Coca-Cola To Re-Franchise Memphis Area To Coca-Cola Bottling

The Coca-Cola Company (NYSE:KO) announced that it has signed a letter of intent to grant additional bottling territory to Coca-Cola Bottling Co. Consolidated. (NASDAQ:COKE) as part of its North-American bottler refranchising efforts. The deal includes a territory around Memphis, Ten, including portions of Tennessee, Mississippi and Arkansas. In addition, Consolidated will acquire two cold-fill production facilities in these areas.

Separately, Coca-Cola Bottling and private Coca-Cola bottler, Coca-Cola Bottling Company United have agreed to exchange production facilities and territories in the Southeast, thereby creating more contiguous territories for both the bottlers in this part of the country.

Coca-Cola is aggressively pursuing its beverage partnership model in the U.S. under which it plans to refranchise 100% of its company-owned North American bottling territories by the end of 2017, as well as sell its cold-fill production facilities in the U.S. Over 65% of the U.S. territories have already been transferred or have agreed to be refranchised so far.

Coca-Cola has been divesting and merging many bottling operations in international markets as well since 2014 to revamp its bottling system and thereby improve margins and drive growth. Three of its European bottlers — Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG (German bottler) — merged in May this year to form a new Western European bottler named Coca-Cola European Partners Plc (NYSE:CCE) .

Also, the company has entered into an agreement with beer and beverage company, SABMiller (LON:SAB), and partner Gutsche Family Investments, to merge their bottling operations in Southern and East Africa and form the largest Coca-Cola bottling entity in Africa. While Coca-Cola owns 18% in Coca-Cola European Partners, it will have 11% stake in the new African bottler. The merger is expected to close soon.

In China, it has agreed to refranchise its company-owned bottling operations to its existing partners, COFCO and Swire.

The refranchising efforts, though hurting sales/profits in the near term, will result in higher operating margins, lower capital spending, and improved return on invested capital over the long term.

Coca-Cola carries a Zacks Rank #3 (Hold). A stock worth considering in the beverage industry is Primo Water Corp. (NASDAQ:PRMW) which sports a Zacks Rank #1 (Strong Buy).