Focus: Coca-Cola bottlers are feeling flat, even as U.S. grocery sales sparkle

Coca-Cola Consolidated

17/09/2020 12:00

By Richa Naidu and Martinne Geller
    CHICAGO/LONDON, Sept 17 (Reuters) - Martin Williams'
great-grandfather founded their Coca-Cola distribution business
in Corinth, Mississippi, in 1907, just a handful of years after
Coke was first sold in bottles across the United States. 
    He's part of the fourth generation to run it, and he's
determined not to be the last.
    Williams' business is one of nearly 70 U.S. Coca-Cola
"bottlers" - third-party, independent companies that put Coke
and other beverages into cans and bottles and deliver the drinks
to retailers and restaurants in every corner of the country.
    The future of such companies is not only critical for their
owners and employees, but also key for their main supplier -
Coca-Cola  KO.N , the world's No.1 soft drink maker - which
needs them to flourish to help it recover from a slump in sales.
    But COVID-19 has upended their business models.
    "It was chaos. You just had no idea what the world was going
through and what we were up against," said Williams, the finance
head of his family's firm. "It's on our shoulders to try to take
our business forward into the future and to maintain the work
that our ancestors have done."
    Shoppers in lockdowns snapped up cases of Coke, Fanta and
Sprite at grocery stores rather than at gas stations,
restaurants and stadiums. 
    That left bottlers scrambling to keep stores stocked with
bigger, often less-profitable packages. Lucrative sales to
restaurants and convenience stores are still only a fraction of
what they were before the pandemic hit the United States.
    The bottlers - now saddled with too much product meant for
restaurants - have also been hit by a shortage of aluminum cans
due to a surge in demand for canned drinks as people stay home.
    Williams, whose business distributes rather than makes
drinks, has adapted to this new order over the last six months,
while grappling with higher costs for fuel, transportation,
labor, safety gear and cleaning products. Pressures have eased
since the lockdown, but his firm is still affected.

    COCA-COLA MASS LAYOFFS
    Coca-Cola sells syrups, powders and base ingredients - known
as concentrates - to bottlers, who mix, package and sell drinks
to retailers, giving a cut back to the soda giant.
    The company works with many large publicly listed bottlers
around the world, including in Europe and Asia. But many U.S.
players are small, family-owned businesses, with limited
reserves to draw from as sales and profits shrink. 
    About two-thirds of them received pandemic aid from the U.S.
government to keep in hand or stay afloat, which is important
for Coca-Cola to increase its own sales.
    All the while Coca-Cola, with whom they have a symbiotic
relationship, has also been under intense pressure.
    The drinks giant's volume sales in North America declined
16% in the latest quarter. Nearly 40% of its over 10,000
employees in the region will decide by Thursday whether to
volunteer for severance as part of a sweeping restructuring.
    "It was a very difficult time throughout April and May, in
particular, and our bottlers have to deal with that on a regular
basis," Chaly Moyen, Coca-Cola's North America head of strategy,
told Reuters. As lockdowns have eased, worldwide volume declines
have moderated, from about 25% in April to about 10% in June.
    She declined to say whether Coca-Cola would bail out any
bottlers close to going bankrupt.     
    NEW BUSINESS REALITIES
    Coca-Cola is the U.S. leader in fizzy drinks - excluding
tea, water and energy drinks - with about 38% of the $41.8
billion retail market, followed by PepsiCo  PEP.O  and Keurig Dr
Pepper  KDP.N , according to Euromonitor.
    While the food-service sales that make up about half of
Coca-Cola's business have dived, Moyen said North American sales
to large stores have risen. At the height of the pandemic, they
were up by a double-digit percentage versus a year earlier, and
remain up by double-digits for 2020 so far, she added.
    However she acknowledged bottlers and distributors had been
hit hard by the shifting retail landscape. "The impact that
bottlers had from a mix shift was real," Moyen said, adding that
Coca-Cola expected the new consumer habits to stick.
    Selling less product has also hurt; in the quarter ended
June 26, Coca-Cola sold 22% less concentrates worldwide as
demand fell.
    Some bottlers have been forced to lay off or reassign
workers specializing in supplying restaurants to bottling and
distributing retail-friendly products, tasks in which they are
not experienced, driving down productivity.
    Reyes Holdings, Coca-Cola's second-biggest U.S. bottler,
told Reuters it laid off 30 people - or about 6% of staff - at
its Alsip facility in Illinois in April. As things improved, it
reinstated half of those workers. 
    Coca-Cola Consolidated  COKE.O , the biggest U.S. Coke
bottler - last month reported a 3.6% fall in quarterly net
sales. But the company, whose No.1 shareholder is Coca-Cola,
increased adjusted operating income by 5.4%, after furloughing
about 700 people without pay.
    Duane Stanford, publisher of the Beverage Digest newsletter,
said such moves simply reflected the new business realities.
    "In this kind of environment it's important to control costs
– that absolutely comes with cutting jobs."

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In pandemic, U.S. soda sales growth outpaces groceries    https://graphics.reuters.com/HEALTH-CORONAVIRUS/COCACOLA/yzdvxxzenvx/
Coca-Cola bottlers by rank and volumes sold    https://datawrapper.dwcdn.net/Dqw6D/1/
Coca Cola bottlers by volumes sold in 2019 vs 2016    https://tmsnrt.rs/33w4K7l
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 (Reporting by Richa Naidu in Chicago and Martinne Geller in
London; Editing by Vanessa O'Connell and Pravin Char)
 ((richa.naidu@tr.com; Follow me on Twitter https://twitter.com/Richa_Writes;
 +1 312 636 8874; Reuters Messaging:
richa.naidu.thomsonreuters.com@reuters.net))