Now that we’ve absorbed the shock of Coca-
Cola’s noncarbonated beverage binge
– acquiring Fuze and Vitaminwater, reaching a
distribution deal for Campbell Soup’s V8 – it’s
time to start focusing on how the company will
implement these deals. After all, the recent history
of beverages is littered with stories of upand-
coming brands commanding rich premiums
from major players, only to go inert on the
shelf once they were integrated into the core operation.
Snapple’s near-ruination at the hands of
Quaker Oats has already entered business school
case histories as a classic example of that, though
Snapple’s fate within the Cadbury Schweppes
portfolio is also a cautionary tale. And watching
once-renegade SoBe enter the Pepsi portfolio
was like watching an ingénue get stuck in a
dreary character role.
Fuze counts as a relatively modest “tuck-in”
acquisition and it seems to be on the way to a
fairly quick and decisive cutover to the Coca-
Cola bottling network. Not much downside
there. The acquisition of Glaceau is another
story. Vitaminwater is a much bigger, more developed
brand than Fuze, and the premium paid
– the deal was announced at $4.1 billion, not
counting distributor buyouts – dwarfs the $250
million or so paid for Fuze (including buyouts).
This creates a real dilemma for Coke. On one
hand, the company finally has an explosively
growing, high-margin noncarb it can offer to its
bottlers, providing another leg of growth while
squelching “jailbreaks” in which some bottlers
looked beyond Coke for new brands. And the
bottlers do want this brand, which is important.
Many beverage observers note that as the biggest
difference between Pepsi’s purchase of SoBe and
Coke’s pickups, and it could make all the difference
in that critical area of post-acquisition
execution.
On the other hand, at this price, Muhtar
Kent, Sandy Douglas and the rest of the KO
brass know they really can’t afford to bungle the acquisition, and one way of assuring that the
brand will continue to thrive is to retain at least
some of its current distribution matrix. Indeed,
in announcing the deal, Coke execs lavished
praise on the merchandising savvy displayed by
Glaceau and expressed their need to learn from
it. That credit, of course, really is shared by the
independent distributors who have worked with
Glaceau’s field staff to execute those well-crafted
programs.
So far, the Coca-Cola people have been careful.
Word is that in New York and Los Angeles,
incumbent distributors have received some
assurances that they’ll hold onto the brand for
some time. Clearly there’s a case to be made that,
in Vitaminwater’s core Northeast market, Coke
should move with deliberation. Coke execs say
they see the brand as most underdeveloped in
the Southwest, middle states and Southeast, so
they may move more quickly to dislodge it from
that part of the independent network in those
regions.
Could it be that we’re about to see some unexpected,
out-of-the-box thinking from Coke,
which has increasingly been willing to acknowledge
that distribution is moving in unanticipated,
hybrid approaches? Coke already tested the
waters with warehouse delivery on PowerAde
with Wal-Mart (they settled a suit on the matter
brought by independent Coke bottlers) only
to see McLane drastically raise its fees on beverages.
That tilted the economics back to DSD for
most brands, even bulky, low-velocity segments
like bottled water and sports drinks.
For now, Coke seems at least to be deliberating
intriguing schemes like keeping some indies
in place for Vitaminwater while shifting some
lower-velocity KO brands from the bottlers,
who can’t give them the attention they deserve,
to those indie distributors. I’ve heard that could
go so far as to include Coke-branded items like
Coke Blak. In essence, the bottlers would be allowed
to stay within their comfort zone of larger-scale, high-velocity brands, while delegating
to indies some of the lower-velocity, high-touch
brands.
Coke is not the only company thinking along
those lines. PepsiCo is showing a similar willingness
to rethink the distribution model for its recently
acquired Izze sparkling juice brand, vowing
to keep an open mind over pulling it from
independent distributors. In one case where it
did move the brand, in New York, it seems to
have done so to measure the performance of a
Pepsi bottler against that of the indies.
Whether Coke actually proceeds with such an
experiment is, of course, another story. Doing so
would bring its own set of complications: contracts,
coverage areas and the like. Also, despite
the rhetoric, Coke execs do not have a history
of acting as though they have anything to learn
from anybody else. Then there is this stern reality
– Coke bottlers are clamoring for some real
winners in the noncarb sector and wouldn’t be
happy to have to wait for their crack at Vitaminwater.
How Coke walks this tightrope – rewarding
its bottlers with Vitaminwater while not undermining
the magic that makes the brand so appealing
in the first place – will be fascinating to
watch in the coming months.