Discuss the culture of Coca Cola.

Cokes New CEO James Quincey to Staff: Make Mistakes

52-year-old Briton takes helm as worlds largest beverage company faces shrinking soda consumption, outside calls for more cost-efficiency

By Jennifer Maloney Updated May 9, 2017 4:05 p.m. ET

ATLANTA Coca-Cola Co.s new chief executive wants the company to shake off a culture of cautiousness that has dogged the soda giant for more than a century.

Nicknamed the New Coke syndromeafter the companys catastrophic 1985 decision to reformulate its namesake brandthat fear of failure is counterproductive at a time when Coca-Cola has to take more risks, James Quincey said in an interview this week at his office.

The 52-year-old Mr. Quincey, who succeeded Muhtar Kent as CEO on May 1, is taking the helm at an existential moment for the worlds largest beverage company. Fewer people are drinking soda. Sugary drinks are being slapped with taxes in the U.S., U.K. and beyond, as governments look to raise revenue and curb consumption of added sugar, which has been linked to diabetes and obesity. And while Coca-Cola has diversified into dairy, tea, bottled water and other beverages, 70% of its global sales by volume is still soda.

Mr. Quinceys answer: Coke must become a total beverage company. And to do that, it must not be afraid to make mistakes, he said.

Im not sure fear of failure is entirely wrong, except when it leads to inaction, Mr. Quincey said, sipping occasionally from a bottle of smartwater, a brand the company acquired as part of a 2007 deal. If youre trying to do something different on Coke, failure is big and emblematic.

Mr. Quincey said that because the company for much of its 131-year history has been focused on curating the worlds most valuable brand, a lot of due attention and care was paid to any changes that were made.

But on smaller, emerging brands, the company needs to be experimenting more, he said. If were not making mistakes, were not trying hard enough.

Some company insiders and analysts say Coke should have moved sooner to address the sugar issue and adapt to shifting consumer tastes. At Mr. Quinceys urging, Coke in 2014 dropped its fight in the U.K. against voluntary health labels on its beverage packaging, which included a warning about high levels of sugar in its regular sodas. The company has begun promoting smaller package sizes and reformulating beverages to offer more low- and no-calorie options.

In the U.S., where consumers now drink more bottled water than soda, Coke is shifting from a volume-focused business to one in which it shares profit with its bottlers so it can sell smaller cans and bottles at higher prices.

It is also in the process of selling off most of its bottling operations to focus on its more profitable concentrate business, a process that by next year will leave it with fewer than 40,000 global employees, down from 150,900 in 2012.

Mr. Quincey is cutting another 1,200 jobs, representing 20% of the companys corporate staff. And he is officially giving employees permission to say that Coke isnt their favorite brand in the companys portfolio, an admission that would have been blasphemous a year ago.

If we are to be a total beverage company, it has to be OK for consumers to say something else is their favorite brand. Therefore, it has to be OK for an employee to say something else is their favorite brand, he said.

In 10 or 15 years, he said, soda could represent less than half of the companys global sales by volume, a shift he hopes to accelerate by investing more in upstarts and acquiring new brands.

Mr. Quincey was born and raised in the U.K. and studied electrical engineering at the University of Liverpool, then decided he was better at business than designing semiconductors. He joined Coke in 1996 and led operations in Latin America and Europe before being tapped in 2015 as chief operating officer and heir apparent to Mr. Kent.

IN HIS OWN WORDS

Mr. Quincey on whether a market leader can be a disrupter:

The trap you fall into as a big company is you start looking at the world through the lens of your existing business: How can I leverage what Ive got to get more? But the way to avoid getting disrupted is to start with the consumer and say: Whats actually happening out there?

Mr. Quincey on eliminating the chief marketing officer role:

Were trying to make a point, which is: The way brands are getting created today is not just making ads that people love. Its through interaction directly with customers without advertising at all.

Mr. Quincey cited a product stumble of his own, when rolling out a drink in Argentina in 2003 modeled on mate, a local herbal tea. It is traditionally made by filling a gourd with leaves and hot water and consumed in a group, with everyone drinking from the same straw. Cokes version, bottled and bubbly, missed the point, he said.

The mistake that we made was not to understand why people drank it, Mr. Quincey said. Its about the social occasion.

Coke is now under pressure to become more cost-efficient. Analysts have speculated that within a few years, it could be a takeover target of Brazilian investment firm 3G Capital Partners LP, whose founders are controlling shareholders in brewer Anheuser-Busch InBev NV. A 3G spokesman didnt respond to a request for comment.

Improving efficiency will be a critical success factor for the soda giant, HSBC analyst Carlos Laboy said. Bottlers say head count is a problem at Coke. Too many people are doing the same redundant things.

Of 3G, Mr. Quincey said: Theyre very clearly saying: Were setting a new benchmark as to what running an operation efficiently looks like. I think every company, including us and our bottling partners, we need to look at those benchmarks. He added that Coke would aim to cut costs without sacrificing revenue growth.

As recently as 2015, Mr. Kent was doubling down on soda, a strategy that analysts say failed. Mr. Quincey rejects that conclusion.

Theres no road to the future without a successful red Coke, he said. We need to be growing the sparkling revenue and expanding our leadership in the other categories. Youve got to do both. Thats the only way forward.