In October 2017, The Coca-Cola Company finished a decade-long journey to refranchise its bottling operations in the United States. The destination: a local market-focused, diverse U.S. bottling system that looks, feels and acts like the increasingly multicultural communities and nation it serves and refreshes.
During refranchising, the company returned its operations to where they function best: in the hands of independent, local bottling partners. “Our bottling partners care about the well-being of communities they serve, and they have the local roots to make a significant impact,” said Jim Dinkins, president of Coca-Cola North America (CCNA). “Supporting local communities has always been a part of the company’s DNA.”
Those local connections are deeper than ever. Coca-Cola’s independent U.S. bottling partners are run by more than 80,000 men and women who live and work in communities in every corner of the United States with a combined annual payroll of more than $300 billion.
Coca-Cola in 2017 highlighted its local roots and diverse employee base in a storytelling campaign called #CocaColaRenew. “What’s great about our new bottling system is that it looks like the country we’re serving,” said Stuart Kronauge, president of Coca-Cola USA Operations. “So, refranchising has changed the face of Coca-Cola, and it’s made us into one of America’s biggest small businesses.”
Operating within Coca-Cola’s collaborative franchise governance model emphasizing local decision-making, nine U.S. Coca-Cola bottlers are now owned or operated by women or minorities. These bottlers serve about 63.7 million people, or about 20% of the U.S. population. Coca-Cola’s U.S. bottlers are energized by the new structure, and they are led by a deep bench of locally based talent, including more than 90 minorities and women in senior leadership.
One of the bottlers that recently joined Coca-Cola’s U.S. system is Arca Continental, which is also the second largest Coca-Cola bottler in Latin America. In April 2017, Arca Continental established Coca-Cola Southwest Beverages (CCSWB) in Dallas. With this transaction, the Monterrey, Mexico-based company gained rights to make and sell Coca-Cola beverages in Texas and parts of New Mexico, Oklahoma and Arkansas—a culturally and economically dynamic territory of about 31 million people.
Arca Continental’s partnership with Coca-Cola goes back more than 90 years. After several acquisitions and mergers over the years, Arca Continental employs close to 60,000 people serving more than 1 million points of sale (restaurants and retail outlets) in Mexico, Ecuador, Peru, Argentina and now the United States.
Under the leadership of CEO Francisco “Pancho” Garza Egloff, whose retirement was recently announced, the company has increased revenue from $1.2 billion in 2002 to $8 billion in 2017 (including CCSWB). Arca Continental has grown six-fold in 15 years by distributing more than 80 beverage and snack brands, becoming one of the leading vending operators in Mexico and establishing a strong direct-to-consumer business.
With its new Southwest presence, Arca Continental is helping Coca-Cola North America expand the reach of exciting new brands that appeal to the changing tastes of consumers. For instance, Topo Chico mineral water has been popular in Mexico for decades and now has a fast-growing base of loyal drinkers in Texas, where it is a sought-after premium mineral water and as a mixer. In September 2017, The Coca-Cola Company bought Topo Chico trademark rights in the United States from Arca Continental, opening the door to expansion into the U.S. in line with Coca-Cola’s total beverage strategy.
Arca Continental and CCSWB as one team are bringing together best practices that are proven in North America and Latin America. They’re also expanding their commitment to invest in people, fleet, technology, vending equipment and upgrading its facility infrastructure to improve supply chain.
Building on its investments in the U.S., Arca Continental in May 2018 announced a new, $250 million production facility in Houston. This will be the first new production facility built from the ground up in the U.S. in nearly a decade.
While capital investments are important, Arca Continental leadership emphasizes building a culture of learning and continuous improvement.
For instance, at CCSWB, Arca Continental is developing new methods of measuring success in outlets and linking compensation more closely to performance. They’re adopting new ways of using marketplace data to improve customer service and consumer experience, as well as the segmentation of brands at the point of sale. This investment in customer service and execution at the point of sale directly aligns with CCNA’s growth strategy.
“We believe in change,” said Garza Egloff. “The best timing to change is when we’re delivering good results. So, we must stay humble and keep striving to do better. If we’re humble, our eyes and ears are open, we listen to others, try to anticipate and become a positive agent of change.”
The diverse leaders in Coca-Cola’s bottling system bring experience and knowledge that is actively shared to help other bottlers address challenges, grow and create more value. “When we use the term ‘diversity,’ we’re not just referring to ethnicity or race, but to ways of thinking and working. We wanted people who would bring thoughtful, innovative growth leadership to this business,” said Todd Beiger, Vice President, Finance for Franchise Operations, CCNA.
Arca Continental is not the only new entrant to the U.S. bottling system. Refranchising opened the way to a diverse array of new talent. Coca-Cola Beverages Florida (CCBF) was founded in 2015. Today, CCBF’s territory covers more than 18 million people and includes Jacksonville, Miami, Orlando and Tampa. The Chairman and CEO of CCBF is Troy Taylor, a former advisor to Coca-Cola who has held senior positions with the investment bank J.P. Morgan and other firms.
Heartland Coca-Cola Bottling Company was founded in February 2017. The company services the Kansas, Missouri and Southern Illinois territories. Heartland is led by Junior Bridgeman, a former NBA player and owner of Wendy's restaurant franchises. In March 2018, Junior Bridgeman and Canadian businessman Larry Tanenbaum signed a non-binding letter of intent to acquire Coca-Cola Refreshments Canada, the company’s Canadian bottling and distribution business.
In October 2017, Liberty Coca-Cola Beverages was founded to serve New York City and surrounding areas in New Jersey and parts of Pennsylvania, Connecticut and Delaware. Liberty co-owners Paul Mulligan and Fran McGorry are both former Coca-Cola executives with extensive knowledge of the beverage business.
In addition, Reyes Holdings, one of the largest food and beverage distribution companies in the world, joined the Coca-Cola system during refranchising. In 2017, Reyes Coca-Cola Bottling took on new bottling territories in California and Nevada, which were previously operated by company-owned Coca-Cola Refreshments. Reyes added to its existing operations in parts of six Midwestern states, including the cities of Chicago, Detroit, Minneapolis and Milwaukee.
Refranchising not only brought new bottling partners into the U.S. system, it also opened opportunities for existing bottlers. Swire Coca-Cola, USA, a subsidiary of Hong Kong, China-based Swire Pacific Limited, has been serving Coca-Cola in parts of Arizona, Colorado, Idaho and Utah since 1978. Between 2014 and 2017, Swire’s U.S. territory expanded into 13 western states, including urban areas such as Denver, Phoenix, Portland and Seattle. During the same time frame, Swire has also expanded its partnership with Coca-Cola in the Asia Pacific region. Swire Beverages has the exclusive right to manufacture, market and distribute Coca-Cola products in China with territory consisting of 11 provinces and Shanghai Municipality of the Chinese Mainland, Hong Kong and Taiwan.
To support this sudden shift into increasingly multi-cultural markets in the U.S., Swire Coca-Cola, USA revamped its planning methodology and organizational structure. “Culture is big to Swire,” said Paul Lukanowski, Chief Operating Officer, Swire Coca-Cola USA. “We’ve been around 202 years. You don’t do that without a culture that survives changes and growth.”
Swire merged its legacy team with employees from acquired territories and set up regional divisions to support segmentation by geography, category and distribution channel. Swire focused its efforts accordingly in new markets: Arizona, with a heavily Hispanic population, Colorado with its mix of Hispanics and outdoorsy millennials and the significant Asian population in the Pacific Northwest. With this approach, Swire teams more effectively align with the unique demographics of each local market. This approach has been particularly effective in Denver, where Swire has gained share with millennials and Hispanics and won major new accounts, including Red Rocks Amphitheater and the Denver Zoo.
Added Stuart Kronauge, “I could not be more impressed by the diversity, depth and talent of our U.S. system. While local markets are vastly different, we all face many of the same challenges and opportunities in a fast-changing marketplace. The power of our system is in collaboration and trust, in sharing our best and brightest ideas and working together with our amazing bottlers empowered to do what they think is best to win locally.”