Coca-Cola European Partners Versus Coca-Cola: Which Is Better?

KO’s growth prospects are largely driven by their industry-leading market share. The global beverage market is expected to grow over the next sevearl years, so as long as Coca-Cola can maintain their current market share, then their revenues will expand accordingly. The same can be said for CCE.

Each company also has business-specific drivers of growth.

For KO, this will come from the company’s divestiture of their bottling assets. The resulting company will have much lower net revenues, but higher margins and enhanced profitability. As long as management can successfully execute this transition, then the company should benefit over the long run.

CCE is doing the opposite – they are acquiring more bottling businesses. In mid-2016, the company  completed a 3-way merger that made them the largest Coca-Cola bottler on the planet. The merger involved the following three companies:

  • Coca-Cola Enterprises
  • Coca-Cola Iberian Partners
  • Coca-Cola Erfrischunsgetranke

CCE is still realizing significant synergies from that merger, and this will continue to drive growth for the foreseeable future.

CCE also has plenty of opportunity to grow market share. According to Value Line, CCE holds only ~24% of the European bottling market. Given that Coca-Cola’s market share is generally assumed to be higher than one-third, then CCE should be able to take significant market share without expanding their operations to other beverage makers.

Both companies continue to have significant upside looking ahead.

Competitive Advantage & Recession Performance

KO’s competitive advantage comes from their diversified portfolio of high-quality beverage products. The company currently owns 20 brands that generate more than $1 billion in sales. They are pictured in the following diagram.

Coca-Cola Product Portfolio

Source: Coca-Cola Investor Relations

CCE benefits indirectly from this product portfolio. As long as there are products purchased from KO, CCE will be paid to bottle them. However, this does not offer CCE the same competitive position as KO.

The reason for this is because of the competition of the bottling industry. This industry is what Warren Buffett would call a ‘commodity business’ – an industry such that price is the main differentiator. Since bottlers sell the completed product wholesale to retail distributors, the only thing they need to do to take market share is reduce prices. There is no way to differentiate based on product or service.

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