Cola Wars

Overview

In the mid-1980s, Coca-Cola and Pepsi re-entered the bottling business, which had long been dominated by family-operated independents. Coca-Cola began repurchasing interests in bottlers worldwide with a view toward providing those bottlers with financial and managerial strength, improving operating efficiencies, and promoting expansion into emerging international markets.

Finance

Initially, the decision has an element of risk. The acquisitions costs of the independent bottlers were high. Between 1980 and 1985, Coca-Cola's case increased their debt levels from 10% to 23% by $1 billion. This debt increase was reduced to 8% in 1986 via the floatation of 51% of the new integrated bottling business. Such a decision to sell control of the company assisted Coca-Cola avoiding potential antitrust problems.

Operational Benefits

Through the reduction of the number of bottlers, concentrate producers reduced their negotiation time and costs. Previously, negotiations would take place with each independently bottler. Should a new package be required for a drink, in many cases, a new production line would need to be built. The independent bottlers may have lacked the financial resources to implement this required production line or due to potential risk, had reluctance to support the concentrate producer.

Concentrate producers would have assumed that through the integration of multiple bottlers that they could increase efficiency and systems. Through economies of scale, the combined bottling business increased their bargaining power with suppliers of raw materials for packaging suppliers.

The combined businesses would enjoy communication efficiency. Concentrate producers would gain greater visibility of financials. Through group training of management and key staff. Through the sheer scale of the concentrate producers they would have access to Increased knowledge of entire industry

Centralised marketing strategy Develop coordinated marketing activities

Strategically beneficial

Concentrate