August 25, 2009 Leave a comment
In a recent article written by Fitch Ratings (available here), their opinion is that the Coca-Cola bottlers will not be bought by The Coca-Cola Company. Fitch goes on by saying that two main differences are The Coca-Cola Company’s business structure and business environment. While PepsiCo distributes Gatorade, Tropicana, and Pepsi in separate distribution systems, The Coca-Cola Company distributes their beverages mainly through one system. Also, Fitch says that The Coca-Cola Company’s revenues are more diversified than PepsiCo’s geographically. PepsiCo generates over 50% of their revenue from United States, while The Coca-Cola Company generates a little more than a quarter of their revenues from the United States.
So what does BevWire think? Fitch Ratings is correct, but may not have focused on a few other aspects. These aspects are discussed below.
PepsiCo mentioned than a specific positive of the merger will be the company’s ability to offer food and beverage bundles through their different business divisions (Pepsi, Quaker, Tropicana, Gatorade, Frito-Lay). The Coca-Cola Company on the other hand only distributes beverages, and all the food and beverage bundles offered will most likely be through a partnership with a snack foods company (ie. Kraft, ConAgra, Sara Lee, etc). Therefore, this point alone will not provide The Coca-Cola Company the same value of cost savings if they merged with their bottlers.
Also, with PepsiCo’s added benefits of consolidating their manufacturing networks and seeing greater flexibility in market execution, The Coca-Cola Company has already started an initiative called the Coca-Cola Supply Chain. This initiative restructures the Coca-Cola bottlers’ transportation and logistics system to provide more downstream control. What this really means is that merchandising efforts, price structures, and promotion activites will be controlled locally in order to service customers better. So PepsiCo’s consolidation and market execution efforts are already being explored by The Coca-Cola Company and their bottlers, without having to merge or acquire anyone.
It is still too early to see whether the Pepsi merger will have any affect on whether The Coca-Cola Company will merge with their bottlers. The likely answer is no. People must understand that when you’re not the market leader, you must innovate and try something different in order to have a chance to move ahead. Similar to the famous tagline by the rent-a-car company Avis, they try harder.