Coca-Cola Co. Plans To Sell 9 U.S. Production Plants To 3 Bottling Partners For A New Cost Efficient Supply System
Coca-Cola Co. is planning to sell nine of their U.S. production plants amounting to a total of approximately $380 million to three of their largest bottling partners, including Coca-Cola Bottling Company United, Coca-Cola Bottling Co. and Swire Coca-Cola U.S., in efforts to reduce costs and operations, reported Bloomberg on Thursday.
The agreement with the three bottling partners will be effective from 2016 until 2018 once all companies reach a final arrangements with Coca-Cola Co.
Due to an evolving consumer taste in the U.S., the sales of soda has declined significantly pushing Coca-Cola Chief Executive Officer Muhtar Kent to find ways of cutting down yearly expenses by $3 billion. With budget cuts on bottling operations, the company will be able to focus more on selling syrups and concentrates to other companies that manufacture and distribute their beverages.
"Bottling is a lower margin, capital-intensive business," said analyst at Edward Jones, Jack Russo. The company "will continue to sell bottling assets to focus more on its higher-margin concentrate model."
According to The Wall Street Journal on Thursday, Coke bought the U.S. assets of Coca-Cola Enterprises Inc. in 2010 at $12.3 billion, gaining control of the majority of the company's production and distribution. However, the move also hit the North American operating margin of Coke declining from 20.7 percent in 2009 to 11.4 percent in 2014.
"Our U.S. operating model continues to become stronger, more aligned and more competitive," said Kent in a press release. "Today we are taking further action to enable profitable growth for our entire U.S. system,"
"We will leverage the strengths and capabilities of the four largest producing bottlers in our U.S. system, CCR, Consolidated, United and Swire to operate as one highly aligned and highly competitive national product supply system," Kent added.
To date, after several plants have been shut down in the past years, Coke reportedly has a total of 71 plants in the U.S.