IUF | Coca-Cola Workers Network | Monthly : November 2007

Coca-Cola forms threesome to quench coffee demand

The Coca-Cola Company hopes to meet growing demand for ready-to-drink coffee products by announcing yesterday that it will extend an agreement with Italian group Illycaffè to form a three-way joint venture with one of its bottling arms.

The Coca-Cola Hellenic (CCH) bottling company, a leading bottler of Coca-Cola's products, will join its parent company and Illy to distribute and market new products derived from the beverage, according to a letter of intent signed by all three parties.

CCH's managing director Doros Constantinou said that while the ready-to-drink coffee market currently remains small, it is expected to be an area of high growth in the future. It is this development for growth, which the joint venture will aim to tap through with its resources.

"The formation of this joint venture will combine the strengths of the Coca-Cola system around marketing, customer relationships, and route-to market capabilities with illy, a premium coffee brand" Constantinou stated.

"Furthermore, this joint venture will further strengthen our premium product offering and will allow us to maximise its potential working with two very strong partners who share the same vision as ourselves."

Though there are currently no further details related to the project, Coca-Cola expects to finalise terms, which also require regulatory approval, by early next year.

The Coca-Cola Company first announced that it has entered into an agreement with Illy last month, as part of moves to further diversify from its once core carbonated beverages brands.

According to the company's figures, the ready-to-drink coffee market, currently valued at $10bn, is projected to expand on average by 10.1 per cent over the next five years.

The group is not alone though, with PepsiCo working together with international coffee retailer Starbucks to push bottled versions of its ready-to-drink Frappucino brand in markets like China and the US.

Coca-Cola's decision to expand into ready-to drink coffee production comes at a crucial time for the company and its international bottlers, which have had some difficulty in keeping up with consumer demand in recent years.

Earlier this year, Coca-Cola Enterprises (CCE), the group's main bottler in North America and Western Europe, said earnings per share were expected to fall between five and 10 per cent in 2007, compared to last year.

It is a prediction that follows Coca-Cola Enterprises (CCE) decision to axe more than 3,000 jobs, and highlights the firm's struggle to realign its business with consumer demand.

CCE global revenues rose five per cent for the first fiscal quarter to $4.56bn, thanks to more strong performances from juice, water and sports drinks in North America, and the expansion of Coke Zero into France and the Netherlands.

But volumes declined four per cent in North America, CCE said, as consumers continued to leave full sugar, fizzy soft drinks on the shelves.

CCE added that it also faced "great challenges" in the UK, with moves like renaming the fizzy drinks category "sparkling beverages", instead of the traditional "carbonated", not yet paying off.