Coca-Cola's split of its North American business into two reporting units could herald a separation of the bottlers it bought in 2010. It may take more cost-cutting to keep investors sweet. But the management changes put Coke a step ahead as rival Pepsi nurses strategic plans and contends with an activist shareholder.
Both Coke and Pepsi have been remodeling their North American bottlers since they bought them, which Pepsi did the year before Coke. Selling concentrates to independent bottlers had become unwieldy in a world of declining soda sales and growth in non-carbonated beverages. Coke has yanked out some $500 million of costs since it brought its bottlers in-house.
There may be more to come. Analysts at Credit Suisse see potential for further savings by consolidating bottling plants, for example. But dividing the integrated North American operations into separate marketing and bottling arms brings the company a step closer to the logical endgame.
An eventual full separation of the restructured bottlers' distribution businesses - probably keeping some of the actual bottling in-house - would allow Coke to keep the gains for its own shareholders. It would also allow Coke to return its North America division to the more profitable franchise model that dominates its business in other parts of the world.
The management reshuffle has cost Coca-Cola a potential contender to succeed Chief Executive Muhtar Kent. Stephen Cahillane, who had been running Coke's Americas business, will leave the company. But his replacements - Paul Mulligan, who will now run bottling, and Sandy Douglas, who will run the marketing side - are both respected in the industry.
Coke is also ensuring it remains in front of Pepsi. Coke's shares have performed better since Pepsi bought its bottlers in 2009, notching a total return of 83 per cent versus Pepsi's 59 per cent. Coke's great rival has yet to reveal its plans for its bottlers. It has also been fending off pressure from activist investor Nelson Peltz, who wants the company to consider more far-reaching changes to its business model.
Pepsi boss Indra Nooyi is expected to update investors on Pepsi's plans for North America early next year. Coke's move gives that bulletin a fresh sense of urgency.
