Comes as Jack and Coke Launches in Mexico, Heads to U.S. Next Year.
Coca-Cola has agreed to compensate US bottlers for the extension of the company’s brands into the alcoholic beverage sector, BD has learned. The bottlers began signing agreements in late October. The arrangement was spurred by the introduction of alcohol products Topo Chico Hard Seltzer and Simply Spiked under license by Coca-Cola to brewer Molson Coors, and Fresca Mixed under license to distiller Constellation Brands. Early next year, Jack Daniels maker Brown-Forman will launch a Jack & Coke canned cocktail in US under license from Coca-Cola. Those alcoholic products are distributed by beer distributors rather than by Coca-Cola bottlers, who can’t easily enter the alcohol distribution business because of complex state-by-state regulations. The Coke bottlers argued to Coca-Cola that they deserved to benefit from the boozy brand extensions because the bottlers helped build the underlying non-alcoholic brands. In broad strokes, the agreement between Coca-Cola and its US bottlers sets up two levels of compensation, according to BD sources. Alcohol extensions based on brands including Topo Chico sparkling water and Simply juice, which are predominantly warehouse delivered and not generally distributed by Coke system bottlers, generate bottler compensation based on a percentage of profit. Products based on bottler-delivered brands including Fresca and Coca-Cola draw compensation at a higher percentage of profit. The agreement includes a framework for handling any new alcohol brands that are created, according to the sources. Coca-Cola declined to comment on the confidential agreement.
PERSPECTIVE. With the new agreement, Coca-Cola and its US bottlers have avoided possible future tension should Coke’s alcohol strategy lead to meaningful growth in that market. In addition, bottlers are incentivized to retain their focus on building non-alcohol brands rather than becoming distracted by the pursuit of alcohol profit that may or may not move the US needle long term. Coke has chosen to license its brands to beer and spirits companies rather than attempt to distribute alcohol products in the US through its bottling system. PepsiCo has taken a different approach, setting up a subsidiary called Blue Cloud to distribute alcoholic products, leaving the manufacture to beer companies. State alcohol regulations generally prohibit the same company from manufacturing and distributing an alcoholic product. Combining the distribution of alcoholic and non-alcoholic products by Coca-Cola bottlers is more common in overseas markets. In the US, Reyes Coca-Cola Bottling is owned by Reyes Holding, which also owns the largest US beer distributorship. However, the Coca-Cola and beer companies are operated separately. Coca-Cola’s comprehensive beverage agreement, which is the primary contract with most US bottlers, doesn’t cover alcoholic beverages. However, the contract leaves room to compensate bottlers for unforeseen innovation outside the agreement, according to Coke system sources.
EXPANDING ALCOHOL HORIZON. The agreement comes as Coca-Cola’s optimistic alcohol industry licensees plan for expansion next year. Molson Coors will launch new flavors of Simply Spiked and a canned liquor-based cocktail called Topo Chico Spirited. Constellation Brands will add new flavors of Fresca Mixed, which also just announced a holiday campaign featuring Emmy-winning entertainer Andy Cohen. Meanwhile, a ready-to-drink Jack Daniel’s and Coca-Cola canned cocktail debuted on Nov. 11 in Mexico. The product will expand to North America and Europe in 2023, Brown-Forman and Coke have said. “As we develop our beverage portfolio, our focus continues to be on meeting consumers’ needs while serving their passions,” Coca-Cola Mexico Zone President Roberto Mercade said in a statement.
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