Actionable news
All posts from Actionable news
Actionable news in MNST: Monster Beverage Corporation,

The Coke System: Its Structure And Evolution In Europe - Part 2

Some of Coke’s oldest markets outside of the American continent are in Europe; it has a mix of mature and developing beverage markets.

Market dynamics in Western Europe are largely similar to those seen in North America with volume pressure seen in both full-calorie and diet soft drinks.

In Eastern Europe, soft drink consumption per capita is usually much lower but competition from private label is increasing due to the rise of mass retailers.

In August, a very significant merger was announced that will consolidate three large bottlers into a dominant Western European Coke bottler.

In part one of this series, I looked at the history of the Coke System in general, how it works, and some of the recent changes that have taken place in the North American system. In this second article, I will take a closer look at what the Coke System in Europe currently looks like and how some recent developments will shape its future.

The European Coke System

It is widely believed that the most important way for the Coca-Cola Company (NYSE:KO) to improve the efficiency of the global Coke system is by stimulating consolidation amongst its anchor bottlers. It appears that under CEO Muhtar, Kent Coca-Cola has accelerated this push for further consolidation. Sometimes it is acting as a participant and sometimes it is merely a facilitator of the process. Important deals struck in the past couple of years include the announced merger of three European bottling companies into Coca-Cola European Partners and the creation of Coca-Cola Beverages Africa.

With the announced merger in Europe, the number of large anchor bottlers in this geography will decrease from the current four to merely two: Coca-Cola Iberian Partners, Coca-Cola Erfrischungsgetränke and Coca-Cola Enterprises (NYSE:CCE) will merge to form Coca-Cola European Partners (CCEP) and will control much of Western Europe. Anchor bottler Coca-Cola Hellenic Bottling (OTC:CCHBF) meanwhile will continue to control much of Eastern Europe.

The CC European Partners merger also brings the Coca-Cola Company back as an equity partner into the business of Coca-Cola Enterprises, which used to control much of the North American bottling business prior to 2010. Post-merger, the Coca-Cola Company will own 18% of CC European Partners, with the shareholders of CC Iberian Partners owning 34% and the shareholders of CC Enterprises owning 48%. The latter will receive $14.50 in cash and one share of CCEP for each current CCE share.

Consolidating a mature market

In business, generally, there will be a strong impetus to consolidate once demand for a product decreases. It appears that this is what has happened in much of Western Europe. Demand for Coca-Cola products in many of the southern European countries has suffered from the prolonged economic crisis. In Northern Europe, meanwhile, consumer behavior has been impacted primarily by changing preferences.

When I wrote about Coca-Cola Enterprises in May, I stated that...