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Leveraging Bottler Power: Refranchising & the US Coke system

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Howard Telford Bio

In April 2013, The Coca-Cola Company announced plans to refranchise some of its centrally controlled US distribution network back to independent bottlers. North American production and distribution had previously been consolidated by the company in 2010 as part of a much publicized effort by Coca-Cola Co to cut costs along its supply chain. As part of the company’s long term strategy in its flagship US market, Coca-Cola decided that the time was right to transition distribution territory back to some of its most established bottling partners. Five US bottling companies – Coca Cola United, Coca-Cola Bottling Company Consolidated, Swire Coca-Cola USA, Coca-Cola Bottling Company High Country and Corinth Coca-Cola Bottling Works – were given larger distribution responsibilities, with territory allocated largely in western states and south-eastern urban areas.

The benefits to the Coca-Cola Company are primarily financial: the brand owner largely retains control over beverage production, sacrificing some margin but satisfying investors by reducing its direct exposure to the volatility of distribution costs. This strategy has been the historic strength of the tiered US bottling system: sharing responsibility (and risk) across the supply chain.

However, there are also structural reasons why targeted refranchising may make sense with some bottling partners rather than others. Refranchising is a good long-term move for the Coke brand in the uneven US regional market for carbonates. Experienced bottlers can add value to the system through local distribution expertise with the regional retail partners, including knowledge of cultural end-user preferences and local brand marketing opportunities. The first refranchising partners are among the oldest, most storied bottlers in the country, strategically located in parts of the country with some of the highest per capita carbonate consumption (and potential) in the US.

What Bottlers Can Offer?

Coca-Cola Co representatives claimed that the redistribution of territory aimed to provide an “agile, modern, [and] customer-focused” distribution network. Beyond production, established bottlers within the Coke system offer unique capabilities in terms of profitably bringing products to the regional US market.

The territorial expansion plan for bottlers involved swapping territory for more control over production and – in some cases – production facilities themselves. Production capacity will be an increasingly important part of the industry as soft drink product diversity expands. It will be important for the brand owner to choose bottlers with the right capacity (to be acquired by Coca-Cola Co or otherwise) for distribution of non-carbonated or non-traditional CSDs, particularly in faster growing soft drinks categories. The company must have the ability to efficiently produce still and flavoured waters, energy drinks, juices and other dynamic product areas on a national scale. Modern, diverse production capability and capacity will be an interesting proposition for the Coca Cola Company and the key to continued success in the slowing American soft drinks market.

Regional Expertise

Bottlers with local expertise and deep (in some cases generational) ties to a region and community lead to better product distribution. Weak volume sales hit local bottlers first and hardest. As an example, Coca-Cola High Country – one of the expanding territories in the first tranche of Coke redistribution - represents a large, under populated territory in Western US states, with retail accounts sometimes many miles apart. Reliably satisfying client demand in a unique retailing environment is a task perhaps better suited to bottlers with established relationships and deep regional knowledge.

Cultural and social understanding also has practical implications for sales on the regional level. Local bottlers may be in a better position to understand pricing strategies or promotion opportunities in a particular town, county or state, driving higher volumes for the brand.

These close ties to the region will be as important as close, established ties to the Coke brand. It is certainly no coincidence that bottlers with the most historic attachment to brand Coke were those chosen for territory growth in the first phase of refranchising. One of the big territory winners in the April refranchising deal were Chattanooga Coca-Cola Bottling Company (part of CC Bottling Company United), the very first Coca-Cola bottler in the world.

Not a One Track Market

The geographical aspect of Coke’s refranchising strategy also bears closer analysis. While Coke’s decision may have a great deal to do with the unique capabilities of the bottling partner, the locations chosen reinforce recent regional trends in soft drink consumption. The states most impacted – Tennessee, Colorado and Alabama – are all within the top 10 states of total carbonate consumption in 2013.


US regional carbonate consumption per capita: Midwest & South still the heartland and opportunity area

Source: Euromonitor International

The ‘West North Central’ Census region of the United States – consisting of the Midwestern states of Kansas, Nebraska, the Dakotas, Minnesota, Iowa, and Missouri – has the highest per capita intake of carbonates in the United States, over 200 litres annually. This is a higher annual consumption on a per capita basis than any country in the world. Not far behind is the East South Central Census region, a market consisting of Alabama, Tennessee, Kentucky, and Mississippi. Interestingly, this is the region of the country most impacted by the recent refranchising deals.

Bottlers in these regions engage in their local communities, building the global Coke brand but also establishing themselves as important employers and civic institutions. While national marketing is conducted by the Coca-Cola Company, local bottlers handle local events and opportunities. Corinth Coca-Cola Bottling Works, one of the refranchised bottlers, are famous for having sponsored a 10k community marathon in Corinth, Mississippi for over 30 years. The much larger Coca-Cola Consolidated, located in the high per capita South-eastern region of the country, have an independent Coke Cares service project as well as company run recycling benefit programs across the region. Local retailers as well as sports groups, churches and other civic bodies are program partners. The company sponsor local university athletics programs, auto races and many other regional events.

As the US carbonates market wanes on a national level, leveraging the strengths of bottlers in the system’s most dynamic and promising areas of the country would seem to be a winning strategy for the Coke brand.


Aside from the bottom line benefits to the Coca-Cola Company, refranchising should allow the various Coke brands to retain their strength and cut deeper into mature markets, utilising local expertise to keep the country’s highest consumption market strong. Distribution gains align with the best regional geographic opportunities in the United States. A refranchised and refreshed bottling network for distribution of Coca-Cola products is likely to emerge as a smaller but more efficient network, with broader capacity for non-traditional soft drinks and more flexibility in serving the end-consumer.

On the other hand, the company must be careful to manage the refranchising effort so that it stays consumer focused. In the short term, disruption in present retailer accounts, leading to disruption to the end-consumer (empty shelves or unavailable products), must be carefully avoided.

This is only the first stage of further expected refranchising agreements, with Coca-Cola seeking new partnerships for distribution. The planned reorganization of Coca-Cola Co – splitting its North American brand management division from its company owned bottling operations (Coca-Cola Refreshments) in January 2014 - emphasizes the desire to return to a more traditional, devolved bottling system. Efficient, established independent domestic bottlers – both inside and perhaps even outside the traditional US system – will emerge as future partners for US territories, with increased territory sale/swaps expected over the next several years.

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