coca-cola-business-strategy

Coca-Cola’s Business And Distribution Strategy In A Nutshell

Coca-Cola follows a business strategy (implemented in 2006) where it invests initially in bottling partners’ operations through its operating arm – the Bottling Investment Group.

As they take off, Coca-Cola divests its equity stakes and establishes a franchising model as a long-term growth and distribution strategy.

The secret isn’t in the secret formula but in its distribution strategy.

The Coca-Cola Company’s business model is based on five large independent bottling partners.

In 2019, these five bottling partners represented 40 percent of the total unit case volume the company sold.

Coca-Cola has separate agreements with bottling partners for manufacturing and selling the company’s products.

As specified by Coca-Cola,

“The bottler’s agreements generally authorize the bottlers to prepare, package, distribute and sell Company Trademark Beverages in authorized containers in an identified territory. The bottler is obligated to purchase its entire requirement of concentrates or syrups for the designated Company Trademark Beverages from the Company or Company-authorized suppliers.”

Coca-Cola typically agrees to refrain from selling or distributing, or from authorized third parties to sell or distribute, the Company Trademark Beverages throughout the identified territory, to guarantee bottling partner exclusivity under that territory and product.

However, Coca-Cola typically reserves the right to manufacture and distribute its trademarked products and brands.

In exchange, Coca-Cola also participates in its bottling partners’ sales and marketing activities.

For instance, in 2019, Coca-Cola spent $4.4 billion in promotional and marketing programs with bottling partners.

Coca-Cola’s short-term chain, long-term franchise-model

Coca-Cola’s strategy for building, growing, and maintaining its distribution system is pretty fluid.

Indeed, in most cases, Coca-Cola leverages a network of independent bottling partners.

In some cases, Coca-Cola places strategic investments in some bottling partners’ operations.

It does that either to enable entry into a local market by leveraging Coca-Cola’s group resources or to maintain control of the bottling partner.

In the long-term, Coca-Cola will divest its stake as the bottling partner operations take off, thus enabling Coca-Cola to keep its capital requirements low while keeping a minor stake in the bottling partner, thus guaranteeing control and cooperation.

Therefore, the distribution system and the bottling partners are organized as a hybrid approach between chain and franchise.

Where in the short term, Coca-Cola acts as a chain of bottling companies. Long-term, it acts more like franchising, where bottling partners are kept mostly independent yet tied to the Coca-Cola brand.

This mixed distribution system of owned and non-owned bottling partners is the Coca-Cola system which sold 30.3 billion unit cases in 2019.

Trademark Coca-Cola accounted for 43 percent of U.S. unit case volume.

Re-franchising or “going franchise”

For instance, in 2019, Coca-Cola acquired controlling interests in bottling operations in Zambia, Kenya, and Eswatini.

As those bottling operations will become stable and established over time, Coca-Cola will re-franchise them.

Therefore, it will sell its controlling stake, having a franchisor-franchisee relationship with those bottling partners.

In some cases, it might keep a minor equity stake to keep more control over the operations.

In 2018, for instance, Coca-Cola had a few hundred million in proceeds as it re-franchised its Canadian and Latin American bottling operations.

This is how Coca-Cola keeps its CAPEX low while still keeping control of the bottling operations and enabling expansion and capillary distribution!

This is how Coca-Cola represents its system:

https://author-prod-go-aem6-4.coke.com/assetdetails.html/content/dam/journey/us/en/testimages/sustainability-story-desktop-703x450.jpg
The Coca-Cola distribution system (source: Coca-Cola Company)

While in the directly owned bottling facilities, Coca-Cola sells directly, independent bottling partners manage distribution in the concentrate operations.

Therefore, Coca-Cola makes money by selling its concentrate to bottling partners (they must place an entire order for the concentrate available in that territory as part of the bottling agreement).

To handle those operations, Coca-Cola introduced 2006 the Bottling Investment Group, which managed the bottling operations’ acquisition, divestment, and re-franchising.

The graphic below gives a good picture of the overall process and strategy which has been implemented since 2006:

Map
Coca-Cola’s investment arm (Bottling Investment Group) was created to manage bottling operations’ purchase and re-franchisee worldwide. As those bottling operations get established, Coca-Cola, through the BIG, sells its stakes, keeps a minority equity stake, and keeps, in some cases, a minor equity stake in the bottling operations.

Key takeaways

  • An ingenious distribution network and the system drive the Coca-Cola business model.
  • Beginning in 2006, Coca-Cola established the Bottling Investment Group, which invests initially in bottling companies by bringing them under the control and ownership of Coca-Cola.
  • As local operations are established, and marketing and distribution activities run efficiently, Coca-Cola divests its controlling stakes, thus forming a franchising relationship with its bottling partners.
  • Bottling partners keep an exclusivity agreement with other third-parties bottling companies to produce or distribute under the territories those bottling partners control. For the products they bottle up, Coca-Cola also reserves its right to manufacture and distribute its products.
  • Coca-Cola, in turn, sells concentrate to those bottling companies, which act as franchisees for the branded Coca-Cola products.

Coca-Cola Connected Business Facts

Coca-Cola Mission Statement

coca-cola-vision-statement-mission-statement
Coca-Cola’s Purpose is to “refresh the world. make a difference.” Its vision and mission are to “craft the brands and choice of drinks that people love, to refresh them in body & spirit. And done in ways that create a more sustainable business and better-shared future that makes a difference in people’s lives, communities, and our planet.”

Coca-Cola SWOT Analysis

coca-cola-swot-analysis
Coca-Cola is the market leader of the soft drink industry. It is also the most widely recognized brand, with a Business Insider study revealing that a staggering 94% of the world population recognizes the red and white logo. However, Coca-Cola faces significant challenges with increasingly health-conscious consumers and less access to water resources.

Coca-Cola PESTEL Analysis

coca-cola-pestel-analysis

What Does Coca-Cola Own?

what-does-coca-cola-own
The Coca-Cola Company is an American multinational beverage corporation founded in 1892 by pharmacist Asa Griggs Candler. Many consumers associate the company with its signature soda in a red can or bottle. In truth, however, The Coca-Cola Company owns a plethora of soft drink, juice, tea, coffee, and other beverage brands. 

Coca-Cola Competitors

coca-cola-competitors
The Coca-Cola Company has 21 different billion-dollar brands or brands that generate more than $1 billion or more in revenue each year.  The company also sells its products in nearly every country in the world, with Cuba and North Korea the only two countries where it is not sold officially. What’s more, the Coca-Cola brand is worth $87.6 billion, making it one of the most valuable among all companies. Though these figures allow Coca-Cola to enjoy market dominance in many countries, the company is nevertheless subject to intense competition.

What Does PepsiCo Own?

what-does-pepsico-own
PepsiCo was founded in 1902 by American pharmacist and businessman Caleb Bradham as the Pepsi-Cola Company. Bradham, who hoped to emulate the success of Coca-Cola, marketed the beverage from his pharmacy and registered a patent for its recipe the following year. Today, Pepsi is a global company with a portfolio of 23 billion-dollar brands, or brands earning more than $1 billion in annual revenue. Sixteen of these brands are beverage-related, while the remaining seven are associated with snacks and other food products.

Pepsi Competitors

pepsi-competitors
In 1965, PepsiCo acquired Frito-Lay in what the chairmen of both companies called a “marriage made in heaven”. The resultant company transformed PepsiCo from a soft drink organization and set it on a path to becoming one of the world’s leading food and beverage companies.  Today, PepsiCo claims to operate in more than 200 countries and territories around the world with seven distinct divisions and many successful brands.

Read Also: Coca-Cola Business ModelCoca-Cola SWOT AnalysisCoca-Cola PESTEL AnalysisCoca-Cola’s Business And Distribution StrategyCoca-Cola Mission Statement and Vision StatementCoca-Cola Vs. PepsiWhat Does Coca-Cola OwnCoca-Cola CompetitorsBusiness Model Of The PepsiCo.

Read Next: Pestel AnalysisSWOT AnalysisPorter’s Five ForcesSTEEP AnalysisSOAR AnalysisBCG MatrixAnsoff Matrix.

Main Free Guides:

Scroll to Top
FourWeekMBA