The values represented by the IOC are canonical, which perhaps explains why the Olympic partnership news is handed down like tablets of stone. So, when the IOC heralds a new joint category, it’s big ‘news’.
Shaun WhatlingShaun Whatling is the CEO of Redmandarin, which provides strategic, analytic and planning services. Its Partners have assisted 15 TOP and domestic Partners, including five Partners of Tokyo 2020.
The IOC’s new TOP sponsorship deal, which brings together The Coca-Cola Company and Chinese dairy giant Mengniu in a new joint category, has been launched with the fanfare of a (reported) $3-billion total investment in the partnership, including a commitment to unprecedented online promotional spend.
The values represented by the IOC are canonical, which perhaps explains why the Olympic partnership news is handed down like tablets of stone. So, when the IOC heralds a new joint category, it’s big ‘news’. But the concept of category is a simple thing. It merely refers to the industry sector (specified in terms of products and services) which is the subject of sponsorship. Category, and the notion of category exclusivity, is simply a device to allow rightsholders to sell sponsorship effectively, without conflict and with a greater measure of accountability.
Categories can be broad – in the case of Coca-Cola’s non-alcoholic beverages or P&G’s personal care – or narrow – in the case of Bridgestone’s (eclectic range of) rubber products or Omega’s timepieces. Sponsors can create a relationship which spans several traditional sectors – such as GE (medical imaging, lighting and power generation). They can create invisibly pervasive categories, such as Intel, Atos and Alibaba. Broadly speaking, the broader the rights, and the larger the commercial value, the higher the rights fee.
Clearly, as Mengniu shows, the global category for dairy products is enormous
Dairy products have traditionally sat alongside products such as amino-acid based nutritional products or noodles in micro-categories which are the last port of call of OCOG sales teams - Tier 3, Official Supplier - although Meiji, the Japanese company, has taken a Tier-1 position for Tokyo 2020, in categories which include dairy products and chocolate confectionary. Clearly, as Mengniu shows, the global category for dairy products is enormous.
Semantically, Coca-Cola’s actual category covers any drink without alcohol. And it has a ferocious reputation when it comes to protecting these rights. So much so that it has managed to fend off multiple attempts to secure supermarket partners over the years, because of the supposed dilution of value of its category in an environment which accounts for upwards of 50 per cent of sales in many markets. Coca-Cola has one dairy product, Fairlife, since 2012, which appears to be a distribution deal in USA alone. It’s hard to imagine that Coca-Cola’s category doesn’t include dairy drinks. Without a product to attach to that category, Coca-Cola would naturally waive its rights.
But a joint category? Tokyo 2020 would call it a shared or non-exclusive category. Banking, airlines, insurance, security, a number of partners of Tokyo 2020 are sharing categories. None are happy about it. Why? Because it is already a challenge to secure salience and cut-through in an environment which regularly has over 50 partners attempting to promote unique relationships with the games. The difference here, of course, is that Coca-Cola and Mengniu are pro-actively collaborating in this arrangement.
So the question is: why this unprecedented structure? There are only two possible explanations.
The IOC partnership is irreplaceable for Coca-Cola: it’s global, it’s legitimately a part of their brand inventory, a genuine brand asset and critically provides a reliable foundation for summer promotions every four years
The first is that Coca-Cola aren’t generating the commercial return they need from the partnership and saw an opportunity to reduce their investment by divesting rights to Mengniu. But the IOC partnership is irreplaceable for Coca-Cola: it’s global, it’s legitimately a part of their brand inventory, a genuine brand asset and critically provides a reliable foundation for summer promotions every four years – a value which is not to be underestimated. The scale of potential savings of such an arrangement could not begin to compensate for such a material change to its partnership.
The second explanation is more complex and based on higher levels of conjecture - but is far stronger.
Coca-Cola’s business divides into two parts: brand and bottling. Brand concerns itself with the core product and high-level marketing. Bottling covers distribution, product marketing and sales. Most business models combine both, but this model has given Coca-Cola the flexibility to grow through partnerships and JVs in new markets without having to develop or acquire these operations.
In China, Coca-Cola has two main bottling partners: COFCO Coca-Cola Beverages Limited (a subsidiary of COFCO Corporation); and Swire Beverages Holdings Limited. Of the two, COFCO is state-owned and China’s largest food processor, producer and trader. COFCO, according to its own website, is one of Coca-Cola’s top 10 global bottlers. It covers 51 per cent of China geographically, and 81 per cent of the population – and enjoys state support. It also owns Mengniu. Mengniu, as we know from the IOC’s release, has global ambitions.
The driver of the partnership is building a closer relationship with COFCO inside and probably outside of China.
China itself was credited by Coca-Cola CEO James Quincey with driving overall growth, outperforming global volume growth by 5 per cent in the first quarter of 2019. Here are Bloomberg’s volume figures:
It’s a similar picture for Costa Coffee. The FT cites expansion in China, (along with self-service machines) as helping Costa offset declining sales on Britain’s high streets. Costa entered the Chinese market in 2007 and operates 450 stores, with 1,200 stores targeted by 2022, according to Alibaba-owned South China Morning Post.
Costa was of course acquired by Coca-Cola in January 2019, with the blessing of China’s State Administration for Market Regulation, which approved the sale from a Chinese perspective. As Coca-Cola’s category includes caffeinated products, and Mengniu can pour the milk, it’s easy to imagine the Olympic marques coming to Costa Coffee in cafes and vending machines all across China.
It’s also easy to imagine how collaboration between Coca-Cola and Mengniu could take the shape of distribution partnerships way beyond Asia, combining the two parties’ distribution strengths to drive efficiencies and growth.
So the real story isn't about the advent of such a thing as a joint category, or about unprecedented online investment. It’s about an enormous corporate alliance. Potentially a huge, tectonic, Sino-American partnership.
It’s also about the curious question of how Yili, China’s second largest dairy producer, a bitter rival of Mengniu and a sponsor of Beijing 2022 since August 2017 can apparently find its exclusive category position stripped away by the IOC – because, however you dress it, that’s how it is.