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News Editor
Former Coca-Cola Chairman 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.
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"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 [MCD
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] 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 [KO
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] and Pepsi [PEP
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] 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 [PBG
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] and PepsiAmericas [PAS
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] this would put pressure on Coke to make a similar move with its largest bottler Coca-Cola Enterprises [CCE
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].
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.
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