Coke streamlines German bottling

Falling demand, an unstable economy and internal politics had left Coca-Cola's German bottling interests in tatters. However, moves to streamline the operations are now taking effect and the prospects are starting to look up.

In 2001 sales slid 6 per cent in Germany, which is Coca-Cola's fifth-biggest market worldwide and the largest in Europe. That is why it has been such a painful slide for an operation that was once Coke's European crown jewel.

Established in the market for over seventy years, the company is now trying to recreate some of its glory days, and reinvigorationg its bottling operations is one of the prime targets to get things back on track.

The man currently in charge of Coke's European operations is Sandy Allan, a native of Scotland and a Coca-Cola veteran with a long memory of the German market.

In an interview at his London office, Allan recalled how Germany had 130 bottlers in 1971. "Germany is full of small towns,"​ he said. "That's why we had so many bottlers."​

Today there are only nine. Coke began paring the number in the late 1980s during a worldwide consolidation of small bottlers. In the Coke system, most bottlers are separate operations from Coke, although the beverage company has great sway over them and owns stakes in many.

In Germany, some family bottlers were reluctant to sell. Allan said consolidation left some bottlers with minority ownership stakes but strong influence over decision making.

Internal squabbles became a fixture in Coke's German operations. Executives found themselves spending more time dealing with company politics than focusing on the marketplace.

"We didn't really have strong leadership control,"​ Allan recalled. "The company and the bottlers really were just drifting apart."​

The centre of attention is a bottler called Coca-Cola Erfrischungsgetraenke - otherwise known as CCEAG. Its headquarters is in a new office building in the former East Berlin.

Germany has changed rapidly since reunification in 1989, and CCEAG's offices sit in the middle of what is seemingly two worlds - the glittering new buildings that have rejuvenated part of the city and the bunkerlike structures that remain from the Communist era.

Guarino, CCEAG's chief executive, is a native of Philadelphia who has been overseas for 15 years, most recently as head of Coke's operations in the Middle East.

He sees CCEAG - and Coke's struggle in Germany - as a work in progress. "The thing is not going to change overnight,"​ Guarino said.

CCEAG handles 70 per cent of Coke's sales volume in Germany. In 2000, CCEAG lost $90.3 million (€93.1m) on revenues of $1.88 billion. In 2001, the company lost $8.32 million.

Consolidation was a big factor in the troubles. It left CCEAG burdened with debt and distracted the bottler from its customers. After horrible sales results in 2001, Coke decided enough was enough.

Coke signed a five-year "control agreement" with CCEAG, giving Coca-Cola management of the bottler. The plan was to create a much closer link in operations between Coke Germany and CCEAG. It added $800 million in debt to Coke's books, but the bottler's sales volume now is counted as part of Coke's.

Just south of Berlin is a sprawling hallmark of capitalism: an industrial park, anchored by a giant Coca-Cola bottling plant. Coke's red trucks shuttle drinks from here throughout Berlin and the former East.

The plant opened in 1999 and is the kind of success that CCEAG wants to build on. Workers in Genshagen make drinks in nonreturnable plastic bottles, which more and more consumers are buying.

Elsewhere in Germany, some old, inefficient plants will be closed.

CCEAG, saddled with debt since its founding in 1996, has shaved 1,066 jobs in the last two years and is down to about 10,000 workers.

Coke and CCEAG think changes that include improved efficiency and better marketing programmes are working. In the first six months of this year, Coke's German sales volume was up 4.7 per cent.

Industry analysts believe that the streamlining of the bottling operations has helped create a leaner more efficiency operation in German. However, they still believe there is a way to go before recovery is complete.

One of Coke's challenges for 2002 is getting the rest of its German bottling system in line, as it has with CCEAG. These remaining bottlers handle 30 per cent of the German market and many of the operations are expected to be the most difficult to turn around.

Whether or not the complete transition of the bottling operations can be completed in time remains to be seen. However it is beyond doubt that it will be a crucial step towards Coca-Cola's continued dominance in Germany.

For Allan, the man ultimately charged with overseeing the turnaround in Germany, these are encouraging signs. But Coke's decline took a long time, and he lets the people in Atlanta know that a resurgence will take time as well.

"I just have to manage expectations,"​ Allan said.