Coke may not keep bottling operations

Some analysts think that means Coke will eventually spin off the bottling operations after reshaping them to become more efficient and nimble in getting a broad mix of products to shelves.

“Our management has reiterated that our strategy has not changed,” Coca-Cola spokesman Dana Bolden said Thursday. “We’re not in the long-term bottling business.”

Coca-Cola would not clarify what it means by “long-term,” and in the Wall Street meetings it apparently has not spelled out any detailed plan.

Coca-Cola announced its planned deal with CCE on Feb. 25, saying the move will give it better control over distribution of existing and new products as it fights a slide in North American soda sales.

But owning and running the CCE bottling operations is a major strategic shift for Coca-Cola, moving it into production and trucking in a huge way. How the CCE deal unfolds, and what Coca-Cola eventually does with those operations, will chart the company’s course for years to come.

Chief Executive Muhtar Kent was asked when the deal was announced if Coca-Cola might spin off the bottling business after reshaping it for the current environment. He said only that Coke sees “a very meaningful role for partners going forward” in the U.S.

On Thursday, Bolden said Kent and chief financial officer Gary Fayard were out of the country and unreachable.

“Our discussions with Coca-Cola management lead us to believe that the company will eventually spin off the U.S. operations,” said J.P. Morgan analyst John Faucher, who attended one of the meetings in New York. “Some of the remaining (independent) bottlers, like Coca-Cola Consolidated, could end up with expanded territories.”

John Sicher, editor of Beverage Digest, said: “Long-term, I don’t think Coke wants to own bottlers in North America or anywhere else in the world. Buying CCE’s North American business was an interim step.”

That would explain, perhaps, why Coke executives last year repeatedly said they were happy with a bottler franchise set-up, even as plans were underway to bring CCE’s North American soda plants and distribution network under Coke’s full ownership.

PepsiCo had announced last year a deal to buy its two biggest U.S. bottlers, prompting questions about whether Coke would make a similar move. Coke’s downplaying of the idea left many analysts stunned when it announced the CCE deal.

Some noted that bottling is a lower-margin business than marketing and branding and that the deal means Coca-Cola will get more of its revenue from the slow-growing North American market.

CCE, for its part, is slated to remain an independent bottler focused on its Coke business in Europe.

Coca-Cola’s overarching goal is to remake its North American operations in the sleeker image of its overseas businesses. In most of Coca-Cola’s international markets, all beverages are made in bottlers’ factories, and both carbonated soft drinks and “still” brands such as bottled water are distributed on their trucks.

Coca-Cola spun off its bottlers and formed CCE in 1986. Since then, it has sold soda concentrate to the bottler; CCE makes and distributes carbonated soft drinks such as Coca-Cola, Diet Coke and Coke Zero.

However, the split between marketing and production has not been so clean since Coca-Cola added other products to appeal to consumers who no longer drink as much soda. Coca-Cola now makes non-carbonated beverages such as Powerade and Vitaminwater. It also handles Minute Maid and Simply juices and runs its soda-fountain business.

“Nowhere in the world do you have a production footprint that is like the one in the United States,” Kent said two weeks ago.

Now, the idea is to mesh Coca-Cola’s own operations with those of CCE to make the combined operations more efficient and effective. Then, analysts who’ve heard recent briefings believe, the integrated bottling business could eventually be taken over by other bottlers.

“It’s not going to be the way it was before,” said Bill Pecoriello of Consumer Edge Research. “It was very fragmented manufacturing.”