Difficult times for Coke

Related tags Coca-cola European commission European union

Coca-Cola is set to initiate talks with the European Commission in
an attempt to resolve an antitrust case against the group. This is
the latest difficult challenge to have emerged - Coca-Cola has
already had to deal with the Dasani recall in the UK this year and
a federal investigation in the US.

The European Commission has been looking into the legality of Coca-Cola's rebates to retailers since 1999, when it carried out an unannounced inspection at the group's European headquarters. Charges have yet to be brought, although the EC is thought to be planning to act against the company's German operations by next June.

In particular, the EC is examining rebates for retailers that carry a range of Coca-Cola products and at rewards for displaying drinks prominently. Coca-Cola claims that its rebates are normal practice, and argues that big retailers exercise more power over the sector. It denies it dominates the relevant market.

Coca-Cola would clearly like to avoid formal charges that it has abused a dominant position in the market. The recent Brussels ruling against Microsoft, the software group, has heightened interest in reaching an early settlement.

This is the latest problem to have befallen the soft drinks giant. The company has had to deal with a number of other recent difficulties, including the discovery of higher than permitted levels of the chemical bromate in samples of its bottled water brand, Dasani in the UK.

A voluntary withdrawal was undertaken as a precautionary measure. The UK's Food Standards Agency said that although there was no immediate risk to public health, Coca-Cola's decision to stop selling Dasani in Britain was sensible.

The agency describes bromate as "a chemical that could cause an increased cancer risk as a result of long-term exposure, although there is no immediate risk to public health".

In a statement, Coca-Cola said that the contamination had been initially caused by its regular practice of adding calcium to Dasani, calcium which in this case "did not meet our quality standards".​ As a result, bromate went on to be formed during the manufacturing processes.

The UK limit for bromate in bottled and tap water is 10 parts per billion, while the Dasani samples had tested between 10 and 22 parts per billions, Reuters reported.

And in the US, federal investigators have been investigating Coca-Cola's dealings with Japanese company Takasago International in connection with allegations of channel stuffing. It is alleged that the beverage giant overstated financial results for several years by shipping excessive beverage concentrates to Japan.

Channel-stuffing refers to the practice of convincing clients to accept unwanted or early deliveries of a product. The method is used to pad revenue, and can help a firm meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity.

According to a Wall Street Journal​ report, the Securities and Exchange Commission and the US Attorney's Office are now investigating whether Coca-Cola is guilty of 'channel stuffing' in order to artificially boost profit forecast and sales. The report says that investigators have focused on Douglas Daft, Coca-Cola's chairman and chief executive who announced his plans to retire on 19 February.

The Atlanta-based soft drinks giant said that it was co-operating with the Securities and Exchange Commission and US Department of Justice. The investigation began after an ex-worker claimed that the company had overstated revenue and engaged in bogus transactions.

This is not the first time that Coca-Cola has been accused of this practice. A shareholders lawsuit four years ago raised the issue of revenue-padding in Coca-Cola's Japanese market. Coca-Cola motioned to dismiss the lawsuit, which was amended and refiled last year.

All these issues are likely to come to a head at the company's forthcoming annual general meeting.

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