Today Coca-Cola (see chart here) announced it was planning to acquire the largest juice company in China (read Marketwatch article here.) At a cost of $2.4 billion Coke is hoping to expand its footprint in the most populous country on earth. Are you excited? Most people aren’t – and there’s no reason to be.
What’s the innovation in this move by Coca-Cola? What are they doing that’s new? Nothing, of course. This is a simple extension of the same soft-drink business Coca-Cola has been in for decades. More of the same. Yes it’s good that they would want to do more business in the very large and growing Chinese market – but this is more Defend & Extend behavior trying to support existing Lock-ins. At first it may sound obviously good, but what’s not discussed is how much local competition Coke will face. Nor how much competition from European and other competitors. Without innovation, this kind of extend tactic will face all the traditional market competition and is unlikely to produce exciting (above-average) results. Just look at how little difference offshore acquisitions and expansion have made to Wal-Mart or GM – because as D&E plays they allow competitors to keep banging away at the company’s declining Success Formula. Just because a company announces it is entering a new market does not mean they will sell more stuff, nor make more money.
We can see that Coke is struggling to innovate when the same announcement says that the company is planning to spend $1billion in a stock buyback this year. This is an admission that without anything innovative to invest in the company is going to use its cash to prop up the stock price (which will benefit the bonus of the top execs.) Coke cannot regain its great growth glory if it’s spending all its money to do more of the same and buy its own stock. That’s the cycle of doing only what the company knows, which is why the business has been suffering from declining marginal returns for almost 20 years (Coke is down almost 50% from its highs reached in the mid-90s, see long-term chart here). Even the recently published memoirs of the ex-COO at Coke is a study in how to try avoiding failure – rather than seeking success (The Ten Commandments for Business Failure is currently paired with Create Marketplace Disruption on Amazon – a distinct contrast in approach to business management.)
This is the flip side of the discussion in yesterday’s blog about Google’s Chrome release (see video about Chrome’s launch on Marketwatch here). Chrome is significant innovation by Google trying to move beyond its traditional markets. Chrome is not about Defending & Extending Google Lock-ins to traditional markets and products. Chrome is using White Space to implement Disruptions taking Google into new markets with much higher growth, which will allow Google to remain in the Rapids. Coke’s planned acquisition is a yawner because it supports historical Lock-ins and keeps the company in the slow-growth, unexciting, non-innovative mode that has made its returns lackluster for several years. No White Space in the Coke move – just more of the same – which makes life much easier for its competitors, whether traditional or new.
