American multinational beverage maker, the Coca Cola Company has deviated from an initial plan to re-franchise its African bottling business, Coca-Cola Beverages Africa (CCBA). The latest development means the company will be keeping its majority stake in the unit for the foreseeable future.
Coca-Cola previously announced its intention to re-franchise CCBA, which is the largest bottler of its beverages in Africa (serving 12 countries) and the company has had discussions with several potential partners. Some of these buyers who were considered include Coca-Cola HBC and rival Coca-Cola European Partners.
Highlighting the importance of CCBA in the Coca-Cola system, President and Chief Operating Officer, Brian Smith said the company sees “great opportunities to create even more value” from the unit.
“While we remain committed to the re-franchising process, we believe it’s in the best interests of all involved for Coca-Cola to continue to hold and operate CCBA,” Smith added.
Re-franchising of the African unit was part of a broader global plan to focus mainly on its beverage business and boost profit margins while offloading manufacturing and distribution assets.
The decision of the beverage giant to change course has been attributed to a recent slope in the beverage market. Its shares went down 7.4 percent after the release of its fourth-quarter earnings for 2018, while that of its major rival PepsiCo went up after reporting an increase in sales.
Although a 2019 study by UK-based market insights firm, Kantar ranked Coca-Cola as the world’s most chosen consumer brand for the seventh year running whereas Pepsi took the sixth position, revenues and profit margins suggest otherwise.
Figures reported by Forbes in July last year show that Coca-Cola had about $34 billion in revenue, with a profit margin of 4.23 percent compared to Pepsi’s $64 billion and nearly 8 percent revenue and profit margin, respectively.
The numbers may come as a surprise to many, due to the fact that Coca-Cola has a stronger brand than PepsiCo. However, the latter’s diversification beyond carbonated drinks to snacks has contributed strongly to its growth in recent years.
Coca-Cola has been the majority shareholder of CCBA since 2016. The African unit was formed in 2014 from the merger of SABMiller plc, The Coca-Cola Company, and Gutsche Family Investments (GFI) beverage bottling operations in Southern and East Africa.
With this latest decision, Coca-Cola will reclassify its financial statements from the second quarter of the year to include CCBA as part of its continuing operations, while the unit’s results will be reported in the Bottling Investment Group segment.