How Coca-Cola Makes Money

The Coca-Cola Company's (KO) distribution model is an integral part of its success. Its unique business model has served the company well since bottling first began in 1894. John Stith Pemberton, a pharmacist living in Atlanta, created the flagship soda, Coca-Cola, in 1886.

The company has operated under a franchise distribution model since 1889 and was incorporated in 1892. Coca-Cola has risen to global prominence and is the largest nonalcoholic beverage company in the world.

In 1894, Mississippi businessman Joseph Biedenharn installed bottling machinery behind his soda fountain store. He did this in order to make Coca-Cola much more portable. Five years later, three entrepreneurs in Tennessee purchased the exclusive rights to bottle and sell Coca-Cola for $1.

This posed many problems for the company, from limitations by competitors and the need for consistency across the product line. In 1916, Coca-Cola bottlers agreed on the iconic contour design bottle that still remains.

The Coca-Cola Company is considered the largest non-alcoholic beverage company in the world, reaching consumers in more than 200 countries. It has roughly 200 master brands that are grouped into categories such as sparkling soft drinks, sports drinks, juices, energy drinks, and tea and coffee. Some of the most popular brands include Coca-Cola, Sprite, Fanta, Powerade, and Dasani.

According to the company's website, it has approximately 950 production facilities worldwide and about 200 bottling partners around the globe. The number of Coca-Cola bottlers exploded to over 1,200 plants by 1920.

So how does this global powerhouse make money? Keep reading to find out more about the company's business model, its financial achievements, as well as its business segments.

Coca-Cola’s Financials

Coca-Cola released its Q1 2023 results on April 24, 2023. The company reported consolidated net operating revenue of $10.98 billion for the quarter. That's a 5% increase from the same period the previous year. The primary driver in revenue growth was an 11% increase in price/mix. Gross profits increased by 4% from the same period, going from $6.40 billion to $6.67 billion.

North America was the area that posted the highest revenue in the quarter, coming in at about $3.90 billion. The company's Bottling Investments Group (BIG) reported roughly $1.95 billion in revenue, and the company's Europe, Middle East, and Africa division reported $2.02 billion in revenue.

The bulk of the company's revenue is derived from its two key businesses—the concentrate business and its finished product business.

Concentrate Business

Coca-Cola manufactures and sells syrup to authorized bottlers. These partners then add water and carbonation to make and sell finished Coca-Cola products. This division is referred to as the company's concentrate operations.

Coca-Cola has supported the consolidation occurring among its bottlers. That's because having many small independent bottlers created several macro and microeconomic challenges for the company. Smaller independent bottlers often lack the financial assets to continue operations and fund investments when they're faced with economic hurdles. This leads to financial troubles for Coca-Cola.

The company responded by creating its Bottling Investments Group. This group identifies struggling franchisees, providing them with financial and institutional support. The company sends experts and resources to drive growth and return the franchise to profitability. Once they achieve profitability and stability, the company finds a qualified bottler to assume operations.

According to the company's website, BIG operates in parts of Africa, South Asia, and Southeast Asia. It completed refranchising in Canada, the United States, Guatemala, Uruguay, and China.

Finished Product Business

The company also manufactures its own fountain syrups, manages several bottling operations, and collects revenue on finished products. These operations fall under Coca-Cola's finished product operations. This business segment is made up of both company-owned or controlled operations in both sales and distribution. This includes the sale of sparkling beverages and nonalcoholic drinks to retailers. They are also sold to distributors and wholesalers who, in turn, sell them to retailers.

Coca-Cola’s Business Segments

Coca-Cola operates business segments in four geographic areas and two non-geographic ones:

• North America: This is the flagship segment of the company. This market has a value of $228 billion and approximately 320 million consumers.
• Latin America: This market has approximately 520 million consumers who span 39 different markets that contribute a value of about $72 billion.
• Europe, Middle East & Africa: Comprised of roughly 130 different markets, this segment is valued at $254 billion, thanks to roughly 2 billion consumers.
• Asia Pacific: This market has the most consumers, totaling 3.3 billion. A total of 37 markets contribute $308 billion in value.
• Bottling Investment Group (BIG): This group was formed in 2006. As noted above, this division is responsible for ensuring that bottling operations get the investments they need to succeed.
• Global Ventures (GV): The division was created in Jan. 2019 to oversee acquisitions and to integrate brands into the company.

Coca-Cola’s Recent Developments

The company has several initiatives in place according to the company's website. The following are some of the key initiatives in place:

• Water leadership: Water is an integral part of Coca-Cola's business. This is why the company considers water quality as an important part of its production. It is also committed to using water efficiently, replenishing the water it uses, and treating the wastewater produced. By 2030, the company wants to achieve 100% regenerative water use across 175 facilities identified as facing high levels of water stress.
• Packaging The company is taking steps to make 100% of its packaging recyclable globally by 2025 and to use at least 50% recycled content in their packaging by 2030. By 2030, the company also seeks to have at least 25% of its beverages worldwide by volume sold in refillable/ returnable glass, plastic bottles, or in fountain dispensers with reusable packaging.
• People and communities: Coca-Cola's mission is for the company to emulate the diversity of its consumer market. It aims to have women represent 50% of its leadership on a global scale and for its U.S. employee base to correspond to census data in terms of race and ethnicity by 2030.
• Climate: By 2030, the company aims to reduce absolute emissions by 25% against a 2015 baseline. It seeks net zero emissions by 2050.