Ozarks Coca-Cola spearheads federal suit

The Ozarks bottling company and more than 50 other independent bottlers across the country Feb. 14 filed suit in Springfield’s U.S. District Court against Coca-Cola Co. and its largest bottler, Coca-Cola Enterprises. A similar suit also was filed last week by 10 other plaintiff bottlers in Alabama.

The suit alleges the two companies devised a plan to begin warehouse delivery of Coca-Cola’s PowerAde sports drink to retailers, such as Wal-Mart, beginning April 1 – a change from the direct-store delivery method that has been in place for more than 100 years.

The bottlers, which make up 10 percent of Coca-Cola’s U.S. volume, say the direct contact between the manufacturer and the customer has been the driving force behind PowerAde’s success. Locally, PowerAde volume grew by 60 percent in 2005, and its sales volume doubled between 2000 and 2004.

“We want to have the greatest influence on that product getting into consumers’ hands,” said Sally Hargis, vice president of corporate strategy at Ozarks Coca-Cola Bottling. “The direct-store delivery is the best way we know to develop the PowerAde brand. It makes the brand more profitable for our customers.”

Ozarks Coca-Cola Bottling Co. is in some ways leading the charge against Coca-Cola, serving as the prime example of PowerAde’s success through direct-store delivery. The company’s CEO, Edwin C. Rice, was one of a handful of bottler representatives to initiate the effort.

Not only do the bottlers say warehouse delivery would hinder PowerAde’s sales performance, they say the change also violates a contractual agreement reached in 1994 between Coca-Cola and its bottlers. In a news release from Coca-Cola, officials said the agreement does not prohibit the warehouse delivery method.

Regardless of PowerAde’s success through direct-store delivery, Coca-Cola officials say the company is merely responding to a call from its retailers to implement warehouse delivery in an effort to boost availability of the drink on their shelves.

“Litigation is completely inappropriate and unfounded in light of the ongoing discussions between the company and all our bottlers to respond to a major customer’s request for the benefit of everyone,” Coca-Cola North America President Don Knauss said in the release. “We are extremely disappointed that a few individuals are attempting to hijack those discussions.”

A spokesperson for Coca-Cola could not be reached by press time.

Wal-Mart is the only retailer named in the lawsuit that is expected to switch to warehouse delivery. A Wal-Mart spokesperson deferred comment on the case to Coca-Cola but did say the issue is about customer satisfaction and efficiency.

Coke’s plan unearthed

The discussion of warehouse delivery versus direct-store delivery has been ongoing for years, Hargis said, but the suit states that the heart of the disagreement came about in October when bottlers unearthed a Coca-Cola plan to make the switch. The suit alleges Coca-Cola intends to unroll a nationwide swap to warehouse delivery this spring.

To halt the rollout, bottlers also have requested a preliminary injunction against Coca-Cola until the legal issue is resolved. That action was expected to be filed by Feb. 17, Hargis said.

The suit states retailers can cut their labor costs significantly by utilizing direct-store delivery – a method plaintiffs claim also has benefits for Coca-Cola.

Through direct-store delivery, bottlers are able to manage shelf space, conduct in-store merchandising and remove outdated and damaged inventory, according to the suit. Without their ability to do so, bottlers run the risk of losing market penetration control, as the product becomes treated as “just another commodity by retailers and, potentially, consumers.”

Additionally, bottlers fear the delivery change would affect their territorial rights of PowerAde.

“The bottlers depend on their ability to protect the right to exclusive delivery in their territories,” the suit states. “A single chink in the armor against warehouse delivery will seriously affect the bottlers’ profitability, the value of their businesses and their ultimate survival.”

Though Hargis said warehouse delivery would have an effect on the success of PowerAde, she said it would not affect local delivery or trucking employment.

This is the first major legal action taken by a majority of independent Coca-Cola bottlers against The Coca-Cola Co. in more than 80 years.