Coca Cola Distribution Analysis

Coca-Cola Distribution Analysis

Badaruddin Rahman Motik

Westcliff University

Abstract

As a multinational company, Coca-cola operates in more than 200 countries. Due to this massive amount of market that needs to be covered, Coca-cola needs to have an extensive and elaborative distribution strategy to reach their customer and still maintain a profitable margin. This paper will try to delve deeper on understanding the distribution channel itself, what they use and why they choose it. The first part of this paper will analyse the distribution strategy of the Soda Industry that Coca-cola was in. The second part of this paper will look into the distribution strategy that Coca-cola use and the reason why they pursue those strategies.

Distribution Analysis

1.  Analysis of the industry’s channels of distribution

Coca-Cola operates in the beverage market industry, specifically the soda market industry. To analyse the distribution strategies that the industry use, first we must identify who are the major player in this industry. There three major players in Soda Industry who shares the majority of the market share, Pepsi Co, Coca-Cola, and Dr. Pepper Snapple. Three of these companies’ accounts for more than 50% of the market share, and the rest are shared with dozen other companies.

As we will delve deeper into Coca-Cola on part II of the analysis, we will focus on the distribution channel of the other two major companies, Dr. Pepper Snapple and Pepsi Co. Both of these company market share combines speaks volumes on their distribution capabilities. It's safe to say that their distribution systems are sufficient enough to represent the whole industry.  

Before we go into details of the distribution strategy that both companies implement, we must first understand the different types of distribution strategy. First is the Exclusive Strategy, this strategy focused on selling products through one or very few outlets. There is a common misconception that by implementing this strategy it means that the product has to be an expensive product. However this strategic decision could be implemented to apply scarcity principles and create demand.

Second is the Selective Strategy, this strategy focused on selling products at select outlets in particular location. Usually, you use this strategy for a product that has a different feature or different price point. Finally we have an Intensive Strategy. This strategy relies on selling products in as many outlets as possible. It's often used for convenience offerings. (Tanner, John F. 2010)

Now let's take a look at Pepsi Co distribution strategy, their end customers includes wholesale and other distributors, food service customers, grocery store, drug stores, convenience store, discount/dollar stores, mass merchandise, membership stores, e-commerce retailers and authorized independent bottlers.

According to their 2016 annual report, there are three methods on how Pepsi deliver its product to their customers. First is the Direct Store Delivery, PepsiCo delivers products directly to retail stores. This type of distribution allows Pepsi for merchandising with maximum visibility, and it's suitable for the line of goods that they often restock and sensitive to promotions and marketing

Second is the Customer Warehouse, Pepsi Co delivers from manufacturing plants and warehouse directly to customers warehouse. It works best for product that is less fragile and perishable, and have lower turnover. Finally they use Distributor Network, Pepsi Co distribute the products to a restaurant, business, schools, and stadium usually through third-party food services and vending distributors.

Now we will take a look at the third biggest market share holder in the Soda Industry, for Dr Pepper Snapple. Dr Pepper Snapple end customers include bottlers, distributors, and retailers. According to their 2016 annual report, there are 3 main methods on how Dr Pepper distribute to its customers. They use company own distribution network, Third-party distributor, and direct delivery to customer warehouse.

From all of their strategies however, I would like to highlight their third-party distribution strategies. For certain beverage brands that is under their company, the third party distribution accounts for majority of the sales. For instances, 63% of sales made from Dr Pepper brand were the one's that is distributed through Coca-Cola & Pepsi Co bottlers.

These strategy come in fruition starting from back in 2009 as Pepsi Co reach an agreement with Dr Pepper Snapple to distribute its product at selected location (Pepsi Press Release, 2009). Dr Pepper Snapple continue to foster this strategy as in 2010 they make a unique distribution deal with Coca-Cola for Coca-Cola to be able to sell Dr Pepper Snapple products at its fountain drink machine. (Forbes, 2015)

Looking at both of their distribution strategy, we could conclude that they use intensive product strategy as they try to distribute to customer as quickly and as much as possible. This also ties in with the product that they are trying to sale.  Beverage/Soda product is the type of products that is "convenience", products that customers would purchase on the spot without much shopping around.

After looking into the industry as a whole, let's take a look into our own products. What are the distribution strategies that Coca-Cola used?

1. Product Channel Distribution Analysis

Coca-Cola owned the world largest distribution system spanning over more than 200 countries. They distribute through a network of company-owned or controlled bottling and distribution operations, independent bottling partners, distributors, wholesalers, and retailers. (Coca Cola Annual Report, 2016)

United States market accounts for 19% of the 29.3 billion yearly unit sold (5.5 billion units), 75% of it come from company-owned operations, and 25% come from independent bottling partners. (Coca Cola Annual Report, 2016)