#28 Coca Cola's Unique Recipe Licensing Business Model
Coca Cola does not manufacture all the sodas on their own!
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Coca-Cola Company
Coca Cola is one of the largest beverage company in the world. Of the roughly 61 billion servings of all beverages consumed worldwide on a daily basis, close to two billion are Coca-Cola products. Coca-Cola owns four of the five top nonalcoholic sparkling soft drink brands: Coca-Cola, Diet Coke, Fanta, and Sprite.
How does Coca Cola Company really make money? By manufacturing and selling the sodas? Not really.
Coca-Cola Company Business Model
As per Coca-Cola Company’s 2018 Annual Report
Our Company markets, manufactures and sells:
beverage concentrates, sometimes referred to as “beverage bases,” and syrups, including fountain syrups (we refer to this part of our business as our “concentrate business” or “concentrate operations”); and
finished sparkling soft drinks and other nonalcoholic beverages (we refer to this part of our business as our “finished product business” or “finished product operations”).
Generally, finished product operations generate higher net operating revenues but lower gross profit margins than concentrate operations.
Unlike many other beverage companies, Coca-Cola does not complete and bottle the majority of its products.
Coca-Cola sells syrup to bottling companies that do the hard work of manufacturing and distributing the product to consumers; it refers to this portion of its business as "concentrate operations." A huge portion of Coca-Cola’s revenue (and profit) is generated by this unique “licensing” of its secret-ingredient - the base syrup.
In 2018, 36% of Coca-Cola's business was categorized as finished product operations, while 64% was classified as concentrate operations. ie 64% of Coca-Cola’s revenue came from licensing its syrups to other bottlers who package and sell the bottles.
Final Thoughts
Coca-Cola’s revenue trends show that they are focusing more on the licensing part of the revenues thus shifting towards an asset-light high margin model. Coca-Cola also runs a Bottling Investments Group (BIG). The goal of BIG is to identify and help bottling franchises that need financial and institutional support. BIG targets struggling franchises and provide them with the resources they need to remain a part of the Coca-Cola franchise network.
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