Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.
Today’s notes are on former Coca-Cola Chairman and CEO Bob Goizueta’s framework for running Coca Cola through the 1980s (presented 1981).
The die-hard value investors will know this, but for those who don’t, 1988 is the year Buffett invested — take from that what you will (more on this in the Some Thoughts section)
The Strategy for the 1980s, presented to the Board of Director by Chairman Roberto C. Goizueta on March 4, 1981, and endorsed by the Board, is the future self-definition of The Coca-Cola Company. In 1982, this vision provided, as it will continue to provide, the framework to guide the decisions made at all levels that will determine the nature and direction of the Company’s worldwide organization through this decade.
Our Challenge — In order to give my vision of our Company for 1990, I must first postulate what I visualize our mission to be during the 1980s. I see our challenge as continuing the growth in profits of our highly successful existing main businesses, and those we may choose to enter, at a rate substantially in excess of inflation, in order to give our shareholders an above average total return on their investment. The unique position of excellence that the trademark Coca-Cola has attained in the world will be protected and enhanced as a primary objective.
In order to tell you what we will look like in 10 years, I need to first tell you what we’re planning to do during those 10 years. Rome wasn’t built in a day — here’s our plan to build Roam. This will give you an idea of what Rome will look like
Focus on growing earnings is key — something that most companies seem to not just neglect, but disregard completely
Coca-Cola knows how valuable their brand is — it must be protected at all costs
Our Business — I perceive us by 1990s to continue to be or become the dominant force in the soft drink industry in each of the countries in which it is economically feasible for us to be so. We shall continue to emphasize product quality worldwide, as well as market share improvement in growth markets. The products of our Foods Division will also continue to be the leading entries in those markets which they serve, particularly in the U.S. The Wine Spectrum will continue to be managed for significant growth with special attention paid to optimizing return on assets.
Economically feasible — think from the basics — think unit economics. Although interestingly — it doesn’t say withdraw or avoid places that can’t be profitable. It just says become profitable where possible.
Focus on product quality — this will lead to market share improvement.
Optimize for returns on asset
In the U.S. we will also become a stronger factor in the packaged consumer goods business. I do not rule out providing appropriate services to the same consumer as well. It is most likely that we will be in industries in which we are not today. We will not, however, stray far from our major strengths: an impeccable and positive image with the consumer, a unique franchise system second to none; and the intimate knowledge of , and contacts with, local business conditions are the world.
We’re going to grow and change — but it’ll be to adjacent areas
Here’s what I love — Goizueta lays out that they will be GROWING their circle of competence so that they stay in. This is very different from the traditional (I don’t know so I don’t care) value mentality that many so-called value investors have. If you’re not sure where to start, start close by, and keep growing.
Things will change — so will we.
Core strengths: Brand Image, Franchising, Localization
In choosing new areas of business, each market we enter must have sufficient inherent real growth potential to make entry desirable. It is not our desire to battle continually for share in a stagnant market in these new areas of business. By and large, industrial markets are not our business.
Focus on high-growth potential areas only — no point in competing in stagnant markets where’ll we’ll just waste money.
We’re consumer guys, and we plan on staying that way.
Finally, we shall tirelessly investigate services that complement our product lines and that are compatible with our consumer image.
Shows a lot about Coca-Cola’s modern-day acquisitive nature
Pay attention to the competition and buy them out if necessary
Only acquire if the brand’s image matches ours
Our Consumers — Company management at all levels will be committed to serving to the best of its ability our Bottlers and our consumers, as well as the retail wholesale distribution systems through which these consumers are reached. These are our primary targets. The world is our arena in which to win marketing victories as we must.
We need to win through marketing — made for some pretty kickass Super Bowl ads over the years…
Our Shareholders — We shall, during the next decade, remain totally committed to our shareholders and to the protection and enhancement of their investment and confidence in our Company, its character and style, products and image.
Commit to the shareholders
Coca-Cola’s business is built upon IMAGE — character and style, products and image
Our “Bottom Line” — My financial vision is not complicated, but it will require courage and commitment to attain financial goals consistently and [a]ffect growth in real profits during uncertain and inflationary times.
Interesting that he says “My” — in a way it’s strong leadership (I’m driving this forward and making this happen), in another way it’s signalling its more about the person than the company. Interpret this as you will.
Our exceptionally strong balance sheet and financial position will be fully maintained so that the Company can withstand any economic windstorm, as well as enable it to take advantage of expansion opportunities which complement our existing business and that offer acceptable earnings growth and return on investment.
Balance sheets are powerful — they get you through tough times and help you grow. Even in a zero rate environment, strong balance sheets are important
Again and again, you see this focus on earnings growth and return on investment
It is our desire to continue to pay ever-increasing dividends to our shareholders. This will be done as a result of rapidly increasing annual earnings while of necessity reducing our dividend pay-out ratio, in order to reinvest a greater percentage of our earnings to help sustain the growth rate which we must have. We shall consider divesting assets when they no longer generate acceptable returns and earnings growth. Increased annual earnings per share and effecting increased return on assets are still the name of the game — but not to the extent that our longer-term viability is threatened.
We care about annual earnings — but not if they affect long term. Think Amazon — they couldn’t care less about annual/quarterly numbers. It’s all about the long term. Coca Cola is a mix between long and short term — but with long term taking precedence.
Our People — Finally, let me comment on this vision as it affects our “life style” — or business behavior — as a viable international business entity. I have previously referred to the courage and commitment that will be indispensable as we move through the 1980s. To this I wish to add integrity and fairness, and insist that the combination of these four ethics be permeated from top to bottom throughout our organization so that our behavior will produce leaders, good managers, and — most importantly — entrepreneurs. It is my desire that we take initiatives as opposed to being only reactive and that we encourage intelligent individual risk-taking.
This memo clearly lays out what have been and will be Coca-Cola’s driving values over the next decade. It’s important employees and partners know this — every action should be made with these values in mind
Top to bottom — lead by example and make sure your values and actions permeate throughout the entire organization
See Reed Hastings — Netflix is capable of operating with the CEO living abroad for half the year. If your company has clear values, and the employees know this — they can make informed decisions and take on more responsibility
Our Wisdom — When we arrive at the 1990s, my vision is to be able to say with confidence that all of us in our own way displayed:
The ability to see the long-term consequences of current actions;
The willingness to sacrifice, if necessary, short-term gains for longer-term benefits
The sensitivity to anticipate and adapt to change — change in consumer life styles, change in consumer tastes and change in consumer needs;
The commitment to manage our enterprise in such a way that we will always be considered a welcomed and important part of the business community in each and every country in which we do business; and
The capacity to control what is controllable and the wisdom not to bother what is not
Long term orientation even at the expense of short term costs
Recognize and adapt to change
Localize and be respectful of everyone you do business with/interact with
Focus on what you can change — don’t fight nature and ignore what you can’t control
Very clear, well-articulated memo. It lays out Goizueta’s vision for the future, and expectations for the company. He goes over concrete steps and shares the firms guiding principles for operating internally and externally.
This memo touches upon competitive landscape, growth potential, earnings attention, return on investment, and long-term orientation. It’s no wonder Buffett is such a huge fan.
You’ll also notice the breakdown and order of topics
5) Bottom Line
In a way, you can view this as a VC pitch deck —
2) Business (Model)
4) Shareholders (other VCs)
And the fact that Buffett did in fact buy — in 1988, shows that Coca-Cola executed well on this strategy — it’s the quintessential playbook of what Buffett preaches to look for. It’s as if he took this memo, stripped it down, sprinkled some Graham, and topped it off with Munger.
Must read: Charlie Munger’s speech on turning $2MM into $2T — yes, 2 TRILLION
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kgao1412 or my email at firstname.lastname@example.org.
Please DM or email me any time — to share non-obvious intel, views and correct or solicit mine. I appreciate your continued support and partnership :D.
All compilations here.
As many of you know, making compilations and this newsletter is a (very time consuming) passion project for me. Multiple people have reached out about how they can support me so that I continue, so I set up with a few ways: