Coca-Cola’s New Supply Chain Strategy – Sell 9 Production Plants to Independent Bottlers

Coca-Cola Co. said that it plans to sell nine production facilities to three of its largest independent bottlers as it seeks to unload low-margin assets and reduce manufacturing costs in the United States.

September 25, 2015

The bottlers, Coca-Cola Bottling Co Consolidated, Coca-Cola Bottling Company United and Swire Coca-Cola USA, will acquire the nine plants, valued at about $380 million, from Coca-Cola Refreshments, which Coke created after buying its top bottler in North America in 2010.

Additionally, Coke said all four entities, along with Coke’s operating group in North America, will form a new supply group to work together on decisions in areas such new packaging launches and ingredient purchases, Coke said.

The new group will represent about 95 percent of the company’s production volume in the United States.

The world’s largest soda maker is facing sluggish sales volumes in the United States.

It has been selling bottling operations, which partly entail getting its products to retailers, to franchisees to shift away from the capital intensive and low-margin business of distribution.

Until now, though, it has not sold production facilities, where its concentrate is combined with other ingredients and bottled up.

The sale of the plants, which produce soft drinks like Coke, Sprite and Fanta, is expected to take place between 2016 and 2018, Coca-Cola said.

“By selling production facilities, we expect (Coke) will generate higher return on invested capital as its capital base is reduced, and have incremental cash to reinvest and return to shareholders,” said Bonnie Herzog, an analyst at Wells Fargo, in a note.

Under the initial letter of intent, Coca-Cola Bottling Co will buy plants in Virginia, Maryland, Indiana and Ohio, Coca-Cola Bottling Co United will buy a plant in New Orleans and Swire will buy plants in Arizona and Colorado.

Coca-Cola Co is the largest shareholder in Coca-Cola Bottling Co with a 34.8 percent stake as of May. Swire Coca-Cola USA is a unit of Hong Kong-based Swire Pacific Ltd.