Coca-Cola's Bottler Strategy Evolves: What is the Margin Impact?

The Coca-Cola Company KO is steadily reshaping its global bottling footprint through a long-term refranchising strategy that shifts bottling operations to local partners. This asset-light approach allows the company to focus more on brand building, marketing and innovation, while leaving capital-intensive production and distribution to its bottlers.

In first-quarter 2025, the company reported a 130-basis-point (bps) increase in comparable operating margin, underscoring the efficiency of its refranchising strategy. Management noted that the shift, including last year’s exit from the Philippines bottling operations, contributed to stronger profitability, even as top-line metrics absorbed slight dilution.

The benefits go beyond just financials. Despite global operations, management emphasized that Coca-Cola’s bottling system remains profoundly local, helping it weather trade disruptions and consumer sentiment shifts. By producing and distributing locally, the company reduces exposure to tariffs and logistical disruptions, while enhancing its image as a contributor to domestic economies. For instance, Coca-Cola’s ecosystem supports 860,000 jobs in the United States and more than 575,000 in Brazil, according to recent studies.

Looking ahead, management sees refranchising as a tool to improve capital efficiency while maintaining tight alignment with bottling partners. While refranchising is largely complete, Coca-Cola remains tightly integrated with bottling partners through joint planning and execution. Coca-Cola continues to strike a balance between agility, affordability and profit expansion, an equation it believes will drive long-term, margin-accretive growth.

Is the Bottling Strategy Unique to Coca-Cola?

While Coca-Cola pioneered the asset-light bottling model, competitors like PepsiCo Inc. PEP and Keurig Dr Pepper Inc. KDP have also adopted variations of this strategy to enhance efficiency and focus on brand-led growth.

PepsiCo uses a hybrid bottling strategy, retaining control of key bottling operations through its subsidiary, Pepsi Beverages Company, while also partnering with independent bottlers. This structure gives PepsiCo more control over pricing and execution in critical markets. However, it remains more vertically integrated than Coca-Cola. While the strategy provides flexibility, it limits PepsiCo's margin expansion compared with Coca-Cola’s asset-light model. PepsiCo’s integrated approach helps ensure strong alignment between product innovation and market execution.

Keurig Dr Pepper follows a unique bottling model by leveraging a mix of owned operations and a network of third-party bottlers, including Coca-Cola bottlers. This collaborative distribution system allows KDP to scale efficiently while minimizing capital intensity. Unlike Coca-Cola, Keurig Dr Pepper relies more heavily on shared infrastructure, which broadens reach but can limit direct control. The strategy has supported solid beverage growth, especially in CSDs and premium brands, aligning with Coca-Cola’s asset-light distribution philosophy in parts.

The Zacks Rundown for Coca-Cola

From a valuation standpoint, Coca-Cola trades at a forward price-to-earnings ratio of 22.43X, significantly higher than the industry’s 17.98X.

The Zacks Consensus Estimate for KO’s 2025 and 2026 earnings implies year-over-year growth of 3.1% and 8.3%, respectively. Earnings estimates for 2025 and 2026 have been unchanged in the past 30 days.

Coca-Cola currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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