Coke and PepsiCo draw flak over head-office bloat
The same day a Coke shareholder publicly complained about excessive corporate rewards for Coke’s management, The Economist newspaper ran a column headed “Corporate headquarters have put on weight and need to slim down again”.
Is there no end to corporate extravagance and administrative bloat? Apparently not, The Economist on 22 March 2014 points out in its Schumpeter column and refers to research by Sanford C. Bernstein, a research firm, which reckons that Coca-Cola has overheads (general, administrative and sales costs minus advertising spending) that are 30 percent of sales, almost as high as PepsiCo’s 32 percent.
In the Bernstein research, brewers Heineken and Carlsberg also get mentioned. While Carlsberg has overheads that are 30 percent of sales, Heineken’s overheads only amount to slightly over 10 percent of sales, says Bernstein.
The Economist writes: “It is hard to think of many big companies that could not benefit from taking a fresh look at their overheads. One, perhaps, is Mars, a family-run confectioner with a tiny, frugal headquarter in suburban Virginia. Another is Berkshire Hathaway. In this year’s letter to shareholders, sent last month, the conglomerate’s boss, Warren Buffett, broke a long-standing “no pictures” policy to show off his head-office team, just 24 strong.”
The Economist goes on to say – and here things become interesting – that “Mr Buffett’s last big acquisition, of Heinz, was made in partnership with 3G, a Brazilian private-equity firm whose boss, Jorge Paulo Lemann, has a passion for cost-saving. [Mr Lemann is one of the major shareholders of brewer AB-InBev]. Heinz had already undergone a round of cuts. […] But 3G found plenty more to trim, as it applied its ‘zero-based budgeting’ approach, in which all spending must be justified from first principles each year. Swathes of managerial jobs were axed, as was the company’s ‘aviation department’, which ran its corporate planes. Mr Buffett is impressed: hitherto he has mostly bought well-run firms that he could largely leave alone, but now he wants to do more deals like the Heinz one.”
But why should Mr Buffett want to do more cost-cutting deals with Mr Lemann all the while he allows Coke to add pounds of weight? We at BRAUWELT International wonder: Wouldn’t Coke too benefit from Mr Brito’s skills in cutting corporate flab? To all appearances, Coke like former U.S. brewer Anheuser-Busch has a lot of low hanging fruit that should be picked.
Watch this space.
