Based in Draper, Utah, Swire Coca-Cola USA historically has served mostly rural areas in 11 Western states. Jack Pelo, president and chief executive officer of the company, even joked that its territory has more jackrabbits than people in Beverage Industry’s January 2008 issue. However, that is about to change.

Swire Coca-Cola USA, a subsidiary of Swire Beverages, a division of Hong Kong-based Swire Pacific Ltd., was one of five bottlers selected by The Coca-Cola Co. last spring to participate in a new beverage partnership model in the United States. As a result, Swire will assume new territories later this year in Colorado, including urban cities such as Denver and Colorado Springs, which border the bottler’s existing Colorado territories. This will drastically increase Swire’s population served from 6.2 million to 10.7 million people, Pelo says. It also will add 800 employees to Swire’s roster, which currently consists of approximately 1,800 workers, he adds.

Swire will continue to serve its existing territories, which span from Washington in the North to Arizona in the South and from California in the West to Nebraska in the East. Prior to the expansion, the bottler’s largest urban areas within these markets were Salt Lake City; Boise, Idaho; and Reno, Nev.

“We’ve grown from just operating in Salt Lake City to acquiring other territories [in the past], but they’ve all been relatively small in relation to this,” Pelo says. “That’s why it’s really exciting for us to be able to get a really sizeable territory — and especially an urban territory.”

Under the agreement, Coca-Cola Refreshments (CCR) will retain all production assets but will grant exclusive territory rights, distribution assets and cold drink equipment to the new bottler. In Swire’s case, this means purchasing Coca-Cola beverages from CCR’s existing production facility in Denver and distributing them through CCR’s existing sales center in Colorado Springs, Colo., as well as a new sales center that is under construction in Denver. The new 257,000-square-foot facility is located approximately 5 miles from CCR’s Denver production facility and will handle all local route distribution for the Denver area once the new beverage partnership model is implemented, says Jeff Edwards, senior vice president of technology and supply chain at Swire. The distribution transition is expected to take place sometime during the second quarter, he notes.

Rising diversity

Currently boasting 26 sales centers and two production facilities, Swire primarily bottles and distributes products from The Coca-Cola Co., Dr Pepper Snapple Group and Monster Energy Corp. In fact, it has had distribution rights for Dr Pepper just as long as it’s had Coca-Cola distribution rights, Pelo says. By offering a plethora of The Coca-Cola Co.’s brands across multiple categories as well as the unique flavor profile of Dr Pepper and the expansive energy drink offerings from Monster Energy, Swire is able to better compete in the marketplace, he adds.

“As a bottler, you want to have the strongest portfolio,” Pelo says. “… I think our portfolio is probably stronger than it’s ever been just because of all these different categories.”

Although the industry was dominated by carbonated soft drinks (CSDs) approximately 15 years ago, the entry of categories like protein drinks, coconut waters and liquid concentrates can meet consumer demand for function, health and hydration at multiple times throughout the day. Paul Lukanowski, vice president and general manager of Swire, calls these drinking occasions “all day parts.” For instance, Minute Maid juices and Illy ready-to-drink coffees can be consumed in the morning; soft drinks and bottled water can be consumed with meals; and energy drinks can be used for fill-in occasions and when a consumer needs an energy boost, he explains. 

“It’s a really big portfolio, and I think it offers us a really great, competitive advantage but also a good connection with all consumers,” Lukanowski says.

Some of Swire’s newest additions include Core Power, Zico, Dasani Drops and Powerade Drops. Core Power protein drinks are performing really well, he says. Likewise, Zico coconut water is performing well in Swire’s territory, which partially can be attributed to the product’s founding in California as well as consumers’ interest in healthy beverages, he adds. Liquid concentrates also are a significant part of the portfolio now, he notes.

“We kind of came out of nowhere with Dasani Drops and Powerade Drops, and there’s a few more brands on the way, but [they’re] competing nicely in the marketplace, and it offers us one more additional place to be in retail outlets and, because of the size of the package, offers us lots of places to go with those packages,” Lukanowski explains.

Since its launch in the fall of 2012, Dasani Drops already occupy a 20 percent share in the category, followed closely by Powerade Drops, which launched last summer, he adds. Liquid concentrates currently are being manufactured exclusively by The Coca-Cola Co. in their own facilities or by co-packers, he notes.

The Sprite Cranberry and Sprite Cranberry Zero seasonal releases also performed well during the holiday season, he notes. Furthermore, Swire will begin distributing The Coca-Cola Co.’s new Dasani Sparkling water line early this year.

Tackling SKU proliferation

Despite the numerous opportunities to take on new brands and even new categories, the challenges of SKU proliferation must be taken into consideration. In the last five years, Swire increased its SKU count by about 130, bringing its offerings to nearly 500 SKUs, Lukanowski says.

“It’s tough to say yes to everything,” he says. “Certainly you want things that are complementary to your current portfolio, and you also want to follow the trends.” However, an increase in SKUs affects the entire supply chain, Pelo says.

“When you add SKUs, you’ve got to have efficient production systems because you’re producing more, and from there you’ve got to have more efficient warehousing systems because you’re carrying more,” he explains. “Then, from the warehouse, you’ve got to get to a store, so you’ve got to have better distribution systems to handle all these things. Then, once you’ve gotten to the store, you’ve got to spend a lot of time on your shelf sets and having the right products in the right channels, so from production to warehousing to distribution to actual retail outlet, it’s a challenge.”

To help ease its growing pains, Swire expanded its largest sales center, located in Draper, Utah, in 2011. The company added 312,000 square feet of warehouse space and another 33,000 square feet of office space to enable it to serve as a central distribution center for the company’s southern locations, Edwards says. It also added about 50,000 square feet to its production facility in Fruitland, Idaho, in 2010 to enable it to serve as a centralized distribution center for the company’s northern operations, he adds.

“Consumers today just want more choices,” Pelo says. By offering a large, diverse portfolio and accommodating those products in the supply chain, Swire has been able to meet consumer demand.

Top sellers

With nearly 500 SKUs, Swire’s portfolio covers multiple brands and categories, some of which perform better than others. Lukanowski notes that although diet soda sales have been weak, full-calorie CSDs  have been growing slightly.

“I think The Coca-Cola Co. and Dr Pepper are doing some great work in terms of package innovation as well as messaging around the ingredients in our beverages,” he says.

Overall, the CSD category has been flat to slightly growing in recent years for the bottler, Pelo says. However, CSDs still are the largest part of Swire’s business with Coca-Cola as its No. 1 brand followed by Diet Coke, Sprite and Dr Pepper, he adds.

Despite CSDs composing the largest share of the portfolio, still beverages are the fastest-growing, Pelo says. Sales volume increased by high-single digits in the first half of 2013 with growth coming from bottled water, tea and energy drinks. Sales of tea, in particular, more than doubled, he adds.

Smartwater grew double-digits for the fifth consecutive year, and Dasani also performed well last year, Lukanowski notes. Likewise, in the tea segment, Honest Tea and Fuze have been significant members of the portfolio, he says. Energy drink brands such as Monster, Full Throttle and Nos also are performing well, he notes. Throughout the year, Monster beverages, including new Monster Ultra Red, Monster Ultra Blue and Muscle Monster offerings, continued to grow, he adds.

Emerging brands, including Zico, Core Power, Illy, Dasani Drops and Powerade Drops, also showcased growth last year.

“It’s important for us to expand growing categories that we have in our portfolio [and] play in new categories where it’s not going to cannibalize any existing part of our category right now,” Lukanowski says.

However, demographics always need to be kept in mind when it comes to placing emerging brands at retail, Pelo notes.

“With emerging categories, the biggest thing is you’ve got to be very targeted in where you place them,” Pelo says. “The demographics might be very favorable toward a brand in a specific channel or a specific geography, and then in others they might not be as strong, so we’ve historically placed everything every place, but that’s not the case now. There are just too many SKUs — because we’re approaching 500 SKUs, and every small outlet cannot have that amount of SKUs — so there are places where certain brands and certain categories do better than other places.”

For instance, Monster, Full Throttle and Nos energy drinks perform particularly well in Swire’s territory because the demographics in the mountain states skew a little bit younger than the national average, Lukanowski says.

“We’re seeing growth on all three of those brands, and we think it’s largely due to the right demographic but also good programming from a parent company standpoint,” he explains. “Monster stays true to their core active lifestyle audience and they don’t deviate from that, and their innovation’s pretty good.”

Its tea portfolio, including Fuze, Honest Tea, Gold Peak and Peace Tea, sells best in southern locations with warmer weather patterns where those brands can capitalize on their hydration benefits, Lukanowski notes.

In Swire’s expanding Colorado market, consumers typically seek healthy beverages. Therefore, Core Power, Zico, Vitaminwater and Powerade sell well in the state. Overall, anything on the healthier side is moving in an upward trend in Swire’s territories, Lukanowski says. In fact, Swire has one of the strongest Powerade markets in the United States, he adds.

Channeling technology

Although rural areas compose much of Swire’s territory, almost 50 percent of the channels it serves are large stores, including club stores, supermarkets and hypermarkets such as Walmart, which is the bottler’s biggest customer, Lukanowski says. The remaining 50 percent is made up of small stores — convenience stores and foodservice outlets — as fountain makes up a large part of the company’s portfolio, he adds. Independent businesses compose between 12 and 15 percent of the business.

To serve these various retail channels, Swire employs multiple technological tools.

“What we’ve tried to do is use technology to our advantage from a selling standpoint, from an information-gathering or data-mining standpoint, so we use technology in a pretty large way to get to what our in-outlet execution plans look like,” Lukanowski explains.

This technology is called the “Look of Success.” Using an iPad, salespeople can showcase the company’s portfolio of products to retailers and show them what their outlets should look like every day of the year, he notes. These plans are compiled by channel and by customer on a trimester basis and communicated to employees monthly. Swire’s salespeople then can use this information as a selling and execution tool in stores, he says. Creative programs such as commercials also can be embedded in the iPad presentations. Additionally, all of the company’s front-line merchandisers have smartphone capabilities so that they can see the same plans that the salespeople are selling and executing against, he adds.

The company also uses a fore-casting tool and takes orders using a handheld device, Lukanowski notes. “We think bridging the two of those devices is going to be the next big win for us, and we’re working toward a technology solve in that area,” he says.

The more we change…

Although Swire offers more SKUs in more categories than it ever has before, its business essentially remains the same, Pelo says.

“You’ve got to have quality products, you’ve got to give good service [and put products] at locations where people want it,” he says. “Beverages do sell, and people need beverages, so in some respects it’s the same business as it’s ever been.” 

By maintaining its values and keeping an eye on expenses, Swire hopes to continue growing the company, he says.

“With volume being relatively flat, you just can’t be adding a lot of expense,” Pelo says. “You’ve got to give good service and have proper distribution, but you’ve always got to watch your expenses. I think expansion is something that we’re excited about, both now and in the future, but I think you’ve just got to be very efficient in your existing territories, continue to try to look at opportunities for new beverages and be targeted in their distribution, watch your expenses, and then if there are opportunities to further grow, it’s certainly something we’d be interested in.”

Wherever Swire expands in the future, it plans to infuse its company culture to help it win in the marketplace, Lukanowski says.

 “We have a strong history of top-line growth and bottom-line profitability, and I think that it’s imperative to us over the long haul to be successful as we grow our footprint in North America that we bring not only that same winning culture but the same business process, open-mindedness, and desire to win in the marketplace in the areas where we grow,” he says.  

Educating the industry

As an American Beverage Association (ABA) board member for more than a decade, Swire Coca-Cola USA President and Chief Executive Officer Jack Pelo has helped lead the industry through the new School Beverage Guidelines, Clear On Calories initiative, School Vending Guidelines and more. Because full-calorie carbonated soft drinks often are criticized for their sugar content, the industry has reacted with programs like these as well as additional product options and packaging sizes.

For instance, The Coca-Cola Co. offers mini cans and smaller PET bottles for portion control as well as low- and no-calorie options. However, zero-calorie offerings sweetened with aspartame have come under fire as well.

“There’s starting to be a lot of questions about the non-caloric sweeteners — specifically aspartame,” Pelo says. “It’s been a heavily tested ingredient; it’s always come back safe and, again, it’s a way for people to control their diets without calories, but it’s just challenges we have to address.

“[Whether] it’s tax threats, ingredient safety or questioning ingredients, I think as an industry we’ve just got to be very active, and I think both Coca-Cola and the American Beverage Association are realizing that,” he continues. “We’re here to protect our industry and make sure that people have the facts.”