Coca-Cola CEO: 'The degree of lockdowns' will continue to affect our business

Coca-Cola topped first-quarter earnings forecasts as U.S. reopenings helped the company's sales grow. Coca-Cola Chairman and CEO James Quincey joins Yahoo Finance Live to discuss how the soft beverage brand is faring amid the pandemic and break down what's next for the company in 2021.

Video transcript

BRIAN SOZZI: So James, you were talking about the recovery in the business. Do you think this is the start of a durable recovery in Coca-Cola's business this spring?

JAMES QUINCEY: First, I think it's a great rebuilding of the momentum. Getting back to pre-pandemic levels of volume in March is a testament to the work on the marketing, the innovation, working with our bottlers to execute, and what the organizations really been able to do. And so it is really good momentum. However, as we look into the downhill of the rest of the year, we've got this uncertainty factor which has certainly weighed on the away from home business as much as we've adapted and found new ways to push the business forward, which is the degree of lockdowns, obviously linked to the degree of cases.

And this we hit a global high in terms of number of new cases. And so we are taking a balanced view of, we've got good momentum. We've got a lot of things going right for the business. And yet, we need to weigh in the factor of the degree of lockdown in the rest of the year. Because as the US emerges, as China emerges, as the UK emerges, you've got other countries going back into lockdown on rising cases.

And so we're taking a cautious view to what that's going to net out with. But we're certainly pleased with the fundamentals underlying the business.

BRIAN SOZZI: And you called in the earnings release, James, this is an asynchronous recovery. Is the North America business volume-- is it growing again?

JAMES QUINCEY: North America is bouncing back and certainly, you know, is coming through in March. And what you see in North America is what we've been seeing in some of the other economies that are opening up, whether it be China or Australia or even the UK, which is, as the vaccination rates or the case number drops and the lockdowns reopen, you see a surge into kind of eating and drinking, particularly in the evenings.

Then the next wave is kind of people returning to work or to education and start commuting again. And that brings back the daytime, the lunchtime element. And then you see a last phase of kind of the big gatherings, whether that's sports or amusement or anything on that front. So we're starting to see that happen in the US. It's really-- March was more about phase one of that reopening.

We expect to see it move quickly as vaccination rates are high, and there's a lot of money being injected into the economy through the stimulus. And so we're starting to see that thing happening. And I'm confident in a way the US will be a momentum in that direction. And obviously from a global business that makes 75%, more than 75%, outside the US, we need to weigh in the directions of travel of other important economies.

BRIAN SOZZI: Has-- as part of the recovery, have you started to see signs of recovery in your key fountain soda business?

JAMES QUINCEY: Yeah. So I mean the fountain business in the US is clearly completely linked to the away from home. And so that has suffered very much during the lockdowns and the work from home and very negative numbers all through the last three quarters of last year and even-- and even negative for the quarter this year but actually bouncing back in March.

But what you see is very much the first phase of those three phases of reopening that I talked about, which is a big bounce back in fountain in the kind of bars and cafes, more the nighttime orientation. And while some improvements in kind of the getting out and about, work, educational, commuting ecosystem, and the large gatherings, still negative numbers in those sort of subchannels for fountain.

So we're starting to see the comeback. But there's more to go, which gives us great belief that the US business will continue to do well into Q2 and beyond into the rest of the year.

BRIAN SOZZI: James, I'm sitting here holding a new Coca-Cola zero sugar product. How big is this business for you now? You recently launched in addition to coffee. But what's been the response?

JAMES QUINCEY: Response, Coke Zero has done-- it's doing really well. Actually Coke Zero was growing even in 2020, despite the pandemic. It's had a good start to the year this year. With the new formula, it's certainly engaging more consumers, bringing more people to the franchise with Coke Zero Sugar. But ultimately, it's still actually a small part of the total Coke trademark volume.

And so we think there's great runway for Coke Zero Sugar to continue to grow for many more years to come. And Coke with Coffee, we've recently kind of launched in the US, some initial, good initial trial. People love to try new flavors from brand Coca-Cola. Hopefully, that will build in something that repeats and has got some longevity. But at minimum, it's giving some freshness and some interest to the Coca-Cola trademark and engaging with consumers.

BRIAN SOZZI: You also recently launched Topo Chico Hard Seltzer overseas. Now, that's coming to the US. What's been the early response to that?

JAMES QUINCEY: So early, early responses in Latin America and Europe are good. Obviously, different degrees of success partly due to whether the category existed in some of those countries or not. And, of course, we're learning how to compete and how the business works in this category. And so we've generated some good learnings. It's been in the US for a couple of weeks, particularly in the southern states, and particularly Texas where Topo Chico's very strong.

And it's selling. We're at two weeks data, but a very strong start in Texas. So of course, what we're really focused on is how to get more national and how to drive our repeat rates. That'll be the key. Can we drive repeat rates? But a very encouraging initial start.

BRIAN SOZZI: And late last year James, you-- I would say you made a bold move really to cut, what, close to 200 SKUs, products that just weren't selling. What percentage of your business this year will be from new products? And are you focused more on innovation now?

JAMES QUINCEY: Yeah, we took the decision in the pandemic to essentially cull the portfolio of about half the brands. They were only 1% or 2%. But we've been historically better at launching ideas than being ruthless about kind of taking them out of the portfolio and then not earning their right in the consumer's mind, in the store, or on the truck. And so we took the decision and to half the number of brands and really focused that on.

We're seeing that happen now. And we're bringing back innovation, . One of the things that happens in a crisis is you want to stick to your knitting. You want to focus on the most important SKUs and the biggest brands, which was very much a feature of 2020. So innovation is clearly back in 2021, innovation with new brands, with new flavors and new product offerings and new ways of marketing.

So we'll definitely see the return of innovation as a key business driver as we go through 2021.

BRIAN SOZZI: James, I do want to switch gears here. You have been public in your response to the Georgia voting issue. You've called the laws wrong. I mean, how do you-- will you respond quicker from a company perspective should these public issues arise again in the future? And they inevitably will.

JAMES QUINCEY: I think there's something special about Georgia. And clearly people, some people would have preferred I weighed in sooner, some later. But when it comes to a certain set of issues, you know, the company has a point of view. And we're headquartered, and we drive our business from the state of Georgia. And you can go back to the '50s and '60s and see that we've always pursued a strategy of wanting to make Georgia a great place to do business and wanting to make it a place where everyone can participate in that growth equally.

And that's about rights. And so we were looking for Georgia being the best place to do business and also being best in class in terms of voting rights. And over the years, both sides of the aisle have worked well to create it's the best place to do business. And that's what the best place to live, which is where our employees are and, therefore, best in class voting rights was something we were looking for.

And therefore, I don't see that my role is to weigh in on every issue. But there are some, particularly about Georgia, and the things that are important to be able to drive our business from here and have it be an economic engine in the right environment.

BRIAN SOZZI: As their response to this, is it changed how you do political donations?

JAMES QUINCEY: I mean, all of this has happened in a relatively short time. And certainly political donations were never a big feature of the company. You know, we engage, as one of the leading companies in Georgia, with the local politicians but only the state and city level to continue to make Georgia an economic and thriving state and city where people want to be. I mean, and they've got the same-- ultimately, they've got the same objectives.

They want Georgia to succeed, too. So when we're focused on Georgia, we're focused on making it a better place.

BRIAN SOZZI: And James, real quickly before I let you go. You have a very unique position. You're also on the Pfizer board. In addition to seeing the economy through the lens of a Coca-Cola, are you in the camp that we will see a V-shaped recovery later this year? And does that sustain itself until next year?

JAMES QUINCEY: I know in this time last year, we had a number of discussions about an alphabet soup of different shapes of recovery. Very specifically, on the US, I think that the rate of vaccination is clearly going to bring a reopening that's going to be relatively rapid in the US. And there's a good deal of stimulus money there. So I think we're going to see a good recovery into the balance of the year in 2021 in the US.

And hopefully, that'll drive momentum out into 2022 as well. From a global business perspective for Coke, you know, we make the vast majority of our money outside the US. So we're also looking at what do those vaccinations and adaptations look like in other developed and developing countries, and what does that mean for degrees of lockdown and business going forward globally. And I think we're going to see, you know, hopefully a steady and hopefully progression through the year. But it's not going to be as quick as the US will be.