On the surface the divorce of Coca-Cola from Cadbury Schweppes in the UK appears like one of those modern clean cut affairs. Their joint venture distributor Coca-Cola Schweppes Beverages is dead after just nine years, but both sides are putting a brave face on the split and saying that they will keep in touch.
When the two created CCSB in 1987, both parties needed to boost their UK soft drinks market share – it was a marriage of convenience. Coke stood at 19 per cent, and believed that the UK was an immature market. Today it has a share of 32 per cent. Cadbury too, had its eye on developing a more substantial soft drinks portfolio, via the added leverage and access its relationship with Coca-Cola would give it – it is now ranked third in the world.
Cadbury’s 1.6bn acquisition of Dr Pepper last year made it the third largest soft drinks group in the world. It was inevitable that a joint venture with the world number one, even in a far flung outpost like the UK, would start to create conflicts.
With Cadbury’s growing ambitions across Europe and the fact that when Coke brought Frutopia to the UK last year it was forced to distribute it through Food Brokers rather than its 49 per cent owned-CCSB, relations soured. The final straw is believed to have been growing anger in Atlanta at CCSB’s continuing failure to mount a successful defence against the threat from own-label cola wannabes – CCSB has now been swallowed up lock stock and barrel by CCE. As part of the divorce settlement, CCE paid 620m to Cadbury, but agreed to continue distributing it’s brands for another 15 years.
Coke is also a winner because it gets absolute control over distribution of its brands in the UK, plus 611m for its stake in CCSB.
The reaction of rival Pepsi to all of this could be the most interesting. The soft drinks company – squeezed between Coke and Cadbury in the world league table – spent $500m (330m) on the relaunch of Pepsi in a blue can just two months ago. Nielsen figures showing only a 0.1 per cent increase in the take home cola market for the revamped Pepsi can suggest the relaunch has not been as successful as the company had hoped. Now both of its rivals have additional money to spend in the UK market.
A pointer to the future could be what the two ex-partners do with their windfall. While Coke will use its share of the spoils to offset against debt, Cadbury is to concentrate on its brands, using its money to expand internationally.
The coming together of CCSB and its final split were both driven by Coke. But in the long term it could be Cadbury, often seen as the poor relation, which gains most.
Analysis, page 19; News, page 6