Coke Light is not a sugar-free drink. It’s the name of the beverage giant’s ‘asset-light’ supply chain strategy that will lead it to sell its US manufacturing and distribution assets by 2017, enabling it to focus on its more profitable concentrate making business.
Handing over its assets to a few long term bottling partners and refranchising its distribution needs, should help Coca Cola to boost operating margins, save costs and impress shareholders.
But will this new asset-light strategy work? Gopal Iyer, sourcing and supply chain consultant at 4C Associates, says: “Time and again, companies have questioned and redefined their core competencies. ‘Deverticalisation’ has been evident in the semi-conductor industry, where costly investment requirements and economies of scale have encouraged outsourcing of manufacturing and Coke has a series of bottlers across the globe that run on a franchisee model.”
Many food and drink companies retain control of manufacturing to maintain quality, but outsource distribution. Coke’s new cost-saving strategy is now common in the food and drinks sector, as manufacturers look to external sources to improve efficiency and profitability.
Although Coca-Cola’s divestment of its bottling and distribution assets marks a significant strategic U-turn – until relatively recently it was acquiring bottling plants – Julian Mosquera, a director at global supply chain management consultants LCP Consulting, says the move is part of a “more fundamental shift back to a grass roots, customer-focused journey, to offer greater choice by broadening Coca Cola's product offering. In effect, it’s divesting a long-term problem – leaving manufacturers/bottlers to consider how they may broaden demand by serving a wider customer base than just Coca-Cola.”
It’s not clear how this US strategy will reshape Coke’s global operations or Coca-Cola European Partners, the massive entity created by the merger of more than 50 European bottling operations to serve France, Germany, Spain and the UK.
Iyer says: “It is highly unlikely that in the short term, the divesting strategy will be rolled out globally. That said, this asset light strategy could drive rivals to revisit their core competencies.”
PepsiCo says it has no plans to follow suit, but if Coca-Cola’s divestment delivers a 34% increase in operating margin, who knows?