Coca-Cola Deep Dive

Welcome to the 55th Pari Passu newsletter.

For the past two weeks, we have focused on the world of restructuring and credit. Today, we will conduct a deep dive into The Coca-Cola Company (KO) and understand what makes up their amazing business within beverages such as bottling, distribution, branding, acquisitions, and capital allocation.

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Introduction 

Coca-Cola was first brought into this world in 1886 when Dr. John Pemberton created his mastered syrup and served the beverage for 5 cents in Atlanta. Today, The Coca-Cola Company has a market capitalization of $250bn, where the beverage is served in all but 2 countries in the world (Cuba and North Korea), while also owning over 200 different brands that range from all kinds of drinks like sodas, juices, water, coffee, and alcoholic beverages. In this edition of Pari Passu, the sections will be divided into the Overview, History, and Contemplating the Future. 

Overview - The Universe of Drinks 

The beverage industry, where The Coca-Cola Company (KO) prominently stands, is a complex and dynamic sector marked by intense competition and diverse consumer preferences. Coca-Cola's unique position within this industry can be attributed to its innovative business model and robust system structure, which distinguishes it from competitors like PepsiCo and others. 

Central to Coca-Cola's success is its strategic approach to managing revenues.

• Unlike traditional business models that focus solely on direct sales, Coca-Cola has ingeniously structured its operations around a franchising system, primarily in the bottling and distribution segments. 

• This system allows Coca-Cola to leverage the strengths and local expertise of its franchisees, ensuring a more efficient and widespread distribution of its products.

• This strategy, while creating some complexity in revenue analysis, offers a more resilient and scalable business model. 

The distinction between system sales and company revenues is crucial in understanding Coca-Cola's market position. 

• System sales encompass the total sales generated by both Coca-Cola and its franchise partners, presenting a more holistic picture of the company's market reach and financial health. 

• When assessed through the lens of system sales, Coca-Cola's business magnitude becomes apparent, dwarfing that of its closest competitor, PepsiCo, in terms of operating income. 

PepsiCo, while a significant player in the beverage industry, derives over half of its operating income from snacks and salty treats, with its beverage segment being considerably smaller in scale compared to Coca-Cola. 

• This diversification into snacks, while beneficial for PepsiCo, underscores Coca-Cola's focused dominance in the beverage sector.

• Comparing Coca-Cola with other major players in the beverage industry, such as Nestle, Unilever, and Keurig Dr Pepper, further highlights Coca-Cola's supremacy.

• Keurig Dr Pepper has a dual focus on beverages and coffee, making it a partial competitor. 

• However, its scale is relatively modest compared to Coca-Cola, with system sales just a fraction of Coca-Cola's. 

Coca-Cola's nearly $150bn in system sales, a figure that encompasses the collective wholesale sales of the company and its bottling partners, is unparalleled in the beverage industry. 

• This number is not just a testament to the company's financial success but also to its expansive global reach and deep market penetration. 

• Coca-Cola's ability to maintain and grow this extensive system, despite varying market conditions and changing consumer preferences, is a remarkable feat and a key factor in its enduring success. 

Overview - Coca-Cola’s Model & Performance 

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