View Full Version : What if distributors had to compete?
01-01-2011, 04:18 PM
I recently learned that in 1978, the FTC ruled that distributors having exclusive rights to sell a particular soft drink in a region was illegal. The soft drink biggies pressured Congress to "fix" things, and they did by passing the Soft Drink Interbrand Competition Act:
Steve Apotheker's Comments on the Soft Drink Interbrand Competition Act of 1980 (http://www.grrn.org/beverage/deposits/articles/apotheker_comment_3-95.html)
This law was passed to protect bottlers using refillable glass bottles. Refillable glass bottles are long gone, but the law is still in place. With Coke and Pepsi now owning most of their distributors, the issue may be fairly meaningless. Still, I do wonder how the marketplace would change if any distributor could distribute whatever soft drinks that they wanted to.
It would be chaos. The FTC in that era was out of control. Among its genius ideas that the Congress had to fix was that new cars should have a "warning label" listing the 50 most common repairs the car might need based on warranty claims info.
Kroger would have bought the franchise for Stumpwater County, Arkansas and using the perpetual unamended 1920 contracts, destroyed not only the KO and PEP, but every other bottler as well.
01-02-2011, 10:50 AM
If all distributors were independent of the producers, it probably would be chaotic. With the big 3 producers owning most of their respective distribution networks, however, I'm not sure that that would be the case.
The only way that an independent distributor could make a profit by adding a new drink would be if they could do so at a lower cost or meet an unmet market demand. In all likelihood, an indy distributor would not be able to put any products from the big 3 onto store shelves at a lower cost than that of the parent company, so all of the major drinks would be off of the table.
Where there might be a difference would be with lesser-known brands. If an indy distributor was free to pick individual drinks from lower-tier producers (instead of having to carry a single producer's entire line), they could have an offering that would be more attractive to stores. For example, imagine a distributor offering a best-of-the-rest lineup along the lines of:
Red Rock Cola (cola)
Bubble Up (lemon-lime)
Dr. Wham (pepper-type)
Frostie Root Beer (root beer)
Ale-8-One (ginger ale)
It will never happen, but it's fun to think about.
Interesting, but not the issue.
The FTC wanted to give, lets use KO as the example, every bottler a right to sell the product nationwide. In the mid-70s there were about five hundred bottlers. So each and every one could sell every KO product to any store anywhere in the country, in competition with every other one.
So the CC Bottling Company of Stumpwater, could build a plant in Los Angeles and compete with the CC Bottling Compnay of Los Angeles. Grocery stores could play one against the other in a totally chaotic market, until one (I will use Kroger as an example, then the nation's largest grocer) figured out that it could just buy a tiny backwater place's franchise and make the stuff itself.
It has NOTHING to do with "third tier" products whatsoever.
01-02-2011, 01:24 PM
Ah! I didn't realize exactly what they were trying to do. Thanks for pointing that out.
If the FTC disallowed regional protection then the soda business would be turned into an oversupplied commodity that would result in very little to no profit ( as if the penny profit now isnt low enough), a terrible product due to cost cutting to find profit, and the DSD as we know it would be controlled by a handful of players.
Without "borders" what is the incentive for a distributor to build, maintain, and grow the brand? All they would be doing is selling to anyone who is out there looking for the lowest price.