The Atlanta-based multinational and leading producer of non-alcoholic beverages in the world, Coca-Cola has decided to dismiss 2,200 of its employees, of which 1,200 are in the United States, representing 12% of its staff.
Coca-Cola will make the cuts through sale of its subsidiaries and layoffs. In August, the company offered voluntary severance bonuses to 4,000 of its employees in the US and Canada, but it is not known how many of them accepted the bonus.
The company, which at the beginning of this year, had a payroll of 86,000 employees, has been cutting expenses and products from its portfolio as the impact of the pandemic has resulted in the closure of restaurants, bars, movie theaters, and sports stadiums.
In the third quarter of this year, Coca-Cola reported sales of $8.7 billion, down 9% from last year, while net income from operations fell by a third. According to The Wall Street Journal, the company will reorganize its North American operation to make it more similar to its other units around the world, with the goal of simplifying its structure in order to avoid unnecessary cost overruns.
With the cuts, Coca-Cola is expected to save between $350 million and $550 million in its operation. These cuts include 500 jobs in the Atlanta metro area.
In addition to the cuts, Coca-Cola will reduce more than half of its 430-brand portfolio to just 200 brands, focusing its operation on products whose demand is growing and whose production can be easily scaled. Among the brands that will come out of the market are diet soda “Tab,” zero-sugar yogurt “Odwalla,” and coconut-flavored water “Zico.”
The pandemic created a need for the company to cut many of its brands because, according to Gerald Phelan, a credit analyst at S&P Global Ratings, “they weren’t making enough revenue to keep them in the marketplace.”
According to Coca-Cola’s chief financial officer, John Murphy, the restructuring will allow the company to operate as a network that needs “fewer individual decisions, less bureaucracy and ultimately fewer people.” Murphy also warned that Coca-Cola will review its spending on marketing and advertising, to make it more efficient and focus it on the digital market. In 2019, the company spent $4.24 billion on advertising.
The cuts made directly by Coca-Cola will not affect its bottling operations, which are mainly composed of third parties.
A problem bigger than Coca-Cola
According to Deloitte, the pandemic will have lasting effects on the “Food and Beverage” sector, significantly reducing consumption in the distribution chains within which there are restaurants, hotels, bars, and public spaces.
The impact that the pandemic has had on direct purchases has been such that it estimates that online shopping for food and beverages will be worth $100 billion by 2022.
In May, Pepsi’s manager announced that the company would cut a fifth of its products and focus on those with faster inventory turnover. Other companies such as Kraft Heinz and Hershey have made similar announcements.
With this, Coca-Cola joins a number of brands that the pandemic has forced to cut items from their portfolio to stay afloat. This phenomenon is not only occurring in food-related sectors but across the entire economic spectrum. During the peak of the pandemic, motorcycle manufacturer Harley-Davidson announced that it would take several models out of its offering because of reduced sales.
For decades, U.S. companies focused on offering as broad a menu of products as possible to the consumer. The pandemic made it impossible to sustain many of these products that catered to particular tastes and forced companies to focus on their top-selling products, a focus that is likely to endure after the pandemic.