Jobs threat after Coke’s European bottlers merge
Hasn’t Coca-Cola’s corporate strategy in recent years resembled a zig-zag course? Six years ago, The Coca-Cola Company touted it wanted to re-engage with bottling, thus pulling the two sides of its value chain – marketing and bottling – closer together. All this was to help Coke and its bottlers to double their combined revenues to USD 200 billion by 2020. Now Coke wants to pull out from botting again and assign the more arduous – and capital intensive – task to independent bottlers.
That’s, at least, the implication of the recent mega-merger among its bottlers, announced on 7 August 2015, which will see Coca-Cola Enterprises (CCE) combine with the privately held Coca-Cola Iberian Partners SA and Germany’s Coca-Cola Erfrischungsgetränke AG to create a European Coke bottler with pro forma 2015 revenue of about USD 12.6 billion and EBITDA of USD 2.1 billion.
The new entity, called Coca-Cola European Partners (CCEP), will be Coke’s biggest bottler in Europe, ahead of Coca-Cola Hellenic Bottling Company (Coca-Cola HBC), which is headquartered in Switzerland.
CCEP will be headquartered in the UK for tax reasons, it was reported. It will be 48 percent owned by CCE shareholders, who will get one share for each Enterprises share plus a USD 14.50 per share payout. Owners of Iberian, which was formed in 2013 through the merger of Spanish family-owned Coke bottlers, will hold 34 percent, while Coca-Cola itself will own 18 percent. The German bottler Coca-Cola Erfrischungsgetränke is currently a 100 percent subsidiary of Coca-Cola.
The creation of CCEP is a cost-cutting exercise. Within three years, CCEP will have annual cost savings of up to USD 375 million. Unsurprisingly, there is already talk of job losses and plant closures, considering that CCEP will have 50 bottling plants in 13 countries and 27,000 employees.
Cost cutting is of utmost importance to Coke these days. Consumption of sugary carbonated soft drinks is declining. Although Coke has branched out into other beverage categories, it has not managed to substantially decrease its dependency on its core product.
Also, there are some big issues facing the soft drinks industry, particularly around obesity and children. Despite the introduction of lower calorie products, there is a lot of negative publicity around soft drinks and Coke is at the forefront of that.
In view of the above, it’s not surprising that Coke has not reiterated its 2020 vision in recent years.
