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Coca-Cola's oft-lauded refranchising of its bottlers was "heavily resourced" and a "10-year journey," FEP managing partner and longtime KO vet Matt Hughes reminded on a distribution panel at Beer Insights Seminar hosted by our parent company last mo in NY. "Ultimately, it paid off" for both bottlers and parent co. It "wasn't simple, wasn't overnight" but "both sides came out way ahead." The "key driver," Matt indicated, was figuring out respective roles and getting to "aligned incentives." KO and its bottlers "created governance that allowed" Coca-Cola to "play its role as brand owner, marketer and strategic leader of the network." And the bottlers "did what they're supposed to do best," meaning "manufacture, sell and deliver" as well as "handle all the logistics." They "figured out a way to make the money mechanics work in all of that." Recall that refranchising occurred after KO had acquired its largest US bottler, Coca-Cola Enterprises, with which it had had fractious relationship, with a view to rewriting the rules of engagement and finding new partners it viewed as more to its liking. As Hughes noted, it was arduous process, but resulted in unified system that, by many measures, has outperformed PepsiCo, which similarly acquired its largest US bottlers but decided not to refranchise those territories. KO Has 63 Bottlers; Top 10 Over 90% of Volume Today, Coke has 63 US bottlers, said Matt. But top 10 represent 92% of volume, meaning the other 53 have only 8% of volume. So there are still gaps and opportunities. By contrast, on beer side Anheuser-Busch has 350-400 distributors, noted Hughes' fellow panelist, OMAC's Adam Bush, tho it depends if you're talking about owners or locations. But it's inescapable that, for all the consolidation moves A-B network has undertaken over decades, it's only a small fraction as consolidated as KO.Should Pepsi Consider Refranchising? Yes; Beer Distribs Could Provide Added Scale Lately refranchising issue has loomed large as Coke has outperformed PepsiCo and activist investor Elliott Mgmt has arrived at PEP demanding that its leadership at least give notion serious consideration. Several in Wall Street crowd similarly wonder whether that indie bottling network has done much to give KO its edge. Where do Hughes and Bush stand on issue? They actually offered a fascinating new twist."If you just look at the sheer dynamics of beverage selling, warehousing and distribution," noted Matt, "if you can find a way to bring more scale and improve your levels of service, you typically have got a winning hand. That's why I think it's attractive right now" to "imagine a refranchising that would be beyond just Pepsi." Meaning combining with beer distribs? "If I were a well-resourced distributor of any stripe, I'd be calling Pepsi every day," Adam added. "I would try to put myself in the game." The so-called "total beverage" model already is achieving "synergistic value" in various parts of the world, pointed out Matt, including "some parts of US" with distribs like Columbia, Clark and Eagle Rock. "All great examples of total-beverage-solution players." TBS could also clearly include Pepsi or even an A-B/Pepsi combo, especially in mkts where account bases overlap and A-B share has eroded, Adam believes. Pepsi would be a "huge value-add" to A-B's network that "brings more resources to beer," said Adam, even if far lower share in bevs than Coca-Cola. Could there be benefit for A-B in "reimagining" its network? "Absolutely," said Adam.Of course, A-B itself didn't have a seat on that panel, and it&#39;s been notorious for demanding absolute share of mind from its wholesaler partners, meaning it might require a leap of imagination for it to bless such combos. But might Pepsi add-on be the choice of a new generation there? Recall, by the way, that A-B and PEP once had alliance that worked to reduce some back-office costs. It's also worth noting that one of biggest players in KO's own refranchising is giga-beer-wholesaler Reyes, tho those are run as completely separate operations.Benefits in Execution, Price-Pack Architecture, Even Mktg Hughes continued to sing praises of Coke's refranchising model: look at KO "before and after re-franchising. You did see a pretty dramatic improvement." Better marketing? "Probably. Was it better execution in the marketplace? Certainly. Was it well-executed price/pack architecture? Definitely. All those things together yielded the results you see today." (A version of this article appeared in our sibling newsletter Insights Express earlier this week.)

BEER MARKETER'S INSIGHTS SEMINAR: Coke Refranchising Was a Boon, So What About Pepsi? Might There Be a Fit with Beer Houses? Hughes, Bush Ponder

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