Daily Management Review

Coca-Cola To Sell Manufacturing and Distribution in the US


03/25/2016


Coca-Cola is looking for a new approach to the main issue of its business model: how to control the production and distribution without having to take them into possession.



Ben Franske
Ben Franske
After several years of very slow development, Coca-Cola intends to sell its assets in distribution and manufacturing in the United States. The company is going to focus on the much more profitable direction - production of concentrates.

Most likely, Coca-Cola had not planned such a sale, when bought a large bottling enterprise six years ago for $ 12.3 billion.

The company initially intended to convey trucks and warehouses to the franchisee, but still to preserve the bottling plants in property. Coca-Cola planned to close some enterprises and to modernize others. Generally, however, the company was set to keep some enterprises to quickly start manufacturing new products to meet rapidly changing demands of US consumers. This model was to simplify the direct dialogue between Coca-Cola and the major retailers.

However, Coca-Cola partners did not need trucks without production capacities. In September 2015, the company agreed to sell some of the plants in the United States, and in February this year, it announced that all factories will be sold.

The last two years, investors are becoming increasingly worried about Coca-Cola’s inability to achieve the planned profit. The company became a potential takeover target, the market rumored that Anheuser-Busch InBev may buy it in the coming years. Coca-Cola’s management realized that such a scenario must be avoided. Sale of assets would have a significant impact on business: revenues have declined from $ 44.3 billion in 2015 to $ 28.5 billion, but the operating margin would have increased from 23 to 34%. The staff would be reduced from 123 000 to 39 000.

Other large companies, such as Marriott International, Darden Restaurants and others are resorting to the sale of assets to optimizing business, too.

However, food companies generally prefer to work with distributors, but preserve their own production. PepsiCo has no plans to sell its largest bottling plants in the United States, acquired in 2010 for $ 7.8 billion.

Coca-Cola has traditionally preferred to work with small distributors - they better understand regional specificity. "Combination of national and local is beneficial for both parties", - says Sandy Douglas, head of North American Coca-Cola unit.

Coca-Cola has already achieved savings of $ 350 million per year through closing only about 10% of the bottling plants it owns.

Now Coca-Cola has 68 bottlers out of the 73 that existed in 2010. Among byers for remaining businesses are old Coca-Cola partners, including Coca-Cola Bottling Consolidated, Swire Pacific and Coca-Cola Bottling United.

source: wsj.com
 






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