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How Does Coca-Cola Actually Make Money?

Investopedia logoInvestopedia 07-12-2015 Nathan Buehler
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The Coca-Cola Company (NYSE: KO) has a unique business model that has served it well since the first bottling in 1894. Coca-Cola sells syrup to bottling companies that do the hard work of manufacturing and distributing the product to consumers.

History of Coca-Cola Bottling

In 1894, Mississippi businessman Joseph Biedenharn installed bottling machinery behind his soda fountain store. The idea was to make Coca-Cola portable. Five years later, three entrepreneurs in Tennessee purchased the exclusive rights to bottle and sell Coca-Cola for $1. The number of Coca-Cola bottlers soon exploded to over 1,000 plants. This posed many problems for the company from imitations by competitors and the need for consistency across the product line.

In 1916, Coca-Cola bottlers agreed to the famous contour design bottle that still remains iconic today. As of November 2015, the company has over 900 bottling and manufacturing facilities located around the globe. Those facilities are owned by over 250 independent franchises and Coca-Cola.

Coca-Cola Revenue Sources

Coca-Cola reports its net revenue in two segments: concentrate operations and finished product operations. Coca-Cola manufactures and sells syrup to authorized bottlers to make finished Coca-Cola products and manufacture fountain syrups. This revenue is reported under the company's concentrate operations. The company also manufactures its own fountain syrups, owns several bottling operations and collects revenue on finished products. This revenue is reported under the finished product operations.

In fiscal year 2014, the company reported close to $46 billion in net operating revenue. Thirty-eight percent, or almost $17.48 billion, came from concentrate operations. The other 62%, or almost 28.52 billion, came from finished product operations.

How Coca-Cola Works With Bottlers

Coca-Cola has supported the consolidation occurring among its bottlers. Having too many small independent bottlers created several challenges. Challenges can stem from micro- to macroeconomic factors and they vary around the globe. When faced with economic challenges, some smaller independent bottlers no longer had the financial assets to continue operations and fund necessary investments. When bottlers face financial problems, it creates logistical and image issues for Coca-Cola.

To solve this problem, Coca-Cola created the Bottling Investments Group (BIG). The goal of BIG was to identify and help bottling franchises that needed help beyond their ability to finance. BIG identifies and targets struggling franchises and provides them with the resources they need to remain a part of the system. This includes investments in struggling bottlers that take them under the ownership of Coca-Cola. Coca-Cola then sends in teams of experts and resources to drive growth and return the franchise to profitability. Once profitability and stability in the local market is achieved, the company finds a qualified bottler to assume operations.

The BIG program currently operates in 19 countries and is responsible for managing over 25% of the total system bottling volume. Combined, the BIG program is the largest global bottler in the company. In 2004, bottlers in the BIG program took in $11 billion in revenue. Today, those same bottlers have net revenues of over $20 billion.

The Future

The unique franchise bottling system developed over 100 years ago continues to be a valuable asset for Coca-Cola. A long-term company goal is to end the BIG program by having zero need and further consolidate its bottlers. Ideally, bottlers should be profitable and have significant amounts of financial assets to fund investments and help drive growth for the company.

As global revenue in sugary soft drinks falls, it will be important to ensure bottlers have the financial means to transition with consumer tastes. Coca-Cola has set several sustainability goals to achieve by 2020 that will require commitments from bottlers. These goals include a reduction in carbon emissions, recycling 75% of the bottles and cans used in developed markets, improving water efficiency and returning the equivalent of the 100% of water used in bottling to communities and nature.

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