Coke hopes deal puts fizz back in biz

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TEXT OF STORY

Bob Moon: Ring up around two billion 12-packs of Coke, and you've got the value of a major deal in the bottling industry today. The Coca-Cola Company announced today that it's buying the North American bottling operations of Coca-Cola Enterprises for $12 billion. Confused? Well, the Coca-Cola Company makes the concentrate -- the flavoring. The bottling and distribution process has been a separate operation.

As Brett Neely explains, today's deal may put some much-needed fizz back in Coke's business.


COKE AD:I'd like to buy the world a Coke, and keep it company...

BRETT NEELY: Back in this iconic 1971 Coke ad, the world sang in perfect harmony. And Coke sold itself. Not anymore, says beverage analyst Tom Pirko.

TOM PIRKO: And we moved away from everybody just simply drinking nothing but Coke and Pepsi all day long, and we now embrace this universe of consumer demand in which people are trying anything and everything.

Consumers now guzzle everything from vitamin water to exotic energy drinks. Pirko says the old model of separate production and distribution is over. Production companies made money selling the syrup. It was up to bottlers to sell the bottled soda to stores. Now companies like Coke want total control.

PIRKO: The strategy is all predicated on being able to move products straight into stores, new kinds of products.

Pepsi's in the middle of a similar deal with its main bottler. The timing of Coke's decision is no accident, says JPMorgan analyst John Faucher.

JOHN FAUCHER: Coke looks at this and says, well, we don't want to really do this, but we don't want to be at a competitive disadvantage, so we kind of have to go out and do this deal now.

Coke says the deal will mean layoffs for workers at some bottling plants, but will save about $350 million over the next four years. Faucher also says the deal means good news for big box retailers.

FAUCHER: The ability for Coke to go to Wal-Mart as a single entity makes Wal-Mart's life easier, which at the end of the day, makes Coke's life easier as well.

But it won't bring back the days of perfect harmony.

I'm Brett Neely for Marketplace.

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