Maria Victoria B.

Miguel February 01, 2023

BSE-4A
Franchising and Distributorship/2:30pm-4:00pm

Case Study #1 - The Franchising Process of Coca-Cola

According to official statistics, the Coca-Cola Company sells 1.9 billion products
worldwide. The Coca-Cola Company is a global business that operates on a local
scale. In addition, it can create a global reach while focusing on the local scale
because of the strength of its system, which comprises the Coca-Cola Company and
its more than 250 bottling partners worldwide. The system has numerous legal and
managerial departments and sections. The partners are independent of each other,
and it does not own or control all of its bottling partners worldwide. Moreover, many
perceived that Coca-Cola runs all its operations globally. This process is through
various local channels.

Coca-Cola typically agrees to refrain from selling or distributing, or from authorized

third parties to sell or distribute, the Company Trademark Beverages throughout the
identified territory, to guarantee bottling partner exclusivity under that territory and
product. However, Coca-Cola typically reserves the right to manufacture and
distribute its trademarked products and brands. In addition, Coca-Cola also
participates in the sales and marketing activities of its bottling partners. For instance,
in 2019, Coca-Cola spent $4.4 billion in promotional and marketing programs with
bottling partners. The bottling partners manufacture, package, and distribute the final
branded beverages to customers and vending partners, who then sell products to
consumers. All bottling partners work closely with suppliers of grocery stores,
restaurants, and convenience stores, among many others- to execute localized
strategies developed in partnership with Coca-Cola. More precisely, although Coca-
Cola is a global company, its products never have to travel far to reach the final
consumer, making the product more local than you may think. The product is made
locally for the market. Therefore, products are not shipped more than a few hundred
miles; it is all about being responsive to the customer's needs and the local tastes of
the consumers in every market. The Coca-Cola Company sells its products to
bottling and canning operations, distributors, fountain wholesalers, and some
fountain retailers. They then distribute them to retail outlets, corner stores,
restaurants, petrol stations, and many more.

The strategy of Coca-Cola in building, growing, and maintaining its distribution

system is pretty fluid. Indeed, in most cases, Coca-Cola leverages a network of
independent bottling partners. In some instances, Coca-Cola places strategic
investments in some of the bottling partners’ operations. In addition, it possible to
enter a local market, by leveraging Coca-Cola’s group resources or maintain control
of the bottling partner.

In the long-term, Coca-Cola will divest its stake as the bottling partner operations
take off, thus enabling Coca-Cola to keep its capital lower requirement, while
controlling a minor stake in the bottling partner, thus guaranteeing control and
cooperation. Therefore, the distribution system and the bottling partners are classify
as a hybrid approach between chain and franchise. Where in the short-term, Coca-
Cola acts as a chain of bottling companies. In the long-term, it functions more like
franchising, where bottling partners are independent, yet tied to the Coca-Cola brand.
This distribution system of owned and non-owned bottling partners is the Coca-Cola
system which sold 30.3 billion unit cases by 2019. Trademark Coca-Cola accounted
for 43 percent of U.S. unit case volume.
Re-franchising or “going franchise” For instance, in 2019, Coca-Cola acquired the
controlling interests in bottling operations in Zambia, Kenya, and Eswatini. As those
bottling operations will become stable and established over time Coca-Cola will re-
franchise them. Therefore, it will sell its controlling stake, having a franchisor-
franchisee relationship with those bottling partner. In some cases, it might keep a
minor equity stake to keep more control over the operations. In 2018, for instance,
Coca-Cola had a few hundred million in proceeds as it re-franchised its Canadian
and Latin American bottling operations. This is how Coca-Cola keeps its CAPEX low,
while still keeping control of the bottling operations, and yet enabling expansion and
capillary distribution.