Coca-Cola Grants Chicago Area Territories to Reyes Holdings
The largest global producer and marketer of beverages, The Coca-Cola Company (KO) recently entered into a definitive agreement with Great Lakes Coca-Cola Distribution, L.L.C., a wholly-owned subsidiary of Reyes Holdings, L.L.C. According to the deal, Coca-Cola will grant its territories in the greater Chicago area to J. Christopher and M. Jude Reyes of Reyes Holdings, L.L.C. The financial terms of the deal were not disclosed. The transaction is expected to close in 2015.
The agreement followed the Letters of Intent The Coca-Cola Company signed with Reyes Holdings in Feb 2014. (Coca-Cola on Track for New Bottling Partners)
Reyes Holdings is one of the largest global food and beverage distributors. The company has successfully worked with strong brands in mature markets like North, Central and South America, Europe, the Middle East and the Asia Pacific. The Coca-Cola Company, whose North American business has been soft for some time, is likely to benefit from this agreement in the near future.
The deal is intended to improve the efficiency of its operating territories and boost overall profits in the U.S. The Coca-Cola Company is shifting to a more franchise-based model, where it grants territories to its bottling partners across the country.
In Sep 2014, Coca-Cola inked a definitive agreement with Troy Taylor, Chairman and CEO of Coca-Cola Bottling Company of Central Florida, in order to grant the territories of Tampa/St. Petersburg, Ft. Myers, Ft. Pierce, Lakeland and Sarasota. The company expects to complete initial transactions with each of these bottlers in 2015. This agreement also follows letter of intent signed in Feb 2014.
Prior to that, in Apr 2013, Coca-Cola launched its new beverage partnership. According to the new model, from Jan 1, 2014, the North American business of Coca-Cola was segregated into a traditional company and bottler operating model. Consequently, Coca-Cola granted new expanded U.S. territories to five of its bottlers to distribute its beverages. The five bottlers include Coca-Cola Bottling Co. Consolidated, Coca-Cola Bottling Company United Inc., Swire Coca-Cola USA, Coca-Cola Bottling Company High Country and Corinth Coca-Cola Bottling Works, Inc.
The company has been witnessing sluggish growth and slowdown in consumption for the last few quarters. We believe that such a move toward a franchise based model would aid the company’s margins, going forward.
Coca-Cola carries a Zacks Rank #4 (Sell).
Better-ranked beverage stocks include Monster Beverage Corp. (MNST), Keurig Green Mountain, Inc. (GMCR) and Dr Pepper Snapple Group, Inc. (DPS). All the three companies have a Zacks Rank #2 (Buy).
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