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Coke's Bottler Deal: The Days of Booming Soda Sales Are Gone For Good

After years of clinging to its beloved soda brands, Coca-Cola (KO) has finally acknowledged it's time to move on. In agreeing to buy its largest North American bottling company today, Coke is responding to what many analysts say is a permanent consumer shift away from old school drinks like Coke and Sprite to newer, smaller brands like Vitamin Water and Full Throttle energy drinks. It's a big U-turn for Coke, which just a year ago was predicting the triumphant return of sodas to the American marketplace. Almost a year ago, Coke spokesman Dan Schafer said he expected the company's soft-drink volume to grow again. "We're committed to making that happen," he said.

Now it looks like that might not be the best use of the company's time. While Coke executives would never publicly admit that the era of drinks with the word Coke in them is over, that's basically what the company is suggesting by acquiring its bottler Coca-Cola Enterprises (CCE).

The independent bottling system that's been in operation at Coke since the 1980s is really good at packaging and delivering big established brands to stores, and it worked great when soda was the main event. But the system is not so adept at working with smaller brands.

For one thing, so-called direct store delivery is too expensive for lower volume products. And some bottlers aren't equipped to handle things like fresh juices. Taking control of CCE gives Coke more flexibility to focus on how brands like Odwalla, Fuze and Fruitopia should be distributed and promoted in stores.

PepsiCo. (PEP) was ahead of Coke in realizing a new world order had set in. While Coke's CEO Muhtar Kent was still stubbornly insisting the existing bottling system was "the best way to win in the marketplace," Pepsi fought hard last year to acquire its two largest U.S. bottlers.

To be fair, classic Coca-Cola is still the top selling drink in America, but it's just not growing. As Americans have migrated towards drinks they think are healthier or more exciting, soda volumes have declined for the last four years. In 2008, the last year for which data is available, only two of the top 10 soda brands saw growth -- Pepsi's Diet Mountain Dew and Diet Dr Pepper, which is sold by the Dr Pepper Snapple Group (DPS).

(Photo by Cane cane, Wikimedia Commons)