Gaining Distribution Flexibility through Merger with its Bottlers

Many consider the food and beverage industry as cut-throat, competition is always tough. To survive in this industry, one needs to know how to satisfy effective and maintain customers. In the beverage industry, packaging is important. Good packaging would have a great effect on customer convenience, as well as efficiency in delivering the products.

Working on and supplying ambient, chilled, and frozen products are a constant difficulty. As some of these products could perish after a couple of days, effective management and awareness of order capture is a must for companies involved in the industry. Competitiveness is also measured by how fast a company can deliver products compared to the competitors. On average, this takes one to two days.

Two big names in the food and beverages industry, PepsiCo and Coca-Cola, are confronting this challenge. Forced by the need for distribution flexibility, PepsiCo bought The Pepsi Bottling Group and PepsiAmericas, its two largest bottlers earlier this year for US$7.8 billion. Coca-Cola is following the trend and is about to buy its largest bottler, Coca-Cola Enterprises.

By looking into the history of both companies, they used to be vertically integrated. They took charge of developing their products, manufacturing and distributing them, and later to marketing their products. Then the companies left it to the care of bottlers. The approach worked well for many years. As more innovations and trends hit the market, consumers’ inclination on products change. As an expected reaction, companies need to adapt to this changing consumer preferences.

According to Indra Nooyi, Chairman and CEO of PepsiCo the merger with its bottlers would benefit the company with the flexibility to come up with a decision on distributing their beverages. Through directly owning the bottling system, PepsiCo could deliver the products to warehouses in a more cost-effective way. And a more direct relationship with the retailer could be established. The company will also have more control of the overall processing of the product, from development, distribution to marketing. Products will be brought to the market faster. This is important to stay in the industry amidst the tough competition.