February 26, 2010 1 Comment
This past week Coca-Cola announced they will buy their North American bottling operation. In exchange for taking control of the North American bottling operation, Coke will relinquish its 34 percent stake in CCE, worth $3.2 billion, and assume $8.88 billion in CCE debt.
This announcement comes on the heel of Pepsi finalizing their bottler acquisition. Seeing that Pepsi has finalized a deal where $600 million of savings has been produced, Coca-Cola can not sit still and must find a way to reach cost savings themselves. The deal will help the world’s largest soft drinks maker cut costs and increase flexibility in distributing its beverages, which include Sprite, Minute Maid juices, vitaminwater and Powerade.
With this announcement and major industry change, what are some of the market implications?
Coca-Cola will see cost savings, but not as much as Pepsi’s. Coca-Cola is only a beverage manufacturer, while Pepsi handles both food and beverages. Thus Coca-Cola will still have to partner up with another company (ie. Kraft, Con Agra, General Mills) to run a promotion for food and beverage, whereas Pepsi can already run such promotions due to their business units in Frito Lay and Quaker.
Another benefit of the acquisition is that niche beverages take advantage of the distribution network to further their reach. Both Coca-Cola and Pepsi will see cost savings in this area, as both companies are trying to grow their beverage portfolios and will want to promote new products more.
It’s still too early to tell if Coca-Cola’s acquisition will be approved or not, but if the deal is approved, the beverage industry will see plenty of new products and better food/beverage promotions. BevWire will try to stay on top of this deal and keep you posted on what happens.