The Coca-Cola Company (KO) Earnings Call Transcript & Summary

Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's beverage house products and food analyst. And on behalf of Bryan Spillane, Bank of America's beverage, food, tobacco and cannabis analyst, we'd like to thank you for joining us and Coke's management team, for a discussion with Coca-Cola as part of a series of in-depth video discussions we're conducting with C-suite management teams and additional executives across the [ stable ] group through September. This is a joint effort between Morgan Stanley and Bank of America, and we have a lot of other companies lined up in the next couple of weeks, we hope you can join us for.

Thanks, Dara. I'm Bryan Spillane. Before we begin, we have a couple of quick disclaimers. This call is for Bank of America and Morgan Stanley's institutional client base. This call is not for [indiscernible] members of the press. If you remember the press, please disconnect. Some of the statements coke will make may be considered forward-looking and are based on assumptions as of today, and Coke undertakes no obligation to update them. Please refer to Coke's Form 10-K for a discussion of the risk factors that may affect results and Bank of America and Morgan Stanley's websites for important research disclosures. With that, we are very happy to introduce today, John Murphy, Chief Financial Officer of the Coca-Cola Company; and Manolo Arroyo, Chief Marketing Officer and President of Asia Pacific Group. The format of the call today will be Q&A from Dara and myself. But if you have questions at any point during the call, you can either e-mail -- you can e-mail either of us at [email protected] or [email protected]. This call is going to run about 90 minutes. And with that, Dara is going to start us off with the Q&A.

Great. Thanks again, gentlemen, for joining us. We appreciate it. John, I thought, first, we could start off, maybe since earnings a month ago, can you sort of walk us around the world and what you're seeing and share what you're seeing in key markets in terms of consumption patterns and trends obviously, a lot of volatility here in the COVID situation. So just sort of take us a walk through the world at this point.

Sure, and Bryan, thanks for hosting us this morning. Sure. Let's maybe start with reference back to what we did say in July. As of our Q2 call, the global volume was down mid-single digits globally, primarily due to away-from-home pressure. I don't have a material update from that call. We continue to see different puts and takes around the world. But the net-net is that we're -- there's been no material change in our perspective. Having said that, as the pandemic continues to plot its way forward around the world, it's doing so in different shapes and forms. And that clearly has an impact on our week in, week out performance given the degree to which it affects the away-from-home business. So just let me -- if I can, just let me -- a few comments on specific reasons around the world starting in Asia. Southeast Asia and China continue to be -- in general, continue to hold up pretty well. Within Southeast Asia, there are some markets doing better than others. India has improved somewhat. You'll recall it was significantly impacted in Q2, we're seeing it coming out of that. And Japan has sort of bubbled up and down as the government there manages the ongoing trends. So that continues to be sort of an up and down movement. In the U.S., we've seen -- we're seeing a lot of outbreaks and pockets in different states, as you all are more than familiar with. But the at-home channel continues to perform well. Some aspects of away-from-home have improved for sure, particularly in some of the QSR areas. But there are elements of at-home that continue to be impacted. In Latin America, there's still a fair degree of uncertainty given how different governments have chosen to manage the pandemic. One of the things we've learned is in the developing world, it's not as easy to lock things down, given the fact that many, many people are dependent on what they earn that day to be able to feed the family. So there's been -- it's a more complicated dynamic, and we're seeing that play out in countries like Mexico and Brazil. Having said that, our business in Latin America continues to demonstrate its resilience. And it's -- I don't think it's a coincidence that our bottling system in Latin America is probably the most experienced when it comes to managing crisis. In Europe, where we continue to monitor the ongoing evolution in Europe. Again, you're seeing in the media some recurrences in some markets. I think the August weather patterns are -- have been favorable. So that will, I think, be helpful for us. We'd continue to see some ups and downs. Overall, consumption patterns seem to be pretty consistent across the operating groups. There's nothing outstanding that I would want to highlight on that regard. So net-net, I think the away-from-home channel continues to be impacted. We would expect that to be the case for the rest of the year. And the degree of that impact is obviously going to depend on how the pandemic navigates itself in the coming months. At home, we continue to see a pretty buoyant business at home in just about all of our markets. So I'll stop there and hand it back.

Okay. And we have seen some restrictions come back in place in certain markets, it's hard to sort of judge them versus the first round of restrictions because they're probably a little different. But in general, where you see sort of a second set of restrictions, does it have the typical impact that the first set had? Is it hard to say because it's very different. Just thoughts in general would be helpful.

I'd say -- sorry -- yes, I'm not on mute. I would say, in general, not as impactful. And I think there's a couple of reasons for that. I think that in many markets, mask wearing and overall precautions have become more of the norm than perhaps when things started out. Secondly, I think the degree to which countries can go into lockdown is not as strong perhaps as it was first time around, but -- it's one of those conversations where there's always going to be a but attached to it. But there are some markets, the Philippines is a good example of a market that seemed to have been coming out has imposed even more restrictions in the last 2 or 3 weeks. So we just have to be agile in how we react and adapt as we go forward. But in general, I don't think we'll see Q3 and Q4 with the same level of impact as we did in Q2.

Right. Okay. And as we think about the balance of the year, are there any additional considerations we should be aware of? Obviously, there's a lot of flux in terms of the fundamentals here. But I'm thinking about shipment timing, price/mix, marketing spending, as you look at the business, has anything sort of changed in that regard?

Yes. Just a few comments on that as we go down through the -- let's say, go down through the P&L, for example, the top line, just linking back on what I just said around the world, the top line is obviously going to be shaped and impacted by how things continue to evolve around the world. So we need to factor that in. As I said, I don't expect Q2 dynamics to return. But nor do we expect us to get back to normal by the end of the year. So it's somewhere in between, and we'll adapt and manage. And in some parts of the world, we're, I think, managing very well. On the gross margin line, I think we -- given the importance of the away-from-home to that equation, I think we'll continue to have some pressure in the second half of the year until that returns. With regard to operating margins, we're very focused on investing and doing the right thing, not just for this year, but as we go into '21 and even '22. So I think we reserve somewhat the flexibility to invest as we need to, as markets demonstrate that they're ready for the right kinds of investments, when the competitive situation demands that are a little bit more aggressive, too. So I would not expect to see as much leverage given the fact that we are, I think, more focused on doing the right thing to come out of this in '21 and into '22. On the below the line, you're aware of the work we did in the second quarter on debt. So we'll have some higher interest expense in the second half of the year. It would be the main points. No major that I'm aware of today, no major sort of timing topics to factor in at this juncture, but we'll provide an update on that as we get to the end of the third quarter, and we'll have greater visibility as to what to expect for the end of the year.

John, the -- I know currency is one of your favorite topics, so I figured I'd ask you a currency question. The dollar has weakened materially in the last couple of months, given that you hedge I guess, if current trends hold, how long will it take for that to begin to flow through, not just income statement but also cash flow?

Yes. It is -- it has to be a favorable topic given the where we operate. And it's interesting, Bryan, that there's somewhat of a divergence in the currency world with respect to our business. The G10 currencies in general are holding up performing better. But the same is not the case for some of the developing markets. And in our case, I think it's important to keep a close look at how the Mexican peso, the real and the South African rand are doing. So the benefits that come from the stronger developed market currencies, are -- in the short term, have been somewhat offset by the weakness in some of the developing world currencies. As we look at '21 today, if I just look at spot rates today, we'll be slightly, I think, we'll be a little bit better off in 2021. And we don't have -- I know this will be a follow-up question, so I'll answer it anyway. We don't have any major hedging gains losses on the script at the moment. So overall, rest of the year, no update from how we discussed in July. And as we look at '21, based on what we see today, we'll be in somewhat better position, slightly better position.

Right. And then maybe just shifting to market share. On the last earnings call, you mentioned that market share gains in the at-home channel were more than offset by pressure in the away-from-home channel, including, I guess, negative channel mix. So could you discuss how you see market share performance evolving in the at-home and away-from-home channel? And I guess, are you concerned that competitors will have more resources to reinvest A&P and potentially gain share given their lower exposure to away-from-home?

Okay. Let me try and break that down into a few parts to make some sense of the -- all the dynamics at play. I think it's -- if I think about the world of beverages, both pre-pandemic and without taking the pandemic into account, particularly in the short term. We continue to demonstrate as a global system, but the formula that we have is a strong formula to wait in the marketplace. And so overall, we feel pretty confident that we can emerge from this stronger in the marketplace. Having said that, with the phase that we've just gone through, the severe lockdown phase in Q2 and with the recovery phase that we're in, which, as we've just discussed, it's going to be a little choppy, and the length of it is uncertain. I think there's going to be some impact. So what do I mean by that? Away from -- the away-from-home channel but the fact that it's compressed in size and importance. There's a mix impact. And so we highlighted that on the Q2 call, I think we'll have some of that continuing. When you look at the -- I guess, strip away all of that and look at the underlying health of the business and the trends we're seeing in 2020, I divided it around the world, Asia Pacific and Latin America, we continue to gain share in both the away-from-home channels and at-home channels, overall. Europe and North America is a slightly different story and for different reasons. In the case of Europe, we have had, I think you're probably aware from some other conversations, you've had some customer disruptions that have had a short-term impact. And in North America, there's some pockets where we know we can do better. I think the good news for me is that we have a very surgical approach to understanding what's working, what's not, why. And then being in a position to pivot and adapt quickly. Linking into the second part of your question, the share performance is not just a function of investment and the degree of investment and whether we are or our competitors are putting more pressure in the market. But I think it's also a function of what's happening with the consumer and how well are we adapting? What are the retail dynamics in a given market? Obviously, the competitive context and what competitors are doing, not only with investment dollars and media, but also with how they're executing and performing. And so we're -- we've got a pretty good picture of what that looks like on a market-by-market basis. And concern would not be the word I would use, I think we're hyper-focused on making sure that we have the wherewithal to adapt to whatever the local circumstances are. And so with that, as we think about navigating through the pandemic, I think we maintain a high confidence that the trajectory that we had been on for the last 2, 3 years in terms of overall share gains is something that we'll see continuing in the post-pandemic arena, acknowledging that between now and then, there will be some choppiness.

Manolo, shifting gears a little bit. John is well-known in the investment community, but perhaps you can share some of your background with the investors on this call and how that led into your recent appointment to Chief Marketing Officer? And then what your key priorities are coming into this role, where we might see some strategy shifts or areas of emphasis, either under your control or just because of COVID shifts that we're seeing in terms of how you guys manage the business?

Thank you, Dara, and good morning, everyone. First, bit of about my background. I started 30 years ago to work in S.C. Johnson in [ marketing ], then Banco Santander, then joined Coke in 1995 in Spain in marketing, then moved to Atlanta for a few years, also getting back to Spain in marketing and became GM of the region, and then moved to Asia for 8 years in 2 different capacities running mostly on Southeast Asia. And left Coke in 2014, rejoined S.C. Johnson 20 years later, heading Asia Pacific from Kuala Lumpur to move back to Spain as the CEO of a public company that leads olive oil, Bertolli. Then back to Coke in 2017, first, running our business unit in Mexico then [indiscernible] in January '19. And then since January this year, also [indiscernible]. So I guess the real -- the rationale for CMO appointment was really a recognition internally in the company that we needed to really step it up in the CMO role, and then raise the performance bar of what marketing brings to table [indiscernible] that we -- as I started to take a cash and recognizing that the company has had, for decades, phenomenal development in marketing on -- there were a few things that were evident, a lot of our way of thinking or frameworks are, I mean, from around 15, 20 years ago. And there's a lot of things that have happened, particularly with the digital spot explosion and the shift of power in the consumer from the manufacturer that you can drive -- in the old days, drive all kinds of marketing and communication activities into interrupting consumer journey by a way to sell phones and technologies, given now that our consumer to the site, what, when, if they want to be exposed to any marketing forever in any country. So really, there was a recognition that we needed to really make a big shift or at least think to of what would be our model of doing market, the way of market moving forward. The way we think about it is definitely one single or framework with different models. I mean, we have today, a very different portfolio of brands and categories in which we're present versus 20 years ago. I mean it has nothing to do, very difficult to compare the kind of marketing you need driving a brand like Coke versus the kind of marketing that you need to drive in any retail spend or in, like, cost, for example. At the core of it, it's really recovering a lot of strength on putting the consumer human being at the center, and then driving deep insight and building throughout the consumer journey, very differentiated and prefer love of brands. But we also come from a place in our history, in which -- in marketing, we were relatively happy with the notion of love brands, preferred brands. But it's not only important that our winning awards in advertising or marketing are more important to price consumer behavior in terms of a specific results in driving incidents or consumption base, the number of humans that drink our products and how frequently they drink it from a behavioral standpoint, that is actually ultimately what drives our performance in revenues and profits over time. The second big priority is a combination actually of 3 strategic actions, and we started to work together prior the COVID pandemic, but it actually has accelerated right after that. First, bringing a lot of more focus to those more than 400 brands that we have in our portfolio to redefine a growth portfolio moving forward. Second, there is also time to have a shift in innovation, shift in the approach we have been having over the past 3 or 4 years in innovation. And the third one was really about a step change in the effectiveness and the efficiency of our marketing expenditures in [indiscernible] around the world.

Great. That's helpful. And then, John, you've talked about emerging stronger post the COVID crisis. What exactly does that mean? I assume part of it is the market share discussion we had earlier, but what gives you the confidence you can achieve that stronger position coming out of this?

Yes. First of all, I think it's important to have -- to stay ambitious, to have an ambition to the world when we're back to some degree of normality. And we've defined that in pretty simple terms to keep not only our company, but our system focused on the important priorities to double down in the coming weeks, months. So first of all, it's -- and Manolo would be able to talk about this in more detail, too, is it's about having a bigger consumer base and understanding inherently what that means with respect to our actions. Number two, it's having a stronger position in the marketplace, measured by our share -- value share. Number three, it's making sure that the system financials stay healthy. You can define that in different ways. And I think it's important to do so as we go through the different phases. Working not only with respect to what's important for our company, but also with our bottling partners. The fourth area is we have broader responsibility in the 200-plus markets we do business. I think we have a long heritage of being an investor and a community supporter. And we want to ensure that our reputation say -- not just stays intact, but gets enhanced with the actions that we take to support our communities. And then last but not least, it's understanding the different pivots that organizations need to consider in order to be positioned well in the future, whether it's new capabilities that we need, new ways of working and being prepared to make the changes that are necessary for that to be the case when it comes to this new normal, whatever it looks like and whenever it happens.

Okay. That's helpful. And maybe we can tie that to the strategic priorities that have emerged over the last few years, under James and your leadership, obviously, you've been sort of transforming to a leaner, faster total beverage company. I think that work generally went quicker than most of us expected with a greater payback. But how does COVID sort of -- does it slow that transformation a bit? Are there opportunities perhaps even to accelerate it in light of COVID? And how does this sort of fit with some of your prior strategies?

Yes. If you -- the CAGNY seems like a world ago. But if I -- maybe if I could start there, like many of the the priorities that we discussed in some detail back then are still very relevant. I think at the heart of what we're about is to follow the consumer with beverages that they prefer versus what others offer, it's not much more complicated than that. But in order to make that work, I think what we're even more focused on than ever is a couple of areas. One is having a portfolio of brands that can both meet consumer needs, but also optimize value for our system. We did -- we talked in the Q2 call on some work underway to rightsize our portfolio and to have it as fit-for-purpose for markets as it needs to be. That's -- that work actually started a year ago, and this is an opportunity, I think, to accelerate and to maybe be even bolder with some of the actions that we are taking. I think secondly, with Manolo's leadership, with other changes we've made around the organization is to really step up our innovation and marketing work. It's a very competitive world out there. There are other players bringing some good things to market. And we've got to continue to kind of challenge ourselves to raise the bar. And the agenda that we've discussed and Manolo will talk more about on this call, in the marketing innovation sphere, it's just all about that. Yes, we've made progress in the last 2 or 3 years, but I don't think you can sort of sit back and admire what you've done in the past. I think it's important to understand what does it take to win in the future. And if anything, that is an even sharper conversation today than it was even 6 months ago. I think the third area that's really important is to recognize that we have a tremendous ecosystem. We come into this crisis, demonstrating that when it's working, it's a pretty darn good formula. And I think we believe wholeheartedly that this ecosystem, the Coca-Cola ecosystem ourselves, our bottlers, our partners can emerge from this even stronger. But it demands us to challenge some old ways of doing things, perhaps in a more urgent manner. The kind of collaboration that we can do together in areas like the supply chain, the way we work with customers that are a transnational, the way that we can perform activities that are noncore. These are all areas that continue to have opportunity ahead for us. And we're very focused on that. And then coming, as I mentioned on the -- with regard to the emerging stronger, having a clear picture of what sort of capabilities that we need as a system in order to execute and to execute at a -- we call it at an Olympian level is really important because the execution part sometimes gets lost in some of these higher-level conversations. But it is the ultimate competitive advantage. I think we, as a system, have when we're firing in all cylinders.

So maybe that's a good sort of way to kind of frame this, kind of moving the conversation to talk a little bit more in-depth around the 5 priorities that were outlined on the second quarter earnings call. And just to sort of frame that for the folks on the call, if you remember, those priorities, we're optimizing the portfolio and that the balance between global, regional and scale and local brands, really a disciplined innovation framework and increasing marketing effectiveness, a focus on revenue growth management and execution capabilities, an opportunity to really enhance system collaboration to capture supply chain efficiencies and also evolve the organization and investing in new capabilities. So maybe to kind of think about first portfolio -- and Manolo, as part of the acceleration in portfolio optimization, you're prioritizing fewer, bigger and stronger brands while doing a better job nurturing the smaller and more enduring one. So in what way is this different from the approach before COVID? And how should we think about this within the leader, challenger, explorer framework? Is that going to change at all?

Yes. Thanks, Bryan. In essence, our framework of leader scores and challengers has not changed at all and remains at the center of how we're thinking about growing or scaling brands moving forward. We do know that depending on your leadership status, that should drive a very different approach to your marketing strategy, your channel approach. How do you go about execution, pricing, et cetera. So in reality, what we're talking about is it's pretty much the same strategy, but they're having a bit more stronger discipline. And we actually have started already leveraging during the pandemic to accelerate our position and market share, betting much bigger on the brands that we feel they have a much stronger proven track record in terms of growth, in terms of competitive advantage and in terms of margins. So pre-pandemic, the reality is that like many other FMCG companies, we were keeping in our portfolio given brands -- certain brands way or far too many chances. An example of that is Odwalla. We've tried multiple attempts, multiple approaches. And yet, it hasn't just worked for us. So that's why we made the decision to just basically eliminate it out of our portfolio. So the beauty of focusing on fewer brands is that it's also going to free up resources, which are -- it goes beyond the financial aspects. As you know, every brand, every SKU has with it an inventory in caps, in labels, in bottles, that affects directly the working capital level of any bottler. And that's very important. But more important than that is even the time -- management time, focus of people. I mean it's not the same when you have a sales individual in an outlet needing to try to get in 20 SKUs versus 8 SKUs. 8 SKUs, particularly, in the traditional trade is almost mission impossible. Our best salespeople can get 35 to 40, maybe in the traditional fragmented, right? So we've got to make the job easier for them. And they need to be those brands and SKUs that drive scale, that drive margins and that drive growth for us. So the goal for us moving forward is to leverage -- actually, take advantage of this pandemic to improve our framework, to move faster as many challenger brands into a leadership status. And quite a few explorers into a challenger or a stronger challenger position to keep on building from there, but not necessarily to change the framework moving forward.

Okay. And then maybe as we think about the master brands and zombies, there are 400 master brands in the portfolio and almost all of your revenue coming from about half of them. How do you see the breadth of the portfolio changing going forward? And I guess at what pace would we see some of these underperforming brands being removed from the portfolio? So is it -- will it happen very fast? Does it happen over a short period of time? And maybe if you could just touch on what you think the optimal number of brands is?

Yes. Sure. I think as a principle, I think anyone would agree and would understand that you definitely don't need 400 brands of beverages in any given geography, meaning geography the country, arguably, not even 100. But obviously, the world is a pretty large place, and we are present pretty much in every single nation, any country in the world, but a couple of them. So the pandemic is allowing us to go much deeper in a more meaningful approach than SKU rationalization or what we call zombie killing. When you look into our numbers, we've made significant progress over the last couple of years in killing zombies or reducing SKUs at around 3,000 so far. And actually, during the last 3, 4 months, we've actually accelerated that rate, which is great news, is opening a space for innovation -- for new innovation and/or to get more focus to those big winners that we have in our portfolio. And the majority so far in the last couple of years has just been that SKU rationalization elimination and flavor extensions reduction, but not really brands out of the portfolio. So as a company, our total beverage strategy remains in place. We believe that the category has tremendous growth opportunity moving forward with or without the pandemic, humans are going to be drinking 2 liters of liquid every day. And more and more humans are going to be moving from noncommercial into commercial and from commercial into ready-to-drink beverages. That's an unstoppable dynamic probably for decades to come. So the choice really is that while the breadth between, let's say, soft drinks, sparkling and still should not change. If you look into our numbers, basically, our top 100 brands today, 30% of them are sparkling brands, and 70% of them are nonsparkling brands. So we're working through what that optimal portfolio looks like. And as John mentioned, we see the notion of balance, say, critical to crack the code. It's a balance between 2 axis. One is obviously the framework of Leader, Explorer and Challenger. And the other part of the axis is really around a good blend between global, regional and some big, large-scale local brands. So looking into the -- a bit more than 400 brands in our portfolio today, we have around 200 brands of those 400 that are only present in one country. The combined revenue of those 200 brands of single country brands represents around 2% of our total revenues. So it is very important. We will -- and it's important that we continue to be integral part of our portfolio. But one example of those local brands would be simply in the United States. As you know, it's a critical element in our portfolio. It's a winning horse, and we believe it will continue to be. But we have a long tale of other brands that many of them, you probably have heard, even in your own market. And then another important fact is when you look into what makes the difference, the brands that are present in multiple operating units, in multiple regions and geographies across the world, they tend to have an average of 12x higher revenue than those brands that are just present in a single country. Coincidently, those multi-geographical brands, most of them, if not all, happen to be growing over the past 3 years from 16 to 19. And most of the single country brands happen to be decreasing. It might be a coincidence, but we don't believe so. And the name of the game here is scale. Our economics for the whole system in Coca-Cola work on scale. And scale is a key driver of profitability, growth and margin expansion. And it's also a key driver of what delineates the difference between being just a challenger or a true leader in any given category segment. So we're going to be insured, as John mentioned, that we emerge stronger from this crisis, we are going to favor and prioritize the scale, which means we're going to drive much, much harder global and regional brands for the next at least 3 years. And in terms of the speed and the timing -- on your question on timing, we are moving really fast. Actually today, I spend about 6 hours, to be very specific, with 3 of the business units in Asia Pacific. Great results, by the way, John, on them. All of them are agreeing. They're agreeing with the approach. The amount of brands that we're going to eliminate is the immense majority of the initial intended list, just a couple of exceptions, made for the right reasons because there are brands that still hold strong equity or they have a strong profitability or the system beyond the company. And what is critical is that as we sunset a brand, we remove any brand from our portfolio. We're going to be making sure that we don't lose the consumer, we don't lose the space that, that brand is occupying from a consumption occasion. We need the space, and we migrate some of that revenue margins into bigger, older brands that we have in our portfolio today in that same geography, which happens to be in almost all the cases across the world.

And maybe, John, as we think about the resources that may be freed up from going through this process. Can you just talk to us a little bit about how much maybe gets reallocated or reinvested? Or how much might fall the bottom line? Just kind of how we should think about the uses of those freed up resources?

Sure. I think there's a couple of different ways to tackle that topic. The first one is on a direct basis, how much can you attribute to some of these brands? And through that lens, it's actually not a material amount. You -- if -- a lot of the brands that Manolo has referred to account for a very small percentage of our revenue today and an even smaller percentage of our profit. So you're not going to see a huge amount of money being freed up through that lens. Where this work started and really got accelerated over the last few months is the sort of the hidden costs associated with managing a massive portfolio. So when you think about the end-to-end game plan to be able to produce and bring to market, even a small brand, there's a lot of cost and inefficiency that gets tied up in both our supply chain, in our bottlers supply chain, in their trucks and their route to market on the shelf. And so the -- for me, the bigger benefit is going to be able to better utilize the assets that we have in the system in our supply chain and in our route to market to have more shelf space for the SKUs and brands that move. And therefore, by -- almost by definition, you end up fueling the brands that are being demanded by our consumers. I don't have a number to give you on that because it's -- I'm sure you can appreciate, sort of, pulling out on an end-to-end basis across all the elements of our system. What that looks like is not straightforward, but the big opportunity for me is to be able to free up a lot of space, a lot of kind of hidden cost and reduce a tremendous amount of inefficiency across the supply chain and our route to market, to be able to then focus those resources on the ones that we do want to drive and are going to be demanded in the marketplace.

Can you discuss how you manage the SKU rationalization with your bottlers? Is this something that's more directed from the top down, from the corporate entity? Is it something that's coming more from the field in terms of the bottlers? How do you guys work together to determine which brands will be called and which SKUs are reduced?

Yes. I think there's different levels of engagement on topics like this. First and foremost, I think it's important that there's broad alignment on the direction we're going. And I think that's the case. I think it's difficult to not buy in to the premise of having a leaner more effective portfolio of brands that, over time, can actually deliver stronger top line. I think people buy into that. As always, devil's in the details. Manolo has gone through in Asia with the markets today, okay, what does that mean for my market? And you're going to have a very robust conversation back and forth with markets as to what's the timing, the phasing, so that it's done in a manner that's not destructive -- that's not value destructive. So I think it's a classic case of getting leadership alignment, which we believe we have. And then being able to put into place an execution plan, a transition plan that minimizes value leakage and takes into account all of the variables that need to be considered. So that the -- we end up with getting to the right place in the right manner as opposed to destroying value and being -- and not being mindful of the various considerations at play. Like there are some smaller brands that have a role to play, and we'll continue to keep them. But in general, I think it's an initiative, a set of initiatives that is being embraced by our system. And the degree to which we manage the transition will ultimately be measured by how well we do the detailed work locally, but very confident that we'll get there.

And I think that -- sorry, I was going to add, if I may, John. If you really think about the internal dynamics in our system, I think both in the company and in the bottler, particularly at the top level, CEO level, CFO level, marketing heads, they all love the idea. They've been pushing on that direction to us for actually a number of years in a number of geographies. The resistance is typically more at more middle management, junior levels because they don't understand sufficiently in-depth the implications in terms of consumption of resources and focus on both sides. Mostly some of the more junior or middle management in marketing on the company or some of the younger or lowest levels of the organization in sales on the bottler. But from a value creation perspective, at the top-to-top level is a no-brainer.

Right. Okay. Any possibility to sell some of these brands? I know they're fairly small, so maybe it's not realistic but...

No. It's a good question. It's actually challenges, Dara, a paradigm, I think, that we've had and that I can't remember over time, us being in the business of selling brands. So it does present us with, I think, a very interesting challenge as we go forward. So for sure, if it makes sense, if we can extract value for -- and if somebody else feels that they can do a better job than we can, then absolutely, we are taking a look at it in a number of markets. But equally, if I think and as we look at the second half of this year and into 2021, equally, if it's the right thing to do longer-term to just take them out and kill them, then that's something that we'll do also.

Okay. Maybe if we can just slip now to innovation. And Manolo, how is your approach to product innovation going to change? The Coke is -- there's been a big shift in installing a growth culture over the last few years that James has led. And so how do you maintain that growth while trying to be maintaining discipline at the same time? And I guess the underlying premise of the question is, are you at risk of maybe losing some of the entrepreneurial spirit that you've worked so hard to instill?

Yes. You're right. Prior to James coming on, we were too risk averse, and I'm very focused internally. So you have to drive very hard to stream the pendulum the other way around to drive a different mindset moving forward. But as a result of that drive, when you look into the -- what has happened from our -- in our pace of innovation, it has almost doubled since 2015 into 2019. Actually, from a product innovation standpoint, it's almost 2.5x more. And that, for example, in 2019, 23% of our incremental gross profit came from innovation, but the challenge is that we were not generating the same positive impact on the bottom line because we tend to invest -- overinvest in smaller-scale, cannibalistic initiatives, way too many, very fragmented across the world in a lot of iterations and repetitive behaviors in which you're just changing one ingredient in basically the same type of product driving a lot of complexity. So that complexity has translated all the way from manufacturing to distribution. So moving forward, the key -- the name of the game is ensuring that our innovation platforms are accretive and they're sustainable and they reinforce the perception of our brands, our refreshed portfolio, of our focused portfolio moving forward. And when you think about what it takes to make any innovation to be sustainable beyond just 1 year, 12 months after the launch, it has to do one of the following three things. First option is that at least it brings significantly more new drinkers to the base brand. And when we say significantly more is for most brands, it's a good double digit. Otherwise, why bother. You're just dropping current existing transactions into more fragmented transactions. The second option, if you don't bring more drinkers to your base of consumption of your brand, is at least that the drinkers that you have, you also increased dramatically the frequency of consumption. For example, if they drink once a week that they move to drink twice a week. And there's a third option. And the third option is, in some cases, the innovation might not be able to bring new drinkers or a significant increase of frequency of consumption. But at least if you're going to be stopping one transaction, one act of consumption for another one, it might be -- or it has to be at least for a much higher price, that the price of the new consumption that the consumer pays for it, for the price per milliliter at least is also significantly higher than the one that you already have in your page. So we're planning to drive and to lead with global and regional bets. We're going to be complementing those global and regional bets with some selective innovations and local brands. But conditional to those innovations, those explorations having a sizable scale and the right level of experimentation and resourcing behind it. And I think importantly, if you think about the dialogue in fast-moving consumer products, a lot of the dialogues around new products, but innovation goes way beyond product. When it comes to, for example, in beverages, is equally, probably I believe even more important to spend far more focus in understanding how you can play with packaging, sizing and packaging materials to drive, for example, a higher price point, a higher-margin or a similar transaction, similar consumption occasions. There's tremendous amount of value to be created there. And far more in most cases than just going the old way of another flavor to be added to the long queue of 7 or 8 options that you already have available. And I think that's where we're going to go moving forward. We also need to project a lot of the entrepreneurial spirit that we have developed in the last few years in elements beyond product or packaging. We have to reinvent the way we do marketing as the world becomes less and less dependent on TV, as the world also is moving to digital but a lot of consumers around the world are using apps to block advertising in their cell phones, the whole notion about experiential marketing, street marketing, influencing marketing, retail marketing is going to be becoming more and more important moving forward.

If I could just add a comment to your question about, is this sort of contrary to what James started 3 or 4 years ago. I would argue that this is actually version 2.0 of what James has started. In the sense that we're really raising the bar on what we expect to be delivered from innovation and indeed from marketing. It's a lot easier to do small things and to do a lot of them, particularly in an organization like ours. But to have to collaborate on bigger and more scalable initiatives, it's harder. But the benefits we know are bigger. And so I think a big part of what this is about is accelerating the journey to higher expectations for this area of the business. And also to make sure that we understand the lift required in capabilities in order to be able to deliver it.

Right. You're better at it now than you were when you started this, right?

We're better than we were, but we're not as good as we need to be. And I think that's a mindset we have to keep fresh at all times.

So -- it is -- you've launched Coke Energy, AHA and now recently, Topo Chico Hard Seltzer, so again, an example of kind of moving beyond just the seventh flavor. How do you look at the -- envision these brands going forward in your portfolio? And I guess, what are other categories where you see opportunities to explore?

Those are actually great examples of brands that can travel and scale across regions way beyond they're -- where they're present today. So for example, I mean, Coke Energy, actually, what we did, was leveraging our strongest trademark to expand a category. We know that a lot of drinkers that would like to have an energy drink, they don't like the taste profile of energy drinks. And what they love most is arguably one of the, if not the most, love taste when it comes to soft drinks in the world, which happens to be Coca-Cola. And that's where Coke Energy makes a lot of sense. So the pandemic has put some short-term pressure on both the brand and the energy category overall on a worldwide basis. But despite that, the brand has proven to be very resilient. It's leveraging the core functional benefits of the trademark. And Coke Energy in the U.S. was the #1 U.S. dollar growth contributor to the entire energy category year-to-date as of the second quarter. Now in the case of AHA, it's a different case. It's a case of creating a new brand to play in a growing category that you all have seen in the U.S., it's really flying and growing in a very sustainable way. So AHA has performed quite well since the launch early in the year. We are right now the #2 sparkling water company in the United States. When you combine together the aggregate volume and revenue of AHA and Topo Chico and sparkling smartwater, which is another great bet that we see with great potential to be scaled on a global basis. And it was a category that was -- it was -- where we were basically not even present just a few years ago. We do feel that AHA has legs to travel way beyond the U.S. I prefer, obviously, for obvious reasons, not to disclose where, but we are already working in quite a few geographies to make that a reality relatively soon. And then the last one that you mentioned was around Topo Chico, which is really too early to discuss as we haven't launched yet. We will very soon, but we're very, very excited about the potential of that brand. And as I mentioned before, new innovation is not limited to products, innovation in packaging and packaging, sizing and pricing is ultimately one of the key elements that underpins the full power of RGM. And I can give you an example. Actually, John has started the journey in driving RGM to the next level in Asia Pacific a few years back. And in Japan, we are now harvesting the tremendous results of investing behind that and no model in which we were very, very dependable in one given packaging. So think about the 500 ml, so similar to a 20-ounce PET packaging in the U.S. in terms of size, and we are decoupling the consumption of that pack into 2 different packs, a 350 ml and a 700 ml, which is leading to a significant revenue uplift and an acceleration, a very significant acceleration, double-digit in terms of creating new drinkers, gaining value share, increasing transactions growth and system revenue growth. And the key there is that, ultimately, you're charging more per milliliter through 2 packs that adapt better. In other words, a 500 ml or 20 ounce in the U.S. might be good in the sense of average for 2 or 3 occasions, but not ideal. And the other 2 packs, a 350 is more the right size and the perfect sizing for some shoppers in some occasion while the 700 is more almost like a small multi-serve type of pack for a country that is full of families that are just 2 people at most or 45% of population live alone today in Japan. And that's what's driving tremendous shift in terms of the old paradigms and how we were growing value in our market.

Thanks for that. And then either for both of you, just the impetus to move into alcohol, I think the 30 years or so that I've been sort of observing are around the Coke system, Coke's sort of attitude towards relationship with beverage alcohol is kind of flexed on and off over the year. So I guess, what was the impetus to do it? How are you thinking about the launch in Latin America? And I guess maybe underneath it, just why now?

Well, the Topo Chico is not -- I mean, it's very consistent with the approach that James started very early on, which is taking a very pragmatic approach to the portfolio, having the consumer at the center in terms of what we do. And that is -- this launch is aligned with our Beverages for Life strategy where we basically start from the core of our portfolio we have today and then expanding through co-centric circles around our core. And you can be just living from the old way of doing things and the paradigms of the past. And it's very evident that for us, a hard seltzer is a good bid. When you look into -- in terms of what has been the success in the United States, we do see that hard seltzers are a category that are here to stay, and the opportunity is not only in the United States, but it's actually a very large opportunity internationally. And that fits really well with our system moving forward. There are obviously no small challenges that we need to overcome on multiple fronts, but we're really excited. We see our bottling partners very excited about it as well. There's a lot of work to do. We're going to go out and it's going to be an explorer, an experiment. And we did, for example, in Japan, 3 years ago with another alcohol product -- similar product that we have, that is called Lemon-Do, that is doing for us a good job creating a brand, taking more and more share. We're selling that at a premium. Today, for example, we're selling that at a premium versus the rest of competition and continue to gain share, and we are selling everything we produce today. So it's looking good for us. And then why Topo Chico? Topo Chico, obviously, has the credentials than a sparkling brand. It has 125 years of history. And as you know, particularly in the U.S., it's very popular among [ taxologist ], bartenders. So it has the kind of halo and the perception that can really cut through in this category and make a very different proposition in terms of what it stands for. So it is the right fit, we believe, for this category moving forward.

Great. And then maybe we can turn to marketing. Manolo, you've talked about spending more efficiently on the marketing line obviously growing the top line. It's been a big focus the last few years, and will continue to be coming out of this COVID environment. Often, there can be a tension between the 2. So what gives you confidence that the focus on spending more efficiently want to end up impacting the top line? And how do you think for that?

I think the way we think about marketing spending, it's 2 things, but with one single purpose with this is about effectiveness and efficiency. And they both go hand-in-hand together because both are critical to drive growth. It's not about cutting our way or saving our way to merge a stronger by just cutting the budget is not that what we're trying to achieve. What we're trying to achieve is understanding that as it's a company that is present in many countries, in many geographies, in many categories, has been having a very strong or a very particular way of doing marketing for decades now. And as the external wall has changed and evolved in terms of how consumers relate to brands, how consumers consume media, how consumer experiment, experience brands and beverages, in particular, we need to adapt to that. And that requires basically that that we adapt our approach and be a bit more disciplined moving forward. When you look into our -- what percentage of our DME is in working versus nonworking, what we're calling internally enabling versus nonenabling DME, the nonworking represents a very big opportunity. New benchmark, externally versus what other companies are doing. We are -- we clearly see big opportunities to be far more efficient in that front. And that's because we have a -- we've been -- for a couple of decades, been very fragmented in our approach, fragmented from a geographical perspective. So let me give you 2 or 3 examples, and these are numbers from 2019. In 2019, we solicited services from around 4,000 different third-party agencies, creative agencies globally. If you think about there are 200 countries in planet earth, you make the division. You definitely can agree with me that we don't need 20 different agencies in each and every one of the countries that exist in the earth. It's just too many. So I have a huge opportunity to rationalize that and be far more efficient and then reinvest part of that into -- back into productive marketing. Another example we created for brand Coca-Cola in 2019, 800 pieces of advertising, visual advertising, TV advertising time. We definitely need a lot because it's a huge, large brand. One -- arguably one of the largest in FMCGs, but we don't need 800 different commercials per year. So those are examples of the opportunities. And when it comes to effectiveness, there are different philosophies of how you approach marketing. What we need to make sure is that we not only drive consumer love, preference, in general, we need to drive behavior. And behavior is someone that decides to stop drinking a bottle of whatever they drink today and they switch to one of our brands. The marketing needs to drive, for example, what we call consumption [indiscernible] and drive repetitive behaviors in a way that allows them to understand what a different liquid is good for in different moments of the day, depending on their needs. Now not only about having the functional part of it, on top of that, you need to bring the, say, the magic, the aspirational and inspirational part of marketing. Those are the areas that we're going to be focusing on, and we have a really tremendous opportunity in the next few years to improve.

Okay. That's helpful. Maybe sticking the subject to marketing, John, obviously, spend is down significantly year-over-year in the first half of the year. As you look out your thought process on where that line will go going forward, how it sort of evolves in this COVID environment. And as we think forward to 2021, post some of these efficiencies that we just talked about, where do you think you'll be relative to 2020 or 2019 pre-COVID? And sort of is that the base you work off of for future years? What are your thought process in terms of how long it evolves -- how it evolves longer term?

Yes. It's -- look, first of all, I'd anchor on the approach that Manolo has just outlined. It's -- at the end of the day, it's about investing in the right way at the right time. You know that 2020 baseline is going to be impacted by decisions that we've made in the various phases that we're going through, particularly with what happened in Q2. So I think as we look at '21 -- back half of 2021 and even if I dare say as far out as '22. I think we're looking at an equation to make sure that we stay true to the overarching ambition that we have to emerge stronger. But implicit in the emerging stronger is an opportunity to actually -- is actually to be able to do more with less as a guiding driver of creating value. And then with respect of what that frees up, having ongoing flexibility to either invest it or reinvest it or not. So there's a much more dynamic approach, I think, both required and are underway to get the balance right between delivering for today but building and investing for what's needed in the future. With respect to kind of the guidelines for '21 versus '20, as I said, just given the base that we will end up with in 2020, I fully expect that '21 will be -- will have a greater pressure on the DME line around the world as I expect that will be what's appropriate and right to do for both '21 and beyond.

Okay. And then we touched on productivity in a couple of different areas. We just talked about the marketing efficiency, obviously, streamlining the portfolio. Maybe you can just talk about post-COVID? What maybe big buckets would be in terms of enhanced productivity? And if you look at your plans prior to COVID, is there some significant areas where you can accelerate in this post-COVID environment?

Yes. I would like it to -- it's just an even sharper focus than ever. I think we've got to -- we can't stand still on anything that we're doing and expect that even the way we were doing it and thinking about it coming into this year is going to be sufficient for what's required going forward. I think it's a healthy attitude to have, and it's a healthy attitude to push not only in the company but as a collective system. So with that in mind, there's a couple of areas that I think we're, if anything, super focused on as we speak. Number one is understanding much more clearly, the difference between driving for scale and staying close and intimate to an activity or a market. And I don't think that we probably have had that degree of clarity in some previous iterations of this work. So with that in mind, there's, I think, ongoing opportunities to scale up certain services, certain activities even further. And we know from some recent experience that we've had in the finance area that there continues to be a lot of opportunities, both for the company and I believe, for our system. So that will be number one, scaling up nonessential or noncore activities. And having them been done both more efficiently and better. I think the second area that you're very familiar with our franchise model. It was not created to be the most efficient model in the world, but I think we have to challenge that as we go forward. And I think with the world that we live in today, with technology that's available, with a more collaborative mindset and then appreciation that good collaboration can create value for everybody. It's just not there to be nice to each other, it's there to actually create value. But in areas like our supply chain, in areas like how we go to market with new ideas, there are opportunities to improve. And then thirdly, and it's something that we did highlight on the call. I think it's important that -- and this is not so much just about productivity in its traditional form, but it's much more about being lean and flexible and being able to adapt more quickly to what the world throws at us. I think there's an opportunity and continues to be -- is a big area of focus to look at how we operate and how we work together, both as a company and with our partners.

Okay. And if you think out in a couple of years, let's say, your revenue base recovers to where it was in 2019. That's my assumption not yours, but if we're thinking in that sort of framework as you look at these efficiencies you just mentioned, is it possible you have higher margins than you did when you go back to and look back at 2019? Is it unlikely until you get to a somewhat sizable jump in the revenue base versus 2019? Just as you sort of put everything together, how do you think about that?

Yes. As we highlighted at the start, I think I'd break it into 2 parts. Number one is quality of top line, not just absolute size of top line but quality of top line. I think we'll will be affected by the way in which the recovery happens over the next year, 1.5 years. And we've got to take that into account. But I -- my expectation is that we can and should get back. And it's a core part of stepping up innovation, too, is that you can't just become a victim to the external environment. I think a big part of what Manolo is trying to drive in the innovation front is to become more masters of our own destiny with solutions that can help to offset whatever headwinds may come at us in the coming 1 to 2 years. So that's number one. Number two is -- and I think James would say the same thing, we're not deviating from what we have talked about for quite some time over the last 2 or 3 years with respect to our long-term growth algorithm. We still believe that's achievable. Yes, it's been impacted this year and into next year, I think, it probably will, too. But I still see the long-term growth algorithm has been something that we can deliver against. And implicit in that is ongoing margin expansion each year at the OI line. And it's, I think, incumbent upon us to continue to iterate and have the next version be better than the previous one. And that's really the mindset that I have, and I think James shares that as does the leadership team. And so margin expansion is a -- should be a critical outcome of the work that we have underway and will continue to drive as we go into 2021.

Okay. That's helpful.

Maybe, John, to pick up on that a little bit in terms of the algorithm and revenue growth management. You've talked recently about a focus on affordability, which is a function of the environment we're in now. So can you just discuss a little bit what the financial impacts are? Is a focus on affordability potentially diluted the margins? And just how it affects maybe the balance of volume price/mix in a period we are focused on affordability?

Yes. I think the secret here is not in the theory because we know and we've proven time and again that revenue growth management, as we just define it done well, is a tremendous buffer for those kind of headwinds that are at the core of your question. Can it be? For sure, if done badly. Like if you go out and execute a poor portfolio strategy, you will end up suffering. But I think the confidence that we have to be able to leverage the RGM capabilities that are being built, have been built around the world is driven by the fact that, number one is, I think we start with the consumer, as always, and bring it backwards. The Japan example that you wouldn't necessarily think of affordability in the Japanese context. But at the heart of that Japan example was being able to provide a better absolute price point to a consumer who is looking for us, but not necessarily sacrificing by only focusing on that. So it's a portfolio game, particularly with respect to the packaging architecture that you bring. It's understanding the premium that you have, that you can have relative to other offerings in the marketplace. And it's understanding what the retailer economics are as well. RGM brings all of that together and -- but it only is as good as how it gets executed at the point of sale. And I think this is where, over the last sales, the last few years, originally in Latin America -- but it's not just in Latin America. Now you go to many parts of the world, Europe, Hellenic are doing a super job in a number of their markets. European partners, the same. You go out to Asia, Manolo referenced the work that we have been driving with our bottlers out there over the last couple of years. China is a great example of a place for RGM. It's not necessarily an affordability play, but it's providing a package solution at a price point that the consumer is willing to pay. And as they've done well, executed well, it is not margin dilutive. Done badly, is another story, but we're not really in the business of wanting to do things badly. That's our challenge as a system is to continue to build on the capabilities that are already embedded there.

And then maybe just jumping to e-commerce briefly. Can you just give us a sense of -- especially because it's become so important in the COVID era, the size, just how big your e-commerce business is today? And maybe what are the markets where it's the most developed? And then maybe your market share position in e-commerce versus brick and mortar?

Yes. I think it's a relatively small part of the total beverage of our portfolio today. It varies by market, but roughly 5%, maybe less than 5% -- a little less than 5% of our business today. Having said that, it's growing and growing rapidly. And I think the current period we're going through is, for sure, a catalyst for it to become a bigger part of the business going forward. So sometimes I think about -- if you think about the modern channel in developing markets 25, 30 years ago, it was very small and kind of neglected. But today, it's not, like in many markets, it's 20%, 25%. So I think it's going to accelerate in size and importance. And I think our system sees that. With respect to our share, again, it varies around the world, but then there's many markets where we're not getting our fair share yet because I don't think we've yet built the capabilities that are needed. I just talked about RGM in the physical world, the same principles apply to the digital world. And I think it's a work in progress in a number of markets right now, accelerating to be able to bring the thinking and the -- and ultimately, the capabilities to be able to operate like that in the e-commerce world. I also think there's a broader topic that's getting the attention of our leadership around the system. And that is really understanding the impact that COVID is having to accelerate the way that shoppers behave from the time they consider a purchase to the time they execute against it. And so you've got this marriage between online and off-line that I think is becoming a lot more stronger and closer. And I think that is a big development that our traditional system is starting to embrace, so that we're in a position to be kind of agnostic as to what a shopper does, how a shopper wants to purchase beverages and have a solution for whatever variation of their choice that is going to be. That is not an overnight fix. I think that's something that is going to -- you're going to, I think, discuss -- we'll discuss a lot more about this in the coming months and into actually the next couple of years.

And then just system collaboration. Just you've touched on that in the last earnings call as well. And I guess, is there an analogy you could give us in terms of maybe something that, Coke, you've done with the bottlers in the past that we should look at going forward in terms of that connectivity and the opportunity to increase engagement and efficiencies? Is it like the North American supply chain organization that you'd set up? Just any quick analogy you can give us in terms of how we can kind of think about the past and use that as a way to kind of look at what to look for in the future?

Yes. I can think of like 4 or 5 come to mind. First of all, you're right, the North American supply chain and how -- particularly in the refranchising world, the post-refranchising world, how our bottlers in North America work on a number of initiatives as one system. That demands a governance framework and an operational framework that's different to the traditional model that we would have in many parts of the world. But I think they are demonstrating that it's workable and it creates value. Secondly, in the world of procurement, not maybe that well known, but we have a cross enterprise procurement group that has been in operation for the last 10 to 15 years that has and continues to create tremendous value. It's run in partnership with our bottlers. And it's a great example actually of how real collaboration delivers value and leverages the scale and breadth of our system. The third area that I would highlight is the way in which -- whether it's North America, whether it's in Europe or whether is in Asia at the moment, the way that we collaborate to bring to our trends, national customers, regional customers, solutions that are customer-centric as opposed to being what's in it for me in my territory. And I think there's lots of great examples of how the system has evolved to make sure that, that works and works well. But by the same token, there's I think none of these areas are perfect. And the opportunity ahead continues to be refined and taken to the next level while we seek new ones. I think the digital conversation that we just had, and I think we'll continue to have, is also going to present those kinds of opportunities to work in new ways across the boundaries that we have traditionally been accustomed to.

And then, John, just turning lastly to capital allocation and capital allocation priorities. You've talked recently about reinvesting the business and really the dividend being the top 2, and then M&A and share repurchases, I guess, being kind of more distant third and fourth. But when thinking about the dividend, is there a time line or a threshold in mind that could be a catalyst for a policy change?

No. Not -- short answer is no. I think the dividend and what we said about the dividend is part of a -- it's a multi-variable conversation that starts with our ability to generate the cash that we need to both support the reinvestment in the business and the dividend. And as we -- it's also going to take into a kind of more than one time frame and one -- more than one time line. For sure, we're more pressured in the short term, given the developments that the pandemic have thrust upon us. But I think when it comes to the decision-making on that, it's -- you've got to take a longer view into account and just behave accordingly. And it's also -- I think we also have to take into account our -- the strength of our balance sheet and our overall debt strategy. All of those together led to what we said on the Q2 call, and at this point in time, there's no change to that position or that overall direction.

And I guess, tied to that, if we think about free cash flow going forward and being able to sustain a payout ratio of 75% of free cash flow outside of growing profits, are there any other meaningful levers that you can pull to drive free cash flow higher on a sustainable basis? Or is this really just going to be tied to growing the profit line?

No. I think there are, Bryan, and I think you've got to, again, take them as the different phases of the recovery going forward happen. But I think we demonstrated last year that with the right focus, it is possible to have an impact, whether it's through our working capital initiatives, which we continue to be very focused on. And I think there are some other opportunities there, whether it's with respect to the overall capital expenditure that we need. The CapEx is directly linked to the business that we have today and next year. And as we look at the ongoing evolution of what's underneath the hood, so to speak, of the Coca-Cola Company, I think we're going to see the need for less capital over the next few years. But that's got to be linked with the strategic agenda that we have for, let's say, for our Bottling Investments Group and other more capital-intensive pieces of the business that we have. But over time, I see that as being an additional opportunity to be able to boost our free cash flow.

Great. Well, with that, we're up against time here. So really appreciate your time, gentlemen. It's been very informative and helpful. And on behalf of Bryan and myself, we'll end the webcast and hope everyone has a great day. Again, thanks for joining us, guys.

Thanks, Dara. Thanks, Bryan.

Your welcome. Thanks, guys.

Thank you.

Thank you. Thanks, everyone.

Bye-bye.