Analysts say Coke-CCE move crucial

It’s unclear, for instance, whether Coke’s new strategy will succeed in turning around its flagging North American sales, or whether it’s simply a way for the beverage giant to juice profits by cutting costs and shedding employees. Some also wonder how long CCE’s corporate headquarters might remain in Atlanta after it becomes wholly focused on Europe.

Those questions notwithstanding, industry experts see the move as crucial for Coke.

“The North American beverage business has challenges which require massive change, which is why both Coke and Pepsi are making these moves,” said John Sicher, editor and publisher of industry publication Beverage Digest. Pepsi, which has 109 U.S. bottling plants to Coke’s 91, made its move to consolidate its North American distribution system a year ago.

“It’s not a retreat,” said analyst Lauren Torres, who follows Coke for HSBC Securities in New York. “Systems evolve. You have to change with the market. They have to adapt their business model to the consumer. They have to remain competitive with Pepsi.”

Cuts vs. growth

In most of the rest of the world, beverage markets are not as fragmented as in North America, where consumers’ tastes have shifted away from carbonated beverages to water, teas and other non-carbonated drinks.

Coke said the deal will allow it to make the CCE unit it is taking over more nimble to help revive growth here. Coke said it will also “reconfigure” CCE’s manufacturing and distribution networks to lower costs. Pepsi has said its strategy will save $400 million by 2012.

Coke will likely spend most of this year sorting through redundancies created by the deal, working out the logistics and financial details and wringing out efficiencies.

Beverage Digest’s Sicher believes the move is “a smart deal for Coke.”

“The distribution system will largely remain intact. CCE has a terrific distribution system and that’s one of the main reasons Coke is buying the operation,” he said. “Bottom line, there’s been tremendous changes in the U.S. retail business. ... This will give Coke the ability to be more flexible in its distribution and route to market.”

Impact on CCE?

Where these moves leave CCE, now Coke’s largest affiliated bottler, is in the European market, and much smaller.

CCE currently has 70,000 employees, including thousands at its Atlanta headquarters and bottling operations in Georgia. Its European operations, headquartered in London, currently account for 11,000 employees and $6.5 billion in revenue, out of $21.6 billion total.

But as part of the deal, CCE will retain and expand its faster-growing European operations, picking up Coke’s bottling operations in Norway, Sweden and possibly Germany under an optional sales agreement.

While some speculate about the future of CCE in Atlanta, the company’s chief executive, John Brock, told the AJC last week that the company would be headquartered here for the long-term.

Meanwhile, some industry watchers also wonder how much Coca-Cola’s effort to perk up the performance of its operation in North America will depend on reducing the bottler’s 59,000-employee North American work force rather than boosting its flagging sales.

Analysts said Coke is likely to cut employees at CCE headquarters whose work overlaps some functions at its corporate offices, such as some accounting, public relations, management and other staff jobs.

Labor concerns

Such strategies worry union officials. About 30 percent of CCE’s North American employees are members of the Teamsters and other unions, though none apparently in Georgia.

“I have mixed emotions,” said Charlie Key, financial secretary-treasurer of the Georgia AFL-CIO, which represents 100,000 union members statewide. “I’m proud of Atlanta and its companies when they grow. But I also want employees to grow and do well.

“What can often happen when a unionized operation is moved into a non-union company, especially when there’s one of considerably bigger size, it [is] much easier for the company to de-certify that union.”

Leaders at Teamster locals in Georgia declined to comment about the Coke-CCE deal.

Les Hough, a management consultant and retired director of Georgia State University’s Usery Center for the Workplace, said he expects some union jobs to be in jeopardy. The impact will likely be hundreds rather than thousands of jobs, he predicted.

But Beverage Digest’s Sicher insists the backbone of CCE’s delivery system is its workers. He expects they’ll continue to be needed to stock the shelves in busy grocery stores, convenience stores and pharmacies, which can’t afford to wait for delivery from warehouses.

“There’ll clearly be some cost savings in this deal,” Sicher said.

But, he added, “The vast majority of CCE workers will keep their jobs. They need their workforce to produce beverages and sell merchandise and deliver them.”

Coca-Cola Enterprises

Atlanta-based CCE was founded in 1986 when Coca-Cola bought up and consolidated independent bottlers. Coca-Cola owns about 34 percent of the company at present.

What CCE does: Manufactures and sells soft drinks, water, juices, teas and other non-alcoholic beverages under license, including Dr Pepper. About 93 percent by volume are Coca-Cola products.

Headquarters: 2500 Windy Ridge Parkway, Atlanta

Employees: 70,000 (59,000 in North America and 11,000 in Europe)

Union employees in North America: 18,000 (30 percent)

Revenues (2009): $21.65 billion

Net income (2009): $731 million

Share of Coca-Cola’s volume worldwide: 16 percent

Share of Coca-Cola’s volume in North America: 80 percent

Sales territory: United States, Canada, Belgium, France, United Kingdom, Luxembourg, Monaco, the Netherlands.

Sources: Company reports, Standard & Poor’s, staff.