Tax, Pepsi challenges test big Coke bottler

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.

John Brock

John Brock

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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5 comments Add your comment

HealthConsciousReader

October 6th, 2009
11:11 am

Why should responsible people be forced to pay for the health care of those that are irresponsible. I am a healthy individual that routinely exercises and controls my eating habits. Like many others, I indulge on coke products on occasion. Because I am responsible and maintain my exercise and eating habits, this indulgence has minimal effect on my overall health. Why should I be forced to pay for those who chose to maintain unhealthy lifestyle habits. Irresponsibility does not provide an excuse to force ALL to conform. And lets not overlook the fact that this is but a single and minute factor that determines an individuals health. Anyone that can convince themselves that you cannot maintain your physic and health if you consume coke is foolish. This is complete ignorance. It is finding an easy scapegoat for a much larger, more complex issue.

Healthy Cynic

October 6th, 2009
12:09 pm

If this tax goes through, should we then expect to see taxes on twinkies, starbucks machiatos, big macs and snickers bars, which, when consumed in excess will also lead to obesity. Unlike the cigarette tax, any imposed tax on food items is a much more slippery slope to climb.

K_Chub

October 6th, 2009
2:45 pm

Here’s a novel idea – how about our government stop subsidizing agricultural products like corn and sugar. That way farmers of such products will actually have to make money or at least break even to stay in business without the massive subsidies (welfare checks) they receive from the govt. We all know how this works…the price of these products will then naturally rise. This will cause the price products like High Fructose Corn Syrup and other corn based sweetners – which are basically what soda and other junk food crap is made out of – to naturally increase.

Instead of going through the motions of creating a new tax – how about we just let the free market work like it should. Left to it’s own the market will force all the fatty’s with no self-control to pay for the real price of their twinkies and soda’s. Maybe…just maybe if our govt. would stop subsidizing the raw materials that form the basis of our unhealthy diet people would make healthier decisions.

Like I said it’s a novel concept. Really who care’s though – I mean I kind of find it amusing to tax fat people…too bad we can’t tax dumb people too…well on second thought we do have a state lottery….

bulldog bubba

October 6th, 2009
7:10 pm

As always the minority thinks it knows what is best for the majority.Lets just go ahead and tax all things that people enjoy. I don’t like “Rap” music. Look at the results of these “cool” human beings that put out this music.We see shootings and killings on the news because of the lifestyle these people live.They leave wives and girlfriends,illegitimate children and let the government take care of them with mine and your tax money.Thats not fair to me because this “rap” thug chose a poor way to live.We have had more alcoholic deaths and cancer deaths due to tobacco than this obesity problem we harp on all the time.Quit trying to take peoples choices away from them just because you morons think you are better than the rest of society!!!

SwimtrunkDawg

October 10th, 2009
11:17 am

The tax is unconstitutional. You would have to tax not only anything with sugar, but any product that could be classified as unhealthy. For example… potato chips, candy bars, white bread, mayonnaise, beef, pork, or any meat.