Swire Coca-Cola USA Bottler of the Year
by Elizabeth Fuhrman
For 2008, Swire targets the efficient and effective sales and distribution of its total beverage portfolio
Jack Pelo, president and chief executive officer of Swire Coca-Cola USA, Draper, Utah, says people at the company often joke that its distribution territory has more jackrabbits than people in it. Swire, Beverage Industry’s 2008 Bottler of the Year, distributes in rural areas of 11 western states, with Salt Lake City; Boise, Idaho; and Reno, Nev., as its largest metropolises. Its franchise territory extends from Washington in the north to Arizona in the south, and from California in the west, to Nebraska in the east.
Swire maintains its market with the help of 1,800 employees and two production facilities, one in West Valley City, Utah, and one in Fruitland, Idaho. Swire’s 27 sales centers, which are generally a couple hundred miles apart and some of them much farther, manage the distance between the bottler’s customers. The sheer vastness of Swire’s distribution area and its proliferation of SKUs keep Coca-Cola’s newly realized No. 4 bottler thinking forward.
“The logistical concerns mean that we have to plan well to make sure we have the right loads for the sales centers because we’re not going there every day,” Pelo explains. “We can’t afford to make some mistakes or have some outages and be able to recover quickly. So that puts a lot of pressure on our logistics people to make sure we have the products.”
“There are real challenges in the areas where we have really small sales centers,” he continues. “Just delivering the right number of SKUs is something in which we have to constantly improve. The distance between the sales centers makes planning very, very critical for us.”
In 2007, Swire’s revenue surpassed $400 million on sales volume of more than 40 million cases. This pushed the independent bottler into The Coca-Cola Co.’s No. 4 bottler spot in 2007, just ahead of Swire’s friendly rival The Philadelphia Coca-Cola Bottling Co. Along with Coca-Cola’s product lineup, Swire recently added, as did many Coca-Cola bottlers, Glacéau’s Vitaminwater line, Fuze’s portfolio and Campbell’s Tomato, V8 and V8 Splash juices to its assortment.
“The reason that we have been successful is that we do execute well,” Pelo says. “We have very detailed price package plans, channel plans, key account plans, and we give our people the resources and tools to execute those ... We’re so much stronger now in our brand portfolio than we were at this time last year, but that doesn’t do us any good if we don’t get the products out there, if we don’t get them priced right, if we don’t get them displayed or on the shelf at all.”
Swire Coca-Cola USA also is part of the Swire Beverages Division of Swire Pacific Ltd., Hong Kong, which places Swire as Coca-Cola’s fifth-largest bottler internationally. Swire Pacific manufactures, markets and distributes Coca-Cola products in Hong Kong, Taiwan and seven provinces in China for a total franchise population of 433 million. The Hong Kong headquarters reports that in 2006 Swire Beverages sold a record 590 million unit cases, 415 million of which were sold in China. The U.S. division does operate independently of Swire Beverages, with all major sales, marketing and logistics decisions made in Draper.
“China is where Swire Beverages is experiencing the highest growth,” Pelo says. “It is very exciting over there now because the Olympics are coming up.”
Swire Coca-Cola USA already experienced having the Olympics in its territory when Salt Lake City hosted the 2002 Olympic Winter Games. The U.S. bottler has been able to assist Swire Pacific with its upcoming Olympic plans. “I think that’s what makes the whole thing work because we do operate independently, but yet there is a sharing of ideas,” Pelo says. “... It is an advantage that Swire Beverages is not just operating here in the United States.”
Additionally, Swire Coca-Cola USA and Swire Beverages exchange employees for anywhere from a couple of weeks to a couple of years. Hong Kong employees come to the United States and vice versa, so they can learn different aspects of the business.
From the ground up
Swire Pacific’s beverage division began as a bottler in Hong Kong and then expanded to the United States when it purchased the Coca-Cola Bottling Co. of Salt Lake City franchise in 1978. As franchises became available, Swire Pacific acquired the businesses and began to expand from its Salt Lake City base. In 2005, the Coca-Cola Bottling Co. of Salt Lake celebrated its 100th anniversary with Coca-Cola and its community.
Pelo has been in the Coca-Cola bottling business basically all his life, he says. His family owned a bottling operation in Southeastern Washington and Northeastern Oregon, and sold to Swire in 1988. After the acquisition, Pelo joined Swire as the Northwest division manager. In 1996, a tragic plane accident killed four top Swire executives. Pelo subsequently shifted to the Draper headquarters, and accepted the position as president and chief executive officer in 1997.
Just as Swire’s territory has expanded, so have its brand base and portfolio of SKUs. The principal reason for Swire’s growth in 2007 is its mounting portfolio, Pelo says.
“It’s too early to tell with Glacéau because we just began distributing in early November,” he explains. “But if you look at our non-carbonated business, we’ve had nice growth with Powerade and our Dasani water brand ... Although sparkling beverages still represent about 80 percent of our business, the majority of our growth this year is attributable to still beverages.”
In addition to The Coca-Cola Co.’s products, the bottler distributes Danone’s Evian water brand and some Cadbury Schweppes brands such as Dr Pepper, Squirt, Canada Dry and Schweppes. Swire’s energy drink lineup includes products such as Coca-Cola’s Full Throttle, Rockstar Energy Drink and Monster.
“There is certainly an advantage to having a broad portfolio,” Pelo says. “When you go into an outlet, whether it is convenience, retail or cold drink, we have a beverage in almost every category, and we can compete very successfully as a one-stop shop with our broad range of products.”
But many times, with growth also comes additional challenges. Pelo believes Swire has been given an opportunity to become a more efficient distributor because of its tremendous SKU growth.
“You look at the lifestyle of the product and you have to make adjustments, from production scheduling, to distribution, to warehousing and to in-store merchandising,” he says. “I feel honestly the biggest challenge that we have is becoming more efficient at distributing more SKUs than what we did five years ago.
“It’s also exciting because we have all these categories that are available, as opposed to just being primarily a sparkling beverage company. We are now a full non-alcohol beverage company, and we can compete with all these products.”
Managing more than 450 SKUs through 27 sales centers that distribute to 11 states calls for mass organization. Currently, Swire’s sales team is divided by key accounts. However, because of the new product launches, Swire commenced a dedicated team that manages all of its emerging brands, including the new Campbell’s, Fuze and Glacéau beverages.
“There are different ways to market those products,” Pelo explains. “Sometimes there are different arrangements with retailers and sometimes there are different buyers. It does take some specialized effort to manage those brands.”
The Campbell’s, Fuze and Glacéau products answer consumers’ calls for health and wellness beverages, Pelo says. “Those three are probably the biggest brands, and they seem to be where consumers are,” he adds. “Consumers want choice and right now they want things that are good for them. We think all of our beverages have a place in a health, active lifestyle, whether they are a sparkling soft drink or a water brand. But the brands that are related to health and wellness are doing very well right now.”
Swire’s energy drink lineup continues to be a robust portfolio as well, even though the category for the bottler is not growing at the same rate as health and wellness beverages. “The base continues to grow, and it is a very profitable category for bottlers and retailers,” Pelo say. “The percentage growth rate is down from last year, but it is still very significant in terms of overall case growth.”
Swire monitors its portfolio performance by tracking distribution on a daily and weekly basis. “We track to see how well products are doing in relationship to how we thought they would do,” Pelo says. “You have to adjust as necessary: Are we getting the right distribution? Do we not have the right price points? Have we created the right introductory plan? Is there more promotional activity needed to have the product perform to our expectations?
“And some of it is hard because you just don’t know exactly how the product is going to be perceived. It is very different to determine the right plan with these new beverages vs. a line extension for a sparkling beverage. Looking back, it was relatively simple compared to how it is now. There is so much difference in relation to price, promotion, target customers and shelf location.”
Swire’s customers are serviced by 27 sales centers that are chiefly divided by state. The bottler operates with five divisions: Northwest (Washington and Oregon), Inter-Mountain (Idaho, Nevada and California), Rocky Mountain (Colorado, Wyoming, Nebraska and South Dakota), Utah and Arizona. Each division is directed by a division office and manager that supervises five or six sales centers.
Swire’s greatest challenges this year are its increasing number of SKUs and the need to efficiently and effectively distribute them. “These categories present great opportunities, but if we do things the same way, we are not going to be successful. It’s just too much for one truck or one salesman to handle it all.
“We have to look at the whole supply chain and make adjustments and changes as necessary. That is by far our biggest challenge because we want to be a total beverage company with the ability to distribute 400, 500 and 600 SKUs efficiently.”
2008 does look promising for the Bottler of the Year. Pelo foresees the most growth coming organically within the still beverage category, which is where the company plans to focus.
Swire’s revenue increase for the company is still unknown. “We have confidence that we are going to have a good year,” Pelo says. “The key is the sparkling category. We have to get that to start growing. We are going to put a lot of effort on that. I know we will do well with still beverages because they are growing and we have added new products. I think the trends on water and sports drinks such as Powerade are also positive. So the big unknown for me is the sparkling category.”
The theme for Swire this year will be to continue to develop new tools to enable employees the ability to efficiently and effectively execute the sale and distribution of the bottler’s increasing number of SKUs.
“That is the overriding challenge and opportunity we face, and it’s exciting, because we do have a tremendous lineup now,” Pelo says.
In addition to his role as president and chief executive of Swire Coca-Cola USA, Jack Pelo also is chairman of the board of directors of the American Beverage Association, Washington, D.C.
In his second year of a two-year term, Pelo said the momentous goal when he first started was getting everyone in the industry to work together. “We will compete like crazy, just as a lot of other industries do, but there are times that you have to come together and put your differences aside and do what is right for your industry,” Pelo says.
From big and small franchise bottlers to non-traditional bottlers, the industry has come together to work on important issues, such as the School Beverage Guidelines. “That was a milestone when we created the voluntary guidelines,” Pelo says. “And although there is still a lot of activity in federal, state and local levels, we demonstrated as an industry that we could come together to do something voluntary. We were not mandated to develop the guideline, but we did something that we thought was right.”
The ABA is also working on environmental issues, such as beverage packaging and water usage, the chairman says. “That’s the biggest focus we have in the future,” Pelo says.