Two-and-a-half years after acquiring the North American operations of its biggest bottler, Coca-Cola on Tuesday announced plans to begin shifting to other bottlers some of its newfound responsibility for getting beverages to store shelves.
New territory deals with five bottlers, representing a small portion of Coke’s distribution operation, signal the start of a realignment to improve the delivery of beverages to retailers, restaurants and other customers, and to grow sales in Coke’s North America region.
The announcement was made on the same day Coke reported first-quarter results that beat Wall Street expectations and sent the company’s stock higher.
“We have to ensure that we have a motivated, aligned partnership model with our bottlers,” said Coca-Cola Chairman Muhtar Kent. He said Coca-Cola’s deals with bottlers come on the heels of other recent bottling consolidation announcements in other parts of the world.
John Sicher, editor of Beverage Digest, said the deals with bottlers in the Southeast and parts of the West represent only about 5 percent of Coke’s distribution responsibilities, but signal other changes that may be coming in the Northeast, Northwest and Southwest. “This is the first step in the Coke U.S. re-franchising,” Sicher said.
Coca-Cola Refreshments, which was created after Coke acquired the North American bottling operations of Coca-Cola Enterprises in October 2010, is responsible for producing and distributing nearly 80 percent of Coke products in North America. CCR will continue to control production as it hands over more of its distribution responsibilities.
Steve Cahillane, president of Coca-Cola Americas, said the goal is to get North America, which saw 1 percent volume growth in the first quarter, following 2 percent in the previous quarter, growing again with a “coast-to-coast, nationally run production system.” Volume, a key measure of whether consumers are buying its drinks, reflects the amount of cases sold to retailers, convenience stores and other beverage outlets.
While volume in North America has lagged as consumers opt for less sugary soft drinks in favor of juices, teas and other non-carbonated beverages, volume was up 4 percent globally in the first quarter.
The five bottlers in the deals announced Tuesday will be buying exclusive territories, in addition to delivery trucks and equipment. Financial terms were not disclosed. “This new architecture that we are beginning to implement ensures a meaningful role for current and future aligned bottling partners in the U.S.,” Cahillane said.
Under the new structure, Charlotte-based Coca-Cola Consolidated will assume distribution for territories in parts of Tennessee and Kentucky; Birmingham-based Coca-Cola United primarily will assume territories in Alabama and portions of north and west Georgia (not including Atlanta), northwest Florida and southeast Tennessee; Salt Lake City-based Swire Coca-Cola will assume territories in parts of Colorado; Rapid City, S.D.-based Coca-Cola High Country will assume territories in parts of Wyoming and Montana; and Corinth Coca-Cola in Mississippi will assume territories in parts of Tennessee.
Earnings beat estimates
Coke’s quarterly profit fell to $1.75 billion, or 39 cents a share, from $2.05 billion, or 45 cents a share in the same period a year ago. Excluding restructuring and other one-time costs, per-share earnings beat analysts’ expectations by a penny. Due to two fewer selling days during the quarter, revenue fell about 1 percent to $11.04 billion.
Kent said Coke will remain “discontent” until it can take advantage of all opportunities to invest, gain market share and grow its brands. ”We have a tremendous amount of work to do to satisfy ourselves.”
On Wall Street, Coke’s shares reached a 52-week high Tuesday of $42.48 before retreating slightly to close up nearly 6 percent at $42.37.