Wal-Mart wants to have product delivered to its warehouses, not stores; is beverage industry supply chain soon to have major changes in the flow of goods?

SCDigest editorial staff

The News: A group of Coca-Cola bottlers is suing Coke and its largest bottler over plans to ship PowerAde drinks directly to Wal-Mart  warehouses, rather than to individual retail locations as has been the case for a century in the beverage industry.

The Impact: This is likely the tip of the iceberg in what will be pressure across a number of fronts in the beverage supply chain, including sodas, other soft drinks, beer and wine.

The Story: A suit expected to begin hearing next week pits a group of small Coca-Cola bottlers against the parent company and Coke’s largest bottler, Coca-Cola Enterprises (CCE), over changes to a century-old distribution system.

The suit originated from a request by Wal-Mart that Coke’s PowerAde sport drinks be delivered to its warehouses by CCE instead of to its stores. Wal-Mart would like to do the store-level distribution itself.

Though CCE is also a bottler, a group of more than 50 smaller bottlers sees this as a threat to their model, where Coke products are delivered by the bottlers direct to stores and the driver takes care of stacking, etc. Why? Because they fear ultimately new distribution processes between the parent company and the largest bottlers with large retailers will severely diminish their roles and economic futures.

Wal-Mart asked CCE to deliver PowerAde directly to warehouses in the territories it serves, starting with a pilot that has been completed in Texas. As CCE (which is 36% owned by Coke) controls a huge share of the total Coke market in the U.S., and Wal-Mart represents about 10% of Coke’s total volume, the request would have a big impact on PowerAde distribution nationwide.

Interestingly, Wal-Mart has been using warehouse delivery for many years with Gatorade, which is by far number 1 in share of the sports drink market over PowerAde.

The smaller bottlers’ suit stems in part from somewhat unclear language in the standard bottler contract that does not allow Coke itself to make warehouse deliveries. The bottlers argue that the language and subsequent dialog makes it clear this was meant to prohibit any warehouse deliveries.

On the other hand, "The core issue here is an attempt by one group of bottlers to block another group of bottlers from making a change to better serve customers and consumers. Our POWERADE contract clearly allows a bottler to choose warehouse delivery in its own territory," said Don Knauss, President, Coca-Cola North America. "This is a question of how our system creates growth by serving our customers and consumers; it is not a legal issue.”

A story in the Wall Street Journal noted how even some of the smaller bottlers are getting fairly sophisticated in their supply chain processes. It cited one of the largest of the group of smaller bottlers, which does $270 million worth of sales in the Oklahoma and Arkansas areas, as having very sophisticated replenishment capabilities. For example, most of the 89 Wal-Mart stores in its territory get deliveries twice per day, seven days a week.  It is working on a system that would it access its checkout-sales data as often as every 15 minutes so he can feed its stores with still more precision.

Howver, in the soft drink and other beverage markets, there is pressure for change, as both the large brands and retailers look to drive national program and supply chain wide synergies. There are suggestions there is a deal that if PowerAde can be delivered to Wal-Mart warehouses, it will get increased shelf space, which could significantly impact market share. In the beer industry, there has been talk of “bump and run” systems, where deliveries would be coordinated between brewer and large retailers, and the local distributor would be used as a cross dock point in a flow worked out between the two larger entities.

It strikes us as likely that any supply chain systems based on decades old principles are likely to change soon if they can deliver customer value.