Coca-Cola Splits North American Operations

Sandy Douglas, group president, Coca-Cola North America

In an effort to streamline operations and expedite its refranchising to independent bottlers, The Coca-Cola, Co., Inc. announced late Thursday that it will divide its North American operations into two units. On January 1, 2014, Coca-Cola Americas will no longer exist, paving the way for Coca-Cola North America (CCNA) and Coca-Cola Refreshments (CCR).

Sandy Douglas will lead CCNA as group president and will continue his role as global chief customer officer, reporting to Muhtar Kent, chairman and CEO.

Paul Mulligan, president of CCR, will lead the bottling operations unit of North America, which will become part of the Bottling Investments Group (BIG). Mulligan will report to Irial Finan, president of BIG.

“We are in a position to leverage this flexibility to return to a traditional company and bottling operating model in North America, which will enhance our focus on execution and accelerate the refranchising of our bottling system in our flagship market,” Kent said in a release.

The new structure means that Coke’s North American brands, foodservice, marketing, retail sales, research and development, strategy, franchise leadership and transformation, the Canadian franchise operations and Venturing and Emerging Brands will report to Douglas of CCNA.

Meanwhile, CCR Canada, the product supply chain and service, commercial bottlers, customer care and regional sales will report to Mulligan of CCR.

“Sandy and Paul are proven leaders with extensive system experience, and they will make a great team,” Kent said in the release. “Sandy knows the U.S. business as well as any beverage executive and has played an integral leadership role in implementing our 21st century beverage partnership model in the U.S.”

“Paul is a very strong operator who brings 17 years of U.S. and international bottling experience to this new role,” Kent continued. “And Paul will have the benefit of working closely with Irial, whose leadership of BIG has significantly improved the performance of our company-owned bottling operations around the world.”

As Coca-Cola Americas comes to an end, The Latin America Group will become a part of Coca-Cola International. Group president Brian Smith will report to Ahmet Bozer, president of Coca-Cola International.

Steve Cahillane, former president of Coca-Cola Americas

Coinciding with the division, Steve Cahillane, president of Coca-Cola Americas, has decided to leave the company to pursue other, undisclosed opportunities. In the release, Kent thanked Cahillane for his contributions and wished him well.

“Under Steve’s leadership, our North America business delivered several consecutive quarters of volume and value share gains, despite operating in a very difficult economic environment the past three years,” Kent said in the release.

Wall Street beverage analysts wondered about Cahillane’s departure, as he had often been mentioned as a possible successor to Kent, but they nonetheless lauded the new organizational division. Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo, and Dara Mohsenian, an analyst with Morgan Stanley, both write that the news brings Coke closer to refranchising its bottling business and reaping stronger returns.

“We think this will have a positive impact on operations, and allow [Coke] to better focus on its core [non-alcoholic] business, which should now have significantly higher margins in light of bottling no longer being consolidated,” Herzog writes.

Mohsenian writes that he expects Coke to reach agreements with five U.S. bottlers and to reveal news early next year on incremental cost-cutting plans. On the trading front, he writes that while Coke could receive a short-term upgrade from the aforementioned changes, the company’s long-term value could be hampered by a number of factors.

“These challenges include weak U.S. beverage industry trends (on health/wellness concerns), slower [emerging market] macros, China competitive pressure, Mexican tax risk, and [foreign exchange market] pressure,” Mohsenian writes.

In April, Coke took its first major step toward refranchising its bottling operations when it announced that it would sell some of its distribution rights to five independent bottlers. The bottling partners include Coca-Cola Bottling Co. Consolidated, Coca-Cola Bottling Company United, Inc., Swire Coca-Cola, USA, Coca-Cola Bottling Company High Country and Corinth Coca-Cola Bottling Works, Inc.