Coca-Cola’s history illustrates a constant trade-off between financial performance (balance sheet optimization) and operational efficiency (customer control).

Here are the advantages and disadvantages for Coca-Cola of controlling the bottling business, based on the evolution of its strategy (from the “49 Solution” to the 2010 acquisition):

Benefits of Traffic Bottling Control (Integration)

• Distribution control and customer relations: This is the major argument that justified the implementation of the “49 solution” resulting in the creation of Coca-Cola Enterprises (CCE). Peter Drucker had warned the managers: “you don’t have distribution, because you don’t control your distribution”. By reintegrating the bottling industry, Coca-Cola is getting closer to its customers to better understand and serve them, favouring “industrial rationality” over pure financial optimisation.
• Strategic security: In the 1980s, Coca-Cola had to buy up independent bottlers to prevent them from falling into the hands of competitors, notably PepsiCo, which would have shifted market share “to the enemy”.
• Alignment of interests: Outsourcing created conflicts of interest. Coca-Cola (the concentrate seller) wanted to maximize volumes, while the bottler (which carried the heavy investments) had to preserve its margins. Reintegration helps align the overall strategy.
• Stock price, independence and EVA: However, the reintegration of the traffic jam led to a heavier balance sheet and a corresponding reduction in ROCE at a time when the firm had become a target for predators. 

Disadvantages of controlling traffic jams (Financial burden)

• Very high capital intensity: The bottling activity consumes a lot of capital. Experts estimated in the 1980s that much more capital  had to be invested in bottling than in the production of concentrate to generate the same turnover.
• The deterioration of profitability ratios (ROCE): By owning the factories and trucks, Coca-Cola’s balance sheet is considerably heavier. At the time of the 2010 takeover, the capital invested increased from $25 billion to $31 billion, which mechanically penalizes the Return on Capital Employed (ROCE).
• Impact on EVA (Economic Value Added): The strategy of the “49 Solution” (acquisition of independent bottlers, creation of CCE, listing and partial outsourcing with minority stake) aimed precisely to get these heavy assets off the balance sheet to maximize the EVA and the share price. Controlling bottlers runs counter to this short-term financial optimisation.

In summary: Outsourcing (the “49 Solution”) has artificially boosted financial profitability and the stock price for 15 years by lightening the balance sheet, but it has ended up destroying value by distancing the company from its customers. The return to control of bottling in 2010 marked the priority given to industrial and commercial logic over purely financial logic.