Cover Story: Coca-Cola United builds for the future
June 15, 2009
Even with the trials of running a business in today’s economic conditions, Claude Nielsen, chairman and chief executive officer of Coca-Cola Bottling Co. United, Birmingham, Ala., would tell you that he couldn’t think of a business that he would rather be in than the Coca-Cola business.
“We sell affordable refreshment and hydration,” he says. “Our consumers are very brand loyal. We’ve got arguably the greatest brand in the world. Our entire product portfolio is very strong, so we consider ourselves very fortunate.”
This does not mean that this six-state Coca-Cola bottler doesn’t understand and endure the same challenges that its customers and their consumers are facing. Instead of focusing on the challenges, the third-largest Coca-Cola bottler is looking for opportunities.
“We’re optimistic that as we come out of this economic downturn we are going to be stronger than ever,” Nielsen says. “The reason for that is we are very focused on improving our capabilities and serving our customers.”
This spring, in order to better serve its customers, Coca-Cola United opened a new 781,000-square-foot production and distribution facility in Baton Rouge, La., for its Baton Rouge Coca-Cola Bottling Co. division. Along with supplying Coca-Cola, Dr Pepper and Big Red products to parts of 23 parishes in southern Louisiana and 17 counties in southern Mississippi, the new facility produces Powerade and will soon produce Vitaminwater products for the Coca-Cola system.
“This facility should be concrete evidence of our confidence in this business and in the future of our enterprise,” Nielsen says. “It represents a substantial investment.”
Coca-Cola United and The Coca-Cola Co. invested $178 million in the new facility, which houses four production lines and two warehouses. By 2012, Coca-Cola United anticipates the bottling facility will have six production lines in operation and employ more than 600 people.
Baton Rouge bottling
After Hurricane Katrina in 2005, Baton Rouge Coca-Cola Bottling’s business surged significantly. For 37 years, Baton Rouge served as Coca-Cola United’s primary bottling facility for the six divisions of the Gulf Coast Region, which includes the territories of Baton Rouge; Lafayette, La.; Lake Charles, La.; Hattiesburg, Miss.; McComb, Miss.; and Gulfport, Miss. Although Coca-Cola United also operated a bottling facility in Hattiesburg, it realized it quickly was running out of capacity. This prompted Coca-Cola United to think about its future production needs, warehouse capacity and distribution capabilities, and led it to explore building a new facility in Louisiana or Mississippi.
“We looked really hard at Louisiana and Baton Rouge especially,” says Darian Chustz, president of Coca-Cola United’s Gulf Coast Region and Baton Rouge Coca-Cola Bottling Co. “We’ve been in this town 103 years now … When it came down to it, based on all the feasibility studies and the infrastructure support that we were going to receive from the state of Louisiana for economic development, we decided to build our new facility close to our existing site in Baton Rouge and consolidate our manufacturing out of Hattiesburg into this plant.”
“We looked at retooling what we had, and we had space constraints, layout constraints and the facility’s age,” Nielsen adds. “At the end of the day, we came to the conclusion that if you think about this as a long-term investment, the economic benefit that could be achieved through a new location with contemporary engineering and design would pay out the substantial investment.”
The new plant expands Coca-Cola United’s and the Coca-Cola system’s capabilities and flexibility in producing the growing number of products and package types that the industry demands.
“It doesn’t just benefit Baton Rouge Coca-Cola,” says Stan Ellington, Coca-Cola United’s vice president of supply chain and operations. “The hot-fill production expands the capacity for the Coca-Cola system in this region.”
When Baton Rouge Coca-Cola originally designed its plant, it didn’t include thermal production. The Coca-Cola Co. approached Coca-Cola United after construction already was underway to add thermal production capabilities in Baton Rouge to produce beverages such as Powerade and Vitaminwater.
“The momentum of still beverages was growing rapidly, and The Coca-Cola Co. had just acquired Glaceau,” Chustz says. “The Vitaminwater acquisition really caused The Coca-Cola Co. to rethink and look at their supply chain within the Coca-Cola bottling system, and they quickly concluded that Baton Rouge would be a good location for thermal production. Furthermore, we could efficiently incorporate the new capability in our expanded design.”
Baton Rouge Coca-Cola broke ground on the facility in May 2007, and production began on the first line in October 2008. Approximately 90 percent of the products Baton Rouge Coca-Cola manufacturers are used within Coca-Cola United, and the rest is distributed to other bottlers. The facility currently features one can line, two PET lines, which are able to produce sparkling beverages and Dasani bottled water, and one hot-fill line, which began operating in March 2009.
“Baton Rouge Coca-Cola is the highest share Powerade market in the United States as measured by The Nielsen Co.,” Chustz says. “That is what is exciting about having the opportunity to produce Powerade in this market.”
The total footprint of the plant allows for the addition of two more bottling lines. The plant’s infrastructure is set up to add whatever production demands, but the current plan is to add two more thermal production lines.
“With our new capabilities, we expect to expand our production for the Coca-Cola system,” Chustz adds.
The bottling and warehouse facility also sits on 112 acres, which supplies the company with enough acreage for future expansion.
“We wanted to have enough space to grow over the next 100 years and to be able to expand as needed,” Chustz says. “There was a lot of thought and foresight that went into this plant in terms of ‘let’s not build it for the next 10 years,’ but ‘where are we going to be in 30 years from now.’”
Coca-Cola United’s territories in Alabama, Georgia, Louisiana, Mississippi, South Carolina and Tennessee are organized into an East Region and a Gulf Coast Region. In addition to the new facility in Baton Rouge, the company operates bottling facilities in Birmingham and Chattanooga, Tenn., to provide beverages to the East Region. Nineteen distribution centers help supply products to Coca-Cola United’s system.
The East Region and Gulf Coast Region’s volume sales divide almost equally, with the Gulf Coast Region accounting for about 47 percent of Coca-Cola United’s volume sales.
While Coca-Cola United’s territories cover six states, being known as a local bottler is central to the company.
“Baton Rouge Coca-Cola, Lake Charles Coca-Cola, Lafayette Coca-Cola â€” that’s how we identify ourselves in the markets in which we operate and that is very important to us,” Chustz says.
Providing a high level of service to its customers is one way Coca-Cola United is working to increase sales. “Our goal is to be our customer’s best business partner,” Chustz says.
Whether directly through the sale of its products or indirectly through promotions that build traffic, the company prides itself on delivery frequency, order accuracy and merchandising in the stores, Nielsen says.
“Those are important DSD capabilities that our customers value, and they can rely on us without any question or concern,” he says. “We believe we can nurture customer relationships, meet consumer needs in the market through our customers and actually come out of this economic downturn with a stronger position.”
The economy has impacted company sales though. For example, some channels of trade, such as “at work” locations, have underperformed traditional levels due to shorter hours and fewer employees. On the other hand, “future consumption” channels have been fairly stable, Nielsen says, because families are economizing by staying at home, eating at home and buying products for future consumption at home.
To increase consumer appeal, Coca-Cola United has been introducing new packages that improve functionality, create value and help to differentiate the company’s products from its competitors.
One packaging innovation that has been successful for the bottler is the introduction in June 2008 of the 2-liter contour bottle, Nielsen says. Coca-Cola United piloted the launch of the 2-liter contour bottle in Birmingham and Chattanooga, and has recently expanded the package throughout its territory.
“We fundamentally believe that our brands deserve package differentiation,” he says. “We want to be distinctive on the shelf or any point of purchase from our competitor.”
In regard to brands, Coca-Cola Zero is one of the most successful products, Nielsen says. The combination of a great product, creative marketing and pervasive distribution throughout the marketplace has driven Coca-Cola Zero’s achievement, he says.
“Quiet frankly, many industry observers are surprised because few have expected a successful brand innovation in the sparkling category,” Nielsen says. “Everybody has been looking for the new billion-dollar brand to come from some yet-to-be discovered product or some category that might be categorized as a still beverage. I might add that we have a lot of confidence in the sustainability of the brand. In fact, we are optimistic that the entire sparkling category is getting wind in its sail.”
“In challenging times, people turn to what they can rely on in terms of quality, in terms of brand preference, in terms of affordability,” he adds. “It’s a time that brand loyalty and brand strength are really a very valuable part of our portfolio. Generally speaking, I have been very pleased with the momentum that we’re beginning to see in the sparkling category. I’m optimistic.
“We, along with The Coca-Cola Co., have very deliberate plans about the sparkling categories aimed at re-engaging consumers and restoring the credibility and excitement about our brand. It is a process of identifying the opportunities â€” some might call it ‘the gaps.’ There are packaging opportunities, there are brand opportunities, there are channel opportunities to romance the brands and give them the opportunity to succeed. In some cases, we have been our own worst enemy by not giving our brands adequate position, adequate space, adequate promotion, adequate merchandising. I think we have a collective point of view that these brands have a lot of life and a lot of potential if we nurture them.”
On the non-carbonated side, the bottler has had success with Powerade, Dasani, and more recently, with Vitaminwater.
“To be able to take the leadership position in growth of those categories is very beneficial to our total business platform, and it is very complementary to our sparkling stability and strength,” Nielsen says.
Coca-Cola United has been in the bottling business for 107 years, and even at this stage in the history of the company, it continues to make transformational changes in how it goes to business. “Of course, that’s the exciting and fun part of it,” Nielsen says.
“We have projects underway that are focused on more effectively and efficiently selling and distributing our products,” Nielsen says. “It’s everything from prospecting, what we call dry accounts, all the way through to more effective management of the number of SKUs, and thinking about it in terms of selling our full portfolio of products. Our goal is to have the No. 1 product in every category.”
In the field, the company is involved in category management initiatives with its customers. Coca-Cola United uses a proprietary tracking tool to manage the number of SKUs and its business with customers. The bottler also is working with Vending Management Services, Masterton, New Zealand, and using its VMSL technology to improve its vending operations. VMSL offers predictive planning to optimize visits to vending machines by increasing the number of cases per visit. The program also uses cell phone technology to monitor vending operations.
In its warehouses, Coca-Cola United is rolling out voice picking systems to improve efficiency and reduce picking errors. The company has also installed additional racking systems. This year, the bottler began to roll out a proprietary E-Z Pallet distribution system, which involves a specially designed pallet, pallet jack and pallet lift that allows the route sales driver to take the order from the lift gate of the truck directly into the store and easily down the aisle.
“Taking care of our customer and our employees is critical to our business success, and reducing touch points and operating more efficiently are essential,” Chustz says. “We have very high standards when it comes to customer service, and we are constantly exploring initiatives that make it easier for our company to service our customers.”
This year, Coca-Cola United is going to focus more intensely on the products it currently has in the market.
“It doesn’t mean that we’re not looking at other packages, because we’re always exploring new opportunities,” Chustz says. “We are always interested in doing the right thing for our customers.
“There is a lot of innovation that we are working on right now, but we are focused and determined to do what we do best, and that’s produce, sell and distribute Coca-Cola.” BI