L.A. Coke Finds Its New Owners Thirsty for Profit
The bottles of Canada Dry and Coca-Cola resemble cars on a crowded freeway as they careen, at nearly 12,000 containers an hour, along a 16-inch-wide steel track inside the downtown plant of Coca-Cola Bottling Co. of Los Angeles.
At a time when many other industries--automobile, steel and food canning--are retooling or retrenching in the face of foreign competition, the beverage industry keeps chugging along--bolstered by the world’s seeming insatiable thirst for soft drinks. And Coca-Cola Bottling of Los Angeles--which has seven plants that serve the West from Honolulu to Las Vegas--is among the busiest and most successful of the bottlers.
But hovering over the main downtown plant is a challenge that could prove to be more daunting than any competitor. Coca-Cola Bottling Co. of Los Angeles is under pressure to produce substantially more profit for a new owner: Coca-Cola Enterprises Inc., the Coke-sponsored bottling conglomerate that began life in September burdened with nearly $2 billion in debt.
“We are going to have to grow our business and grow our market share to be successful,” acknowledged Bill Adams, president and chief executive of Coca-Cola Bottling of Los Angeles, known as CCLA. “But I think anyone who makes an investment in Coca-Cola Enterprises is going to have a rich reward. It’s going to take time but it is attainable.”
The challenge reflects the changing role of bottling companies, which used to be the low profile middlemen of the beverage industry.
Soft drink concentrate makers, such as Coca-Cola, PepsiCo, Royal Crown, Seven Up and Dr Pepper, traditionally produced concentrate--the basic soft drink syrup formula--for sale to franchised or bottling operations owned by the concentrate manufacturers. They also marketed the product and paid for most of the brand advertising that consumers see on television.
Bottlers processed the concentrate with some combination of purified water, sweetener and carbonation and packaged the beverage for sale.
Independent distributors would then purchase the soft drinks from bottlers and sell the product to grocery stores and other outlets.
But today, major concentrate manufacturers such as Coke and Pepsi want a bigger hand in the process. Increasingly, they are forcing major consolidation within the bottling industry.
Coke’s big new bottling company, Coca-Cola Enterprises, got its start in September when Coke paid $2.4 billion to purchase CCLA, as well as Chattanooga, Tenn.-based JTL Corp. Bottling operations now controlled by Coca-Cola Enterprises produce more than a third of the Coca-Cola products sold in the United States.
As the biggest of those bottling concerns, however, CCLA will figure to be a key element in the success or failure of the new enterprise, experts say.
Founded in 1902, CCLA was among the original group of Coca-Cola bottlers that signed on to produce the popular elixir developed in 1886 by Georgia pharmacist John Pemberton. By 1947, CCLA was producing a million bottles of Coke a day as dramatic population growth in Southern California and the western United States helped fuel sales.
The bottler commissioned architect Robert Derrah to design its headquarters in downtown Los Angeles in the shape of a 1930s ocean liner. CCLA moved into the Streamline Moderne-style building in 1936, but it wasn’t until 1961 that the company expanded beyond Los Angeles County into Fresno, Santa Barbara, Ventura, Stockton, Las Vegas and Hawaii.
During the expansion, the company’s customer base became more varied as more blacks, Latinos and other ethnic groups began settling in Southern California. The changes prompted CCLA to strengthen its sales by holding special promotional events for various ethnic groups. It was one of the first Coke bottlers to use such an approach, which has now become commonplace in marketing circles, according to Bob Strock, former marketing manager for CCLA.
By 1969, CCLA had purchased the Canada Dry franchise for Los Angeles and Orange Counties and its increased size and revenue attracted the attention of Northwest Industries, which purchased CCLA in 1977. Four years later, CCLA changed hands again when Beatrice Cos. acquired the operation.
Finally last year, in an effort to maintain more control over its traditionally independent bottlers, Coca-Cola Enterprises purchased CCLA.
Besides bottling Coca-Cola products, the Los Angeles company produces more than 50 other kinds of soft drinks, including Canada Dry, Sunkist, Schweppes and Dr Pepper. And the company maintains a fleet of more than 2,400 vehicles that each deliver an average of 1,000 cases of soft drinks a day to stores.
“This is a high volume business and the margins are slim,” said Jack R. Attwood, the retired chairman of Coca-Cola Bottling Co. of Los Angeles and former president of Beatrice Beverage Division. “Coca-Cola Enterprises has got the advantages of economy of scale. I’m sure they are going to increase efficiencies even more.”
Yet while Coca-Cola Enterprises has the advantages of starting life with a line of successful products, abundant cash flow and immense size, it faces a heavy debt load, fragmented markets and slim profit margins as well as legal action from disgruntled distributors and suppliers who fear the mammoth enterprise will hurt their business.
It currently is installing a multimillion-dollar, high-speed production line at its soft drink can plant in Downey, according to Adams. And there are plans to update the downtown plant as well, according to Herb Simms, production superintendent.
Even so, profit margins in the hotly competitive soft drink industry typically run less than 7%, experts say. And analysts don’t foresee any immediate production or efficiency breakthroughs large enough to substantially boost that figure.
“Making soft drinks basically involves adding syrup to soda; it’s not that complicated,” said Jim Stevenson, director of the Food Industry Management Program at the University of Southern California. “The big guys like Coke and Pepsi are already awfully damn efficient.”
Meanwhile, at least one of CCLA’s competitors isn’t worried. Maria Sweet, a vice president of the Westinghouse Electric Co.’s Beverage Group, the Southern California bottler of Seven Up and Royal Crown, said, “This is about the third time they (CCLA) have gone through an ownership change. And at least to date, we have not felt any effect from it.”
