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ATLANTA -- Coca-Cola and its U.S. bottlers are reportedly working on a pricing plan to close the gap in how Coke makes its money and how bottlers make theirs, The Atlanta Journal-Constitution reported. The potential changes involve pricing for soft drink concentrates, and they could mark an enormous shift in how the Coke system works.
In a report this week, analyst Marc Cohen of Goldman Sachs said Coke and its U.S. bottlers are working on an "overhaul" of their pricing system, one meant to create similar goals for both sides, the report said. The health of the bottling system is critical because Coke doesn't make most of its finished drinks -- bottlers, like Coca-Cola Enterprises (CCE), do.
Here's how it works: Coke earns much of its money by selling concentrate to bottlers. The bottlers then turn this basic ingredient into beverages. In the United States, Coke's revenue is generally the same, regardless of the final retail price of the beverages. Bottlers, however, see their revenue vary, depending on what happens at the retail level.
This week, for example, Kroger stores in Atlanta are selling 12-ounce cans of Coke products at a special price -- three 12-packs for $9.99, or about 28 cents a can. At convenience stores, meanwhile, a single can of Coke might sell for 65 cents. While Coke gets the same amount per can, CCE is better off with the higher price.
Fixing this discrepancy would solve a key conflict in the system, which is currently set up to make Coke want big sales volumes, while bottlers look for high margins. Internationally, Coke's concentrate prices already are tied to retail pricing in some markets, notably Latin America, Japan and parts of Europe. In the United States, however, a switch would be a watershed.
While Cohen was enthusiastic about the talks, Coke spokesman Dan Schafer said no changes are pending. But it's clear that Coke is looking for ways to improve the fortunes of the companies that make Coke products.
"As we've been saying for several years, we are committed to working with our bottlers to ensure that we create profitability for the entire system," Schafer said.