New Coke – A Strategic Blunder pre-dating ERM
Coca-Cola Company’s debacle entered the public consciousness on April 23, 1985 with the introduction of the then new formula that came to be known as “New Coke” replacing its original formula, “Coke”. (14)
“Some may choose to call this the boldest single marketing move in the history of the packaged-goods business,” CEO Roberto Goizueta said. “We simply call it the surest move ever made.” (15)
“I’ve never been as confident about a decision as I am about the one, we’re announcing today.” – Coca-Cola president Donald Keough (16)
This was the company’s response to Pepsi and a long running competition between Coke, with declining market share, and Pepsi.
In that pre-Internet age, things quickly unraveled with New Coke called “the biggest marketing blunder of all time.” (17)
By mid-May 1985, the company was receiving 5,000 negative phone calls a day, by June negative call volume swelled to 8,000 calls a day. The previous version of Coke was brought back as “Coca-Cola Classic” on July 11, 1985, 79 days after launch of New Coke. The Coca-Cola Company reportedly lost millions in research ($4 million in development costs) and advertising costs. (18)
Poor strategy, internal issues, or external uncontrollable forces?
Recent ERM Failures
Target:
On October 6, 2022, Forbes reported Target’s share price declined 32% from around $232 in October 2021 to about $145 at the beginning or July 2024. Forbes commentary attributed this stock decline to disappointing earnings in 2022, an economic slow-down, supply chain problems, and changing consumer sentiment coupled with higher fuel, freight, and transportation costs. (19)
Target (symbol: TGT) was trading about $91 in April 2020, when COVID-19 shutdowns were in full swing, rising to a high of about $269 in mid-November 2021. Then falling to about $150 in October 2022, subsequently declining to about $102 in October 2023 and rising again to $150 in February 2024.
A later Forbes article opined on some reasons for Target’s stock price decline, including changes in consumer spending habits. (20)
Let us use the mid-November 2021 price high of $269 and the $150 close on 16 February 2024 as a check point, a decrease of 44%.
Between approximately May and June 2023, Target’s market value declined by about $14 billion, prompting a lawsuit filed by a Target investor. (21)
In August 2023, America First Legal filed a lawsuit against retail giant Target for allegedly misleading shareholders with false statements about its political/social risk monitoring. (22)
Poor strategy, internal issues, or external uncontrollable forces?
Yellow Trucking Company:
In August 2023, Yellow, the trucking company, became the largest trucking bankruptcy in US history. Yellow specialized in Less Than Truck Load (LTL) shipments and was the number three LTL carrier by revenue, just behind with Fedex and Old Dominion. Yellow had just escaped a Teamsters Union shutdown.
Nevertheless, after the strike threat in late July 2023, Yellow’s freight volume dropped 80% within a week and the company shutdown shortly thereafter – with 30,000 job losses. (23)
Poor strategy, internal issues, or external uncontrollable forces?
CVS Health
In November 2021, CVS Health announced plan to reduce the number of stores, 900 over the course of three years. CVS Health’s rationale was population shifts, changes in consumer purchase, and future healthcare needs. Job cuts were expected to total about 5,000.
To save the company money so it has a better chance of surviving, CVS Health is slashing mostly corporate jobs, The Wall Street Journal reported. Workers at CVS stores, pharmacies, and clinics are not expected to be negatively impacted by the layoffs and store closures – except, of course, for the employees at stores that are closing.
According to CEO Karen Lynch, the changes will allow CVS Health to “be at the forefront of a once-in-a-generation transformation in health care.” (24)
In May 2024, CVS had its biggest selloff in 15 years, after missing first quarter earnings expectations. The selloff was reportedly affected by increased outpatient utilization use of supplemental benefits and an insufficient Medicare Advantage rate. The CVS Medicare Advantage star rating also decreased, which is used to compare a company’s Medicare Advantage and Medicare prescription-drug plans. (25)
CVS Health’s stock price was selling for about $92 a share in November 2021, dropping to $59 at the end of June 2024.
Poor strategy, internal issues, or external uncontrollable forces?
Disney
Disney’s stock price has fluctuated substantially since 2020 due to a variety of events affecting the company. Share price was $91.81 on March 12, 2020, $192.64 on March 3, 2021, and $101.78 on May 24, 2024. A 2023 filing with the Securities and Exchange Commission referenced “risks relating to misalignment with public and consumer tastes.” (26)
Poor strategy, internal issues, or external uncontrollable forces?
Hertz
Hertz bet big on electric vehicles and lost. The CEO for about two-years, Stephen Scherr resigned as Hertz Global Holdings CEO at the end of March 2024. Hertz announced its decision in January to sell about one-third of the company’s global electric vehicle fleet, about 20,000 of them, shifting its investment back to gas-powered vehicles.
Electric vehicles evidently experienced higher repair costs and low rental demand. Hertz subsequently announced its biggest quarterly loss since 2020. (27)
Poor strategy, internal issues, or external uncontrollable forces?
Peloton
Peloton provides home exercise equipment. Everyone remembers the 2020 COVID pandemic when telework became the norm for millions of people. Sales surged driven by COVID and Peloton invested hundreds of millions of dollars in its supply chain in response to product demand.
But, as COVID drove the surge in demand for home exercise equipment, post-COVID brought a steep drop in demand. The company which had about 8,600 employees in 2021, has since gone through five layoffs leaving just 3000 employees. Recently announced layoffs may affect another 400 employees.
CEO, since 2022, Barry McCarthy stated during Peloton’s Q1 2023 earnings call the company was done with layoffs and that the “ship was turning.” He is now leaving the company after presiding over the company’s massive loss of share value. (28)
Peloton’s stock price dropped 92% since its high of $162.72 in December 2020 to $3.64 in May 2024, a drop of 98%.
Poor strategy, internal issues, or external uncontrollable forces?
Boeing Aircraft
Unfortunately for Boeing, mentions in the news have focused on in-flight safety issues and cast a shadow on Boeing’s aircraft safety.
The negative effects on Boeing, the manufacturer, airlines, customers have been unsettling. Aviation is a big component of the economy, and problems potentially affect just about everyone.
Boeing aircraft have had nine reported incidents from January to March 2024. (29)
The Federal Aviation Administration has gotten involved resulting in an inspection of Boeing’s production assembly line found a lack of compliance with manufacturing quality requirements. Boeing failed 33 of 89 product audits at the 737 Max aircraft factory.
Why is Boeing having so many public safety issues? Is it cost cutting as some suggest? Competition with Airbus? A toxic Culture? Poor Quality Control? Revenue also decreased $355 million in the first quarter of 2024. (30)
The FAA subsequently required Boeing to develop a corrective action plan to address quality issues. (31)
Poor strategy, internal issues, or external uncontrollable forces?
Walgreens
Walgreens was trading around $52 in June 2019, now five years later it is trading around $12.19 a share on 27 June 2024, a 77% decline. In early January 2024 share price was $25.57, which dropped 52% to $12.19.
Currently Walgreens is planning to close approximately 25% of its 8,600 stores, about 2,150 stores. Apparently, price competition is contributing to Walgreens woes, as are problems in the pharmacy market facing low reimbursement rates.
Other factors include the 18 – 20 million Medicaid initial customer surge resulting from the COVID pandemic, then significantly declining post COVID. Pharmacist labor issues and name brand prescription losses due Pharmacy Benefit Managers’ role in the market also affect Walgreens and others. (32)
Success for non-traditional healthcare providers has been elusive not only for Walgreens (closed 140 of its Village MD primary care clinics, with plans to shutter 20 more), but also for Walmart (closing all 51 of its doctor-staffed health clinics as part of an announcement that its Walmart Health initiative is shutting down), and for a high-profile joint health venture among Amazon, Berkshire Hathaway and JPMorgan Chase that failed several years ago. (33)
Poor strategy, internal issues, or external uncontrollable forces?
Bio:
His career has been enriched through education, training and experience beginning in the early 1970’s as an investigator, and later as economist, statistician, operations researcher, adjunct professor, business owner, newsletter publisher, consultant, quality award examiner, risk and QA manager, and contractor.
The common thread throughout this time has been gathering, reducing, assessing, summarizing, and presenting findings to enable decision making. With the arrival of COVID-19, it was recognized that methods and tools used for decision making in a business setting, particularly involving risk, can be adopted to individuals.
Toney is also an aspiring business fiction writer where his future works will be published on vucanites.com.