Two Christmas Giants Team Up for the Holidays
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Two companies who thrive the most when the snow falls, when the carols come on the radio, and when the season of buying blooms are uniting this holiday season. Coca-Cola (NYSE: KO), the beverage producing extraordinaire, and HSN (NASDAQ: HSNI), the television and online home shopping giant, are combining forces starting this December in an effort to boost the sales and marketing of both companies.
Before the partnership, the Coca-Cola Company estimated that the giant soda producer’s licensing program accounts for over $1 billion in annual retail sales. Stores like Target and Wal-Mart, in addition to stores owned by Coke and online sources like the Coca-Cola web store are responsible for most of the sales.
Now, the new partnership, which began last Thursday, will consist of HSN selling Coke merchandise on its television channel in addition to its online store. In addition, the sales guru will use mobile devices and social media to market and sell Coke products.
The majority of the advertising will focus on the flagship Coca-Cola beverage, while a small amount will emphasize the diet version of the soda. In addition to just the bubbly beverage, marketing will include signs, memorabilia, and vending machines. While some of the products will be classic Coca-Cola-made, many new products will be made by both the soda giant and the television together.
On the other side of the deal, Coca-Cola will promote HSN on their popular site, My Coke Rewards. The site, which you may recognize from the caps of your favorite soft drink bottles, has over 14 million registered members for Coca-Cola to whom they will endorse and sell HSN merchandise in addition to providing a charitable component to the partnership, including the popular HSN Cares.
December will be just the first month of a deal expected to last several years. While the financial details of the deal have yet to be confirmed, HSN, as a part of the partnership, has signed a licensing agreement.
The interest in HSN traces back to a discussion between officials of the two companies in January at a retail industry conference. Coke cites the “unique HSN ability to tell stories” about its products as the reason for the deal, according to Coca-Cola’s senior vice president for trademark marketing Stuart Kronauge.
Both companies know that this is their prime season. The partnership commencing in December is intended, because, according to Ms. Kronauge, “this is the peak selling season for both us and HSN.” The executive vice president for programming, marketing, and business development for HSN agreed with Kronauge. He admitted that “[HSN is] introducing our customers to Coke during the holiday season,” emphasizing the intent of the timing of the deal. However, the rest of the year will not go ignored. The duo has plans for various occasions, like Valentine’s Day and the summer.
The deal hopes to fix the end-of-year earnings drops that Coca-Cola experiences every year. Below is a chart of the company's EBITDA, or earnings before interest, taxes, depreciation and amortization.
Nearly every year, Coke's earnings drop sharply right around the holiday season. Simply, people don't crave soft drinks to conquer the heat and their thirst when it's cold and they aren't thirsty. To try to reverse this earnings drop, Coke vamps up marketing in the winter, thrusting the Coke polar bear on your TV as much as possible, among other things. By combining with HSN, coke hopes to ease their end-of-year woes, a time when HSN booms:
HSN's strongest season in, in fact, the holiday season. Coke hopes that HSN can use their holiday magic to market Coca Cola products in their weakest seson and, hopefully, boost sales.
PepsiCo's (NYSE: PEP) EBITDA chart looks no different: beverage makers tend to struggle in the winter when the want for refreshing beverages drops as fast as the temperature does. Pepsi relies on some products to increase sales in the winter, such as their Quaker division's Oatmeal. However, they, too, could benefit from something like a partnership with HSN. Pepsi's sales sink downwards significantly during the wintertime, and, much like the snow, it doesn't show a single sign of stoppin'.
This isn’t the first major partnership for HSN. The home shopping guru specializes in partnering with various companies to sell their products on their channel, such as Kraft Foods.
This is the first of a few major holiday-season moves for Coke, who plans a major revamp for their website, as well as introduce a giant marionette version of Santa Clause for their newest campaign.
Michael Nolan has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!