Wal-Mart Threatened Coke

The Coca-Cola Company has revealed that Wal-Mart may have been willing to produce its own sports drink under a private label if the soft drink giant had not switched its Powerade distribution from smaller bottlers to warehouse delivery.

The Wall Street Journal reported the news, based on a filing in a suit between Coke and its largest bottler, CCE, and dozens of its smaller bottling affiliates. The threat of a private label rival to the country’s largest Gatorade competitor is what eventually forced Coke’s hand in satisfying Wal-Mart’s longstanding demand that the cola manufacturer start dropping its product off at the retailer’s large-scale distribution centers.

Smaller bottlers complain that the change in the distribution system violates their rights as the exclusive territorial distributors of Coke products; Coke says it has the right to serve territories in any way it chooses.

Wal-Mart, the country’s largest retailer, is able to extract concessions from many product manufacturers, and has forced Coke’s hand as recently as two years ago, when it made the company develop Coke Zero as a product line separate from Diet Coke with Splenda; Coke originally planned to release Diet Coke with Splenda as Coke Zero but Wal-Mart demanded a Splenda-branded line extension because of the sweeteners popularity.

Beyond demonstrating Wal-Mart’s power over manufacturers, the suit also may be revealing inefficiencies in the bottling system overall. According to the filing, Wal-Mart’s demands grew out of frustration with Powerade stock shortages resulting from smaller Coke bottlers.