How Coca-Cola Makes Money

Syrup and finished product sales make up the bulk of revenue

The Coca-Cola Company

The Coca-Cola Company's (KO) distribution model is an integral part of its success. Its unique business model has served the company well since bottling first began in 1894. John Stith Pemberton, a pharmacist living in Atlanta, created the flagship soda Coca-Cola in 1886. The company operated under a franchise distribution model since 1889 and was incorporated in 1892. Coca-Cola has risen to global prominence and is the largest nonalcoholic beverage company in the world.

The Coca-Cola Company is considered the largest non-alcoholic beverage company around the world, reaching consumers in more than 200 countries. It produces roughly 500 beverages grouped into categories such as sparkling soft drinks, sports drinks, juices, energy drinks, and tea and coffee. Some of the most popular brands including Coca-Cola, Sprite, Fanta, Powerade, and Dasani.

So how does this global powerhouse make money? Keep reading to find out more about the company's business model, its financial achievements, as well as its business segments.

Key Takeaways

  • The Coca-Cola Company is the largest non-alcoholic beverage company, reaching more than 200 countries.
  • Coca-Cola neither completes nor bottles the majority of its products.
  • The company generates revenue by selling concentrates and syrups to bottling facilities globally and by selling finished products to retailers and other distributors.
  • Coca-Cola has four geographic and two non-geographic business segments.
  • The company has a number of initiatives in place to address water quality and supplies, the obesity epidemic, climate change, and corporate diversity.

The Coca-Cola Company's Business Model

In 1894, Mississippi businessman Joseph Biedenharn installed bottling machinery behind his soda fountain store. He did this in order to make Coca-Cola much more 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 exploded to over 1,200 plants by 1920. This posed many problems for the company from limitations by competitors and the need for consistency across the product line. In 1916, Coca-Cola bottlers agreed on the iconic contour design bottle that still remains. According to the company's website, it had over 900 bottling and manufacturing facilities and about 225 bottling partners around the globe.

Coca-Cola was the world's most valuable non-alcoholic beverage in 2020.

Coca-Cola’s Financials

The company's stock closed at $54.04 on May 12, 2021. The company's stock had a market capitalization of $235.81 billion.

Coca-Cola released its fiscal year 2020 results in February 2021. The company reported consolidated net operating revenue of $33 billion for the full year. That's a drop of 11% from the previous year, which saw net operating revenues come in at about $37.3 billion. The company cited the effects of the global COVID-19 pandemic as being the main driver for the drop. Gross profits dropped from year to year as well, falling 14% from $22.6 billion in 2019 to $19.6 billion in 2020.

North America was the area that posted the highest revenue in 2020, coming in at about $11.5 billion. The company's Bottling Investments Group (BIG) reported roughly $6.3 billion in revenue, followed by $6.1 billion in the company's Europe, Middle East, and Africa division.

The bulk of the company's revenue is derived from its two key businesses—the concentrate business and its finished product business.

Concentrate Business

Coca-Cola manufactures and sells syrup to authorized bottlers. These partners then add water and carbonation to make and sell finished Coca-Cola products. This division is referred to as the company's concentrate operations.

Coca-Cola has supported the consolidation occurring among its bottlers. That's because having many small independent bottlers created several macro and microeconomic challenges for the company. Smaller independent bottlers often lack the financial assets to continue operations and fund investments when they're faced with economic hurdles. This leads to financial troubles for Coca-Cola.

The company responded by creating its Bottling Investments Group. This group identifies struggling franchisees, providing them with financial and institutional support. The company sends experts and resources to drive growth and return the franchise to profitability. Once they achieve profitability and stability, the company finds a qualified bottler to assume operations.

According to the company's website, BIG operates in parts of Africa, South Asia, and Southeast Asia. It completed refranchising in Canada, the United States, Guatemala, Uruguay, and China.

Finished Product Business

The company also manufactures its own fountain syrups, manages several bottling operations, and collects revenue on finished products. These operations fall under Coca-Cola's finished product operations. This business segment is made up of both company-owned or controlled operations in both sales and distribution. This includes the sale of sparkling beverages and nonalcoholic drinks to retailers. They are also sold to distributors and wholesalers who, in turn, sell them to retailers.

Coca-Cola is a dominating force in the United States with almost 50% of the country's carbonated soft drink market as of February 2021.

Coca-Cola’s Business Segments

Coca-Cola operates business segments in four geographic areas and two non-geographic ones:

  • North America: This is the flagship segment for the company. This market has a value of $215 billion and more than 370 million consumers.
  • Latin America: This market has more than 650 million consumers who span 39 different markets that contribute a value of about $72 billion.
  • Europe, Middle East & Africa: Comprised of 130 different markets, this segment is valued at $220 billion, thanks to roughly 2.8 billion consumers.
  • Asia-Pacific: This market has the most consumers, totaling 4 billion. A total of 32 markets contribute $280 billion in value.
  • Bottling Investment Group (BIG): This group was formed in 2006. As noted above, this division is responsible for ensuring that bottling operations get the investments they need to succeed.
  • Global Ventures (GV): The division was created in January 2019 to oversee acquisitions and to integrate brands into the company.

Coca Cola’s Recent Developments

The company has several initiatives in place, according to the company's website. The following are some of the key initiatives in place:

  • Water leadership: Water is an integral part of Coca-Cola's business. This is why the company considers water quality as an important part of its production. It is also committed to using water efficiently, replenishing the water it uses, and treating the wastewater produced. According to the company, it provided more than 13.5 million people with clean water since 2010 and replenished 1.75 trillion liters of water since 2012 around the world.
  • Reducing added sugar: This effort is meant to address the global obesity epidemic and changing consumer tastes, as they shift away from sugary beverages. This includes reducing added sugar to its beverages and increase product offerings to cater to those who want healthier options.
  • World without waste: The company is taking steps to respond to reducing waste. Among the goals for this initiative is to curb the use of virgin plastic from non-renewable sources by three million metric tons by 2025.
  • Diversity, equity, and inclusion: Coca-Cola's mission is for the company to emulate the diversity of its consumer market. It aims to have women represent 50% of its leadership on a global scale and for its U.S. employee base to correspond to census data in terms of race and ethnicity by 2030.

Coca-Cola Distribution FAQs

What Are Coca-Cola’s Channels of Distribution in Japan?

Coca-Cola considers Japan as one of its fastest and most innovative markets in the world. The company released about 100 products—new products altogether and new varieties of existing ones—in the country in 2016. Coca-Cola sells its products to canning and bottling companies, distributors, wholesalers, and retailers. These channels then distribute them to other retailers, such as gas stations, convenience stores, supermarkets, and restaurants.

How Does Coca-Cola Use Green Initiative Distribution Strategies?

Coca-Cola says it's committed to helping fight climate change. It does this through water stewardship, packaging, and recovery, reducing its carbon footprint, and helping source important agricultural materials sustainably.

Why Did Coca-Cola Decide to Create Its Own Channels of Distribution in Eastern Europe?

The company made the decision to create its own distribution channels in Eastern Europe to meet the existing market structure. Products were being sold through inefficient means, mainly through channels owned by the government.

The Bottom Line

The Coca-Cola Company is the world's largest producer of non-alcoholic beverages. It markets more than 500 global brands that span more than 200 countries. What most people don't realize is that the company doesn't actually bottle its own products. Instead, the company makes money through a unique business plan that involves two distinct divisions—one that sells its syrups to bottlers and the other sells its finished products. These two sales channels make up the bulk of Coca-Cola's revenue.

Article Sources
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