Coke Shouldn't Tread Where PepsiCo Is Heading: Isdell
Former Coca-ColaChairman and CEO Neville Isdell says he's watching PepsiCo's attempt to buy its two largest bottlers with great interest, but he wouldn't suggest Coke tread down the same path.
"There are synergies," he says. "There would be synergies for Coke to do it, there's no question about that, but the question is: what are the unseen disadvantages?"
According to Isdell, the franchise system sets up a healthy "friction level" between the manufacturer of a product and the franchisor of a brand. This relationship raises the discussion about the concerns over the day-to-day business to the level of CEO-to-CEO dialogue.
"When that (relationship) is not constructive, that's an issue, but when it is constructive, it is proven to be a great, great model," Isdell says.
He cited McDonald's as a good example of where the franchise system works. (For more on Isdell's thoughts on this subject, watch the video below.)
"At the end of the day, there is value to that debate. There is value to the friction, and therefore, the diseconomies — and there are diseconomies in the system — are more than compensated by the value of the system," he says.
This wouldn't be the first time Coca-Cola and Pepsi have approached their businesses in radically different ways. Most notably, Pepsi has diversified beyond soft drinks into snacks and food to the point that Frito-Lay is its largest business unit.
According to Isdell, there are few synergies between the food and beverage businesses.
"The distribution systems are different," Isdell says. "The synergies are not, not major."
But some have speculated that if Pepsi is successful in its overtures to Pepsi Bottling Group and PepsiAmericas this would put pressure on Coke to make a similar move with its largest bottler Coca-Cola Enterprises .
Pepsi is arguing that the merger will yield cost savings and make it more nimble in reacting to changes in the marketplace, which is increasing shifting away from carbonated beverages toward teas, waters and juices. So far, the bottlers are resisting, and a long battle could be ahead.
Pepsi Bottling has rejected the $4.2 billion offer from PepsiCo to buy the remaining two-thirds stake it doesn't already own, calling it "grossly inadequate." PepsiAmericas, the smaller of the two bottlers, has done the same.
Isdell on GM, Economy's 2010 Recovery
Isdell's interview with CNBC was part of a guest appearance on "Squawk Box" Tuesday. In a wide-ranging discussion, he touched on a number of different topics, including the outlook for General Motors and the economy.
Isdell, who is a member of GM's board, said the board is unified in its approach and ready to go into bankruptcy if that is necessary.
"We, by the time we get into June, are going to see a new General Motors. We're going to see a new American auto industry, and how that unfolds is to do with all of these deadlines and what happens along the way, and of course, like all of these things, you won't know until just before midnight," he says.
The troubled automaker is working to reorganize before a June 1 deadline. GM CEO Fritz Henderson told CNBC Tuesday that he would prefer to avoid a bankruptcy filing.
Henderson's discussion also touched on GM's ability to meet fuel efficiency and emission standards being proposed by the Obama administration.
Isdell says his opinion is that the new standards are tough and will cost more, but it is the right thing to do.
"Directionally, is it the right way to go?" he says. "Do we need to have better-performing vehicles in terms of fuel consumption to cut the energy bills? Absolutely. So in the broader context, it is absolutely right. Is it being forced on the industry? Of course, it's a government mandate. But it is the right direction? Absolutely."
Recovery in 2010
"I think it is still a difficult time ahead, I really do," he says. "The whole financial architecture is still stressed very, very badly, and I think we're still going see a difficult ride through all of this year. We're going to see some good periods, some bad periods. "
However, he is hopeful when he looks at the global economy. (For more on where he sees growth, watch this video.)
"There are other engines out there that can click in to help bring us out of it, and I think that's 2010," he says.
More from Consumer Nation:
- Brisk Sales Still Brewing at Honest Tea
- Six Flags Prepares for Make or Break Season
- The Man Who Shorted Subprime: Commercial Real Not A Buy
- Frugal Shoppers May Be Here To Stay
- Pepsi's Challenge: What's The Right Price?
- A New Pepsi Generation?
Questions? Comments? Email us at firstname.lastname@example.org