Coca-Cola Splits North American Business

Coca-Cola has split its business in North America into two units. However, for investors to remain happy it might mean more measures that involve cost cutting be put in place.

However, its changes in management have put Coke ahead of its rival Pepsi, which is nursing its strategic plans while contending with another activist shareholder.

Both Coca-Cola and Pepsi have been overhauling their bottlers in North America since they first purchased the bottlers, which Coke did one year after Pepsi.

Selling its concentrates to other bottlers had become unwise in an economy of declining sales of soda and growth in beverages that are noncarbonated. Coke has lowered close to $500 million of cost since it brought its bottlers under its own umbrella.

More might be on the horizon. Analysts see the potential for additional savings by the consolidation of bottling plants. However, dividing the operations in North America into separate bottling and marketing arms brings the corporation one step closer to a logical end to change.

The full separation of the bottlers’ distribution companies, which might keep some actual bottling in-house, could allow Coke the ability to keep gains for its own stockholders. It would also give Coke the chance to return it division in North America to a more profitable model that dominates its companies in other regions of the world.

The reshuffling has cost the company a potential successor to Muhtar Kent the CEO. Stephen Cahillane had been in charge of the Americas business for Coke, but is leaving the company. His two replacements Sandy Douglas who is to run the marketing arm and Paul Mulligan, who will run the bottling arm, are both respected people in the industry.

Coke also wants to ensure it stays in front of rival Pepsi. Its shares have done better since Pepsi purchased its bottles four years ago. Over that period, gains have been 83% for Coke versus 59% for Pepsi.

Coke’s rival has not yet revealed plans for its bottlers. At the same time, Pepsi has had to fend off the pressure received from Nelson Peltz an activist investor who wants the business to consider changes that are far reaching for its business model.

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