Monster-Coke Transition Delayed

Deal to close later than expected, as Coca-Cola moves more distribution to bottlers

ATLANTA -- Coca-Cola Co. announced today that its partnership agreement with Monster Beverage will close later than expected, now targeting the end of the second quarter of the year rather than late Q1 or early Q2.

Coca-Cola delivery truck

The delay could mean transitions of Monster energy drink distribution from Anheuser-Busch trucks to Coca-Cola bottlers will be postponed in some markets.

The transition is going "slower than expected. We expected it to start earlier," said Coca-Cola CFO Kathy Waller during an earnings conference call this week. " That transition will take place over the year, and so at various times, that is not something that is really under our control. That is really under Monster's control, as they transition that."

Waller is confident the deal will be approved by regulators.

"There is no issue there," she said. "It's just the regulatory process that we have to go through. That is delaying the close. We fully anticipate that it will close."

The delay may be causing uncertainty for convenience-store retailers, according to a recent survey conducted by Wells Fargo Securities.

In its Beverage Buzz 1Q15 U.S. C-Store Retailer Survey report, Wells Fargo analyst Bonnie Herzog said, "Retailers indicate 'a great deal of confusion' on timing of transition to new distribution of Monster products. Some markets [have] already transitioned; some will transition over [the] next several months." Herzog said she has "mixed expectations" about the potential impact of the transition.

Coca-Cola representatives say the company is committed to making a smooth transition. The ownership/strategic partnership deal was announced in August. Coca-Cola Co. will take a 16.7% ownership interest in Monster Beverage Corp. It will take over distribution of Monster products, while Monster Beverages takes on marketing of Coca-Cola's energy-drink brands.

Distribution Refranchising Grows

Meanwhile, the Coca-Cola Co. announced that it has taken additional steps toward the implementation of a 21st Century Beverage Partnership Model in the United States.

As part of this model, Coca-Cola Co. has agreed in principle with three U.S. bottlers to continue granting new, expanded territories. These bottlers are Coca-Cola Bottling Co. High Country, Coca-Cola Bottling Co. United and Swire Coca-Cola USA.

Additionally, the Coca-Cola Co. has agreed in principle to the granting of expanded territories to four new expanding U.S. bottlers: Atlantic Coca-Cola Bottling Co., Chesterman Co., the Odom Corp. and Ozarks Coca-Cola Bottling Co.

“We have made significant progress toward the implementation of our 21st Century Beverage Partnership Model in the U.S., which continues to strengthen our franchise system,” said Muhtar Kent, chairman and chief executive officer of Coca-Cola Co. “We will move forward with our refranchising plans in the U.S. as we implement a more agile, modern, customer-focused beverage partnership model.”

Consistent with prior transactions, in the newly granted territories the Coca-Cola Co. and these bottlers will work collaboratively to implement key elements of this evolving U.S. operating model, including:

  • More rational and contiguous operating territories
  • A grant of exclusive territory rights and the sale by Coca-Cola Refreshments (CCR) of distribution assets and cold drink equipment
  • A finished-goods model under which production assets will remain with CCR
  • An improved, more integrated information technology platform
  • A new beverage agreement that supports the evolving operating model

“Today marks another significant milestone in the evolution of our U.S. operations as we align for growth with partners that have demonstrated success, taken a generational view and consistently invested in capabilities and leadership,” said Sandy Douglas, president, Coca-Cola North America. “These four new expanding bottling partners--Atlantic, Chesterman, Odom and Ozarks--bring deep local knowledge and have demonstrated both outstanding commercial capabilities and consistent, sustainable success within their communities.”

  • Coca-Cola Bottling Co. High Country will assume additional territory in South Dakota, North Dakota (including the Fargo and Bismarck markets) and Minnesota.
  • Coca-Cola Bottling Co. United will assume additional territory in Louisiana, including the New Orleans and Shreveport markets, and territory in the Tallahassee, Fla., market.
  • Swire Coca-Cola USA will assume additional territory in Arizona, including the Phoenix and Tucson markets.
  • Atlantic Coca-Cola Bottling Co. will assume new territory in Iowa and southern Minnesota.
  • Chesterman Co. will assume new territory in Nebraska and western Iowa, including the Omaha and Lincoln markets.
  • The Odom Corp. will assume new territory in the Hawaiian Islands including Oahu, Hawaii, Kauai, and Molokai.
  • The Ozarks Coca-Cola Bottling Co. will assume new territory in Missouri, northern Arkansas and southeast Kansas.

The new transactions are subject to the parties reaching definitive agreements. Financial terms were not disclosed.

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