In its first major step to divest from company-owned bottling operations, The Coca-Cola Co., Inc. today announced that it will sell some of its distribution rights to five independent bottlers. While details of the agreements have not yet been finalized, Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Co., hailed the plan as one that would accelerate “the transformation of our U.S. system in ways that will establish a clear path to achieve our 2020 Vision,” referring to the company’s goal of doubling system revenues in the next seven years.
Coke, which made the announcement following news of better-than-expected first quarter profits for the company, agreed in principle to grant expanded distribution territories to 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. Coke noted that it anticipates additional deals with the bottlers in the future.
Although Coke had in 2010 purchased the North American operations of its largest bottler, Coca-Cola Enterprises Inc., in an effort to cut costs and streamline business operations, the company had planned to gradually return bottling and distribution franchise rights to independent bottlers of its drinks.
“A strong franchise system has always been the competitive advantage of the Coca-Cola business globally,” Kent said. ““What began with the acquisition of Coca-Cola Enterprises’ North American operations in October 2010 continues with the steps we are announcing today. These actions are being taken ahead of our previously stated timeline. The result will be further progress toward a more agile, modern, customer-focused franchise business partnership model unique to the United States.”
In its statement about the new distribution agreements, Coke stated that the financial details of the deals would vary “depending on the situation” and may include an outright territory sale, a territory swap, or a sub-bottling arrangement (under which the bottler would make ongoing payments in exchange for exclusive territory operating rights.
Here is Coke’s statement in full:
The Coca-Cola Company Commences Implementation of 21st Century Beverage Partnership Model in the United States
Next Steps Include Strengthening U.S. Operating Model Through Territories Granted To Five U.S. Bottling Partners
Coca-Cola Consolidated, Coca-Cola United, Swire Coca-Cola USA, Coca-Cola High Country and Corinth Coca-Cola Working Closely With The Coca-Cola Company to Evolve Operating Model
ATLANTA–(BUSINESS WIRE)–The Coca-Cola Company today announced that it has taken a significant step toward its 2020 Vision by commencing implementation of a 21st century beverage partnership model in the United States.
Under the new model, The Coca-Cola Company and five U.S. bottlers have agreed in principle to take the next step in creating a stronger U.S. business model through the granting of new, expanded territories. The five bottlers are 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. As the model continues to evolve, the Company anticipates pursuing additional steps with these bottlers in the future.
“A strong franchise system has always been the competitive advantage of the Coca-Cola business globally, and today we are accelerating the transformation of our U.S. system in ways that will establish a clear path to achieve our 2020 Vision,” said Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company. “What began with the acquisition of Coca-Cola Enterprises’ North American operations in October 2010 continues with the steps we are announcing today. These actions are being taken ahead of our previously stated timeline. The result will be further progress toward a more agile, modern, customer-focused franchise business partnership model unique to the United States.”
In the newly granted territories, The Coca-Cola Company and these bottlers will work collaboratively to implement key elements of this evolving U.S. operating model, including:
- More rational and contiguous operating territories;
- A grant of exclusive territory rights and the sale by Coca-Cola Refreshments of distribution assets and cold drink equipment;
- A finished goods model under which production assets will remain with Coca-Cola Refreshments, which would facilitate future implementation of a national product supply system;
- An improved, more integrated information technology platform;
- A new beverage agreement that supports the evolving operating model.
“We believe that unique competitive advantage lies in a U.S. system that can act with the speed of an integrated, lower cost national business enabled by deep local knowledge, community connections and the outstanding commercial capabilities of a strong local bottling system,” said Steve Cahillane, President, Coca-Cola Americas. “This new architecture that we are beginning to implement ensures a meaningful role for current and future aligned bottling partners in the U.S.”
Depending on the situation, transactions might include an outright territory sale, a territory swap, or a sub-bottling arrangement (under which the bottler would make ongoing payments in exchange for exclusive territory operating rights). Financial terms were not disclosed.
These new territories will include some of the largest cities in the geographies that border these bottlers’ existing territories, allowing each bottler to better service local customers and provide more efficient execution.
- Coca-Cola Consolidated will assume territories in Tennessee, including the Knoxville market, and Kentucky, including the Louisville and Lexington markets;
- Coca-Cola United will assume territories in Alabama including the Montgomery market, and portions of northwest Florida, north and west Georgia and southeast Tennessee;
- Swire Coca-Cola will assume territories in the Denver and Colorado Springs, Colo., markets;
- Coca-Cola High Country will assume territories in the Sheridan, Wyo., and Billings, Mont., markets;
- Corinth Coca-Cola will assume territories in the Jackson and Paris, Tenn., markets to expand its presence in west Tennessee.
The transactions announced today are subject to the parties reaching definitive agreements by the end of 2013, with closings expected during 2014. The parties are committed to working together to implement a smooth transition with minimal disruption for customers, consumers and system associates.
About The Coca-Cola Company
The Coca-Cola Company (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. Led by Coca-Cola, the world’s most valuable brand, our Company’s portfolio features 16 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, we are the No. 1 provider of sparkling beverages, ready-to-drink coffees, and juices and juice drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy our beverages at a rate of more than 1.8 billion servings a day. With an enduring commitment to building sustainable communities, our Company is focused on initiatives that reduce our environmental footprint, support active, healthy living, create a safe, inclusive work environment for our associates, and enhance the economic development of the communities where we operate. Together with our bottling partners, we rank among the world’s top 10 private employers with more than 700,000 system associates. For more information, visit Coca-Cola Journey at www.coca-colacompany.com, follow us on Twitter at twitter.com/CocaColaCo or check out our blog, Coca-Cola Unbottled, at www.coca-colablog.com.