As head of the world’s largest soft-drink bottler, John Brock is wrestling with two daunting challenges – a possible tax on his main product in the U.S. and a major strategic move by his chief competitor.
Brock, chairman and CEO of Atlanta-based Coca-Cola Enterprises, leads the Big Red ground troops in the cola wars.
When you cover beverages like I did for several years, you realize how important bottling and distribution is to the Coca-Cola Co., which owns the brands, and its entire worldwide system. People who focus on the namesake’s “secret formula” miss the point.
Coke is successful because it can sell its beverages in some 200 countries today. Its real secret formula is the distribution network it built through a largely independent bottling system.
I point that out because PepsiCo has launched a frontal assault on that system in the U.S., which has Brock concerned. (Coke CEO Muhtar Kent should be, too. But we’ll be reaching out to him a little later.)
PepsiCo is buying its two major bottlers in the U.S., which represent 75 percent of its distribution here. As a result, a three-tiered system in most markets – franchise company to bottler to retailer – is collapsing into two – new merged company to retailer.
That means hundreds of millions of dollars can be saved and prices could be more competitive than Coke’s. It also means, at least theoretically, quicker responses to market conditions, since one company is easier to get into sync.
“Over time, it will make them a more formidable competitor,” Brock, 61, said in an interview last week. In this new climate, he said, “we will have to figure out how to compete.”
In the short-term, Brock thinks CCE and Coke could benefit from the time and energy it will take for PepsiCo to meld separate companies into one. As we all know, many mergers sound better on paper than they do when trying to execute them.
Still, Brock acknowledged, PepsiCo has been good at that in the past, citing his competitor’s success in absorbing Gatorade and Tropicana.
That’s why he and Kent are meeting regularly to discuss how to better work together in what he called “virtual integration” of some of their operations. But he did not favor Pepsi’s strategy for the Coke system.
“For 120 years, [Coke’s] franchise system has worked well around the world,” he said.
While that strategic war is going on between Coke and Pepsi, both systems are combating a much-publicized idea to tax sugary soft drinks to help pay for health care reform.
“It’s unfair and irresponsible to single us out,” Brock said. “It’s so out to lunch. … We’ve got to really continue to drive our message home.”
That message includes informing consumers about all the choices they have beyond sugary drinks, such as bottled water and diet soft drinks.
To cut demand for sugary brands in hopes of fighting obesity, some lawmakers and health advocates favor a 1-cent-per-ounce tax. For a 12-pack, that means a price increase of $1.44 on a base of about $3.
“It’s discriminatory and regressive,” he said. “It hits people who can least afford it the most.”
A tax would not destroy sales, he said, but it would hurt.
“It’s not a category killer,” Brock said. “Words can’t describe what it is.”
Let me try. If there’s a tax, how about – “body blow?”
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