Coke v. Wal Mart Supply Chain

Interesting article that appeared in WSJ. Shows how one giant can strong arm & intimidate the other.

Coca-Cola Feared Wal-Mart Pressure In Delivery Shift

By CHAD TERHUNE June 8, 2006; Page B6

Coca-Cola Co. said in a court filing that it faced a "serious risk" Wal-Mart Stores Inc. would launch a private-label rival to the Atlanta company's Powerade if Coke didn't agree to ship the sports drink directly to Wal-Mart warehouses.

The disclosure, made in a lawsuit filed in U.S. District Court in Atlanta against Coke and its largest bottler by 55 smaller bottlers, suggests Coke felt pressure from Wal-Mart to alter its century-old system of having Coke bottlers deliver drinks to individual stores within their exclusive territories and stack those drinks on store shelves.

Wal-Mart, the world's largest retailer, asked Coke last year to switch to the straight-to-warehouse delivery method, and Coke's largest bottler, Coca-Cola Enterprises Inc., began doing so across much of the U.S. in April. The smaller bottlers who brought the suit claim the distribution change violates their distribution contracts with Coke, but the beverage giant and CCE have argued that the plaintiffs aren't entitled to "claim nationwide veto rights" over how another bottler serves its territories.

Coke and Wal-Mart declined to comment on the June 1 court filing.

"This is no mere idle threat," Coke said in the filing. A Wal-Mart sports drink could hurt Coke, even though some beverage-industry analysts question the feasibility of private-label brands in that category given limited production capacity.

Coke has struggled to build Powerade into a viable competitor to Gatorade, which had an 82% market share based on U.S. volume in the first quarter, compared with 16% for Powerade, according to industry newsletter Beverage Digest. At Wal-Mart stores last year, Powerade had a market share of 11.8%, according to CCE documents filed in the suit. PepsiCo Inc., Purchase, N.Y., acquired Quaker Oats Co. and Gatorade in 2001 after Coke rejected a deal.

Internal CCE documents filed as part of the suit show that Wal-Mart officials criticized the traditional Coke distribution system for failing to keep Powerade in stock on store shelves and for taking too long to introduce products throughout the Bentonville, Ark., retail chain. "If Powerade continues at the current trajectory -- it will be irrelevant in Wal-Mart," Steve Broughton, a Wal-Mart vice president, told CCE officials at a November meeting.

Spokesmen at Coke and CCE said the new distribution system at Wal-Mart is working well but there are no current plans to expand warehouse deliveries to other drinks or retailers.