areas.

Over the next 12 years, 65 million people annually will migrate to urban centers. That's roughly the equivalent of adding a city the size of Los Angeles to our planet every 80 days.

The third major trend fueling our industry is the natural conversion to Ready to Drink Beverages that comes with growing, on-the-go, urban, middle-class lifestyles. This conversion results in Ready to Drink Beverages becoming part of everyday life.

For our industry, it all comes down to a future of more consumers, with more money, drinking more beverages... and with greater choice.

And as our world becomes more integrated -- commercially and socially -- we're seeing the growth of truly global lifestyles.

One could argue, for instance, that the Northeastern corridor of the United States has more in common economically and socially with its European counterparts than it does with many parts of the United States.

On the West Coast, the urban centers of Los Angeles, San Francisco and Seattle could say the same about their ties to the Pacific Rim. Miami is certainly integrated into Latin American society... and so forth.

My point here is that we can learn and share and grow along with our counterparts around the world.

I've witnessed this first-hand.

I've spent most of my career working outside North America... in markets throughout Asia, Europe and the Middle East.

There was a time, not too long ago, when I would take our people from markets like Prague, Warsaw, Moscow and Istanbul and show them what innovation and best practices looked like right here in the United States. This was the epicenter of the industry and the origin of so much innovation.

They took that knowledge back home with them -- products, packaging, cold-drink equipment and marketing expertise -- and applied it... improved it... and have now created some of the most innovative markets in our entire system.

We now take people from North America to these markets to show them best practices.

The transfer of innovation, globally, is one of the best assets our industry possesses. Even if your business doesn't have a global presence there are so many resources out there to learn from... to share with... and to grow alongside -- starting with the ABA and the International Bottled Water Association.

Nowhere is the global influence more prevalent in our business here in the U.S. than in the proliferation of beverage choices we're now seeing.

Think about green teas, functional beverages and ready-to-drink coffee and energy drinks. Most of these originated outside the U.S., typically in Asia and Europe first.

Our industry has taken that inspiration and run with it. Each year, over 5,000 new non-alcoholic beverages are launched in the United States.

In our case at Coca-Cola, our global portfolio has expanded to over 500 brands and 2,600 SKU's.

In 1997, still beverages represented 10 percent of everything we sold.

Today, still beverages account for nearly a third of our volume.

But again, we're just getting started.

The world and our industry continue to evolve -- dramatically.

Now, imagine with me a world in the year 2020.

Think about the opportunities that are out there as consumer lifestyles and life-stages continue to shift... as technologies and economic models evolve... as expectations expand and innovations flourish.

Imagine a U.S. market where time-strapped, on-the-go workers spend two hours longer working every day. Imagine their hydration requirements... their nutritional requirements.

Imagine a market where 90 is the new 60. Where people are living longer, healthier and more affluent lives. Where 20 million more Americans are over the age of 65 than today.

Imagine a world where the youth market is also still growing. Where 7 million more Americans are under 18 -- almost a quarter of our population.

Imagine a world where consumers are making purchasing decisions that are based as much on the content of our character as the content of our beverages.

Where consumers are actively engaged in the co-creation of new beverages.

Imagine a world where much of the medicine cabinet has moved to the refrigerator.

Imagine a world of 2020, where most of our marketing and communications takes place within an arm's reach of our consumers.

Where television advertising is no longer relevant and the largest media company in the world did not exist in 2008.

Imagine a world where retailers only sell category leaders and where their supply chains leapfrog Direct Store Delivery.

Where in-store technology recognizes consumers and what they want to buy... and at what price... even before the consumer decides.

Imagine a world where online grocers rival brick and mortar stores.

Where innovations in packaging, equipment and transportation use less energy and leave a minimal imprint on the environment.

At Coca-Cola, we believe this is the world that awaits us and everyone in the beverage industry. It's a world of incredible opportunity and steep, steep challenges.

We know it's going to take a lot of hard work and innovation to harness this future.

And we know we can't get there alone.

The world is much too complicated and challenging to tackle unilaterally.

As I mentioned earlier, we're only as strong as our industry, our supplier partners and our key advocates like the American Beverage Association and the International Bottled Water Association.

In that spirit -- in the closing moments here -- I'd like to briefly share some thoughts on three ways we can innovate together to revitalize the U.S. beverage industry and capture the opportunities that await us over the next decade as we approach the year 2020.

To get there I believe we'll need to innovate across what I call the 3 S's...

1. Service innovations
2. Supply chain innovations and...
3. Sustainability innovations.

1. Let me start with service innovations.

I think of service innovations both in terms of serving our consumers better but also our customers -- the 20 million retailers who sell our Coca-Cola brands around the world each day.

For our consumers, we must continue to innovate to find the new formulations, new functionality and new containers they demand... to provide new choices... at attractive prices.

We need to be able to engage them with inspiration -- and have a dialogue with them -- in the environments of their choosing, whether it's Facebook, Second Life, their cell phones or new technologies that don't even exist today.

For our customers, we must continue to create platforms that strategically advance their businesses and contribute meaningfully to their sustainable growth.

A couple of weeks ago, our senior leadership across the Coca-Cola system sat down with one of our biggest customers here in the U.S.
That customer talked about the state of his business... some the pressures he's feeling in the U.S. market... and his aspirations for the future.

He made a point I will never forget. He said... "I don't want our suppliers coming to me with all these new ideas and plans about how they are going to sell more of their products in my stores. That's the price of entry. I expect that but I don't want to hear about it.

"What I do want to hear about is how you are going to help me grow my business in a sustainable way -- how we can we leverage our mutual assets, insights, knowledge and innovation to become even more strategic business partners."

I couldn't agree more. I think this gets to the heart of service innovation.

Serving our consumers and customers better also involves tapping the power of our great supplier community -- many of whom are here today.

In fact, supply chain innovation, I believe, is going to be an incredibly competitive tool for our industry in the coming years. It's the second area of innovation I think we as an industry can work closer together in perfecting.

In an era of rising energy and commodity costs, there's no question that our supply chains and routes to market must be increasingly flexible, efficient and innovative.

In the past 10 years, more and more businesses have understood this imperative as new supply chain innovations have helped trim over $5 trillion dollars in inventory costs here in the U.S.

We can't afford an ounce of waste or unnecessary redundancy.

At Coca-Cola, we have a $50 billion dollar system-wide global supply chain. Optimizing our supply chain to create even a 2 percent savings would result in a billion dollars straight to our bottom line.

At the same time, supply chain innovations create more than bottom line benefits.

Increasingly, we need to look to our supply chains to help us...

• reach new markets and new channels with growing numbers of brands and SKU's...
• enhance customer and consumer service...
• differentiate products...
• enhance productivity... and
• to grow our top line and improve our cash position -- in these challenging times.

Of course, lean and green supply chains also play a huge role in the sustainability movement, which is the third area of innovation I think our industry really needs to focus on in the coming years.

Today, the sustainability movement is spreading to all corners of the planet. That's an incredibly positive trend for society and business.

We have seen through our own experiences -- time and again -- that our business in any market is only as healthy and sustainable as the community in which we operate.

We've long recognized the responsibility to lead in this area but we're also wise-enough to know that we can't do it alone.

Solving society's largest challenges takes real leadership and partnership among business, government and civil organizations.

That's why we collaborate with Greenpeace to develop eco-friendly coolers... and with the World Wildlife Fund to restore some of the world's most endangered watersheds.

It's why last year we agreed to a multi-year program with the United Nations to develop a plan to reduce our global water usage.

It's why we're partnering with local communities in nearly 50 countries to support healthy watersheds and community water and sanitation programs.

It's why we're working with a host of communities, agencies and associations like the ABA to create innovative recycling solutions for our beverage packaging.

And it's also why we're working closely with the ABA to promote beverage choice and healthy lifestyles.

On this issue, it is absolutely imperative that we work closely together as an industry and with the ABA to educate the public and return responsible discourse back into the obesity debate.

I don't think the answer lies in dividing our portfolios into good drinks and bad drinks.

Quite frankly, I think that's counter-productive and only fuels the fires of those who unrightfully attack us.

People need to understand that obesity is not about a beverage... or a candy bar...or a restaurant meal... or a play station game... or about working longer hours.

It's a systemic lifestyle issue that we must address individually and collectively as a society.

As an industry we address this issue through choice and innovation. We do this by promoting active lifestyles and the benefits of hydration. We do this by continuing the great work that's being done to lower the calories in our portfolios.

In the last decade alone, non-alcoholic beverage calories have declined nearly 25 percent.

These messages need to resonate louder in the years to come and we need to continue to work closely with the ABA on this and other important sustainability issues.

Whether it's an environmental, social or economic issue, sustainability is not a one-off project or initiative. It has to be a movement. A way of life. A way of thinking about the world.

We believe so much in this idea at The Coca-Cola Company and the Coca-Cola system that we introduced a concept called Live Positively this past year.

It's a way for us to think holistically and globally about all of the sustainability efforts we're working on system-wide. It includes goals and metrics and several agreed upon principles.

We've set goals for our community work... for our active, healthy living programs... for our environmental work... as well as for our workforce and employee engagement efforts.

Ultimately, this Live Positively movement is about making the right decisions -- the smart decisions -- to run our business better and to satisfy the needs of our consumers and customers.

It's about creating a culture of sustainability -- one we think will spread well beyond the Coca-Cola system.

I hope you've gained from my comments today that I am bullish about the future.

I believe in this industry. I believe there are enormous opportunities out there -- many of which we've yet to even imagine.

I believe we have a noble calling -- we provide the world with hydration, sustenance, comfort and moments of daily pleasure.

A lot of hard work remains ahead of us.

This is not the time to feel down.

This is not the time to get distracted... or pessimistic... or cynical.

For inspiration here, I always look to my good friend -- and perhaps the greatest ambassador of the American beverage industry -- Don Keough.

Don was recently on the Charlie Rose show talking about his new book, "The Ten Commandments for Business Failure."

Fittingly, the 10th Commandment Don cited that would lead to sure business failure was... "fearing the future."

Don told Charlie, quote, "You've got to believe in the future and embrace all that is good about the future. Don't believe the doomsayers -- they're always wrong. Pessimism and negativity are for defeatists. The future is about possibility, not constraint."

I couldn't agree more with Don.

This is the time when leadership -- our collective leadership -- needs to shine.

This is the time when true leaders step up and make those game-changing plays -- those catalysts that spark momentum and winning.

The American beverage industry -- and the world -- needs our leadership -- now more than ever.

I wish you all the best of luck and thank you for your time and attention this afternoon.