Coca-Cola is the world’s leading owner and marketer of nonalcoholic beverage brands. With sales of 24.4 billion cases in over 200 countries worldwide in the last year alone, Coca-Cola is ubiquitous in both developed and developing countries. However, maintaining a strong brand name and launching innovative marketing campaigns is only part of their massive success
Coca-Cola tailors their marketing efforts based on the country’s maturity. From the 2009 annual report, the company notes that:
We have disciplined marketing strategies that focus on driving volume in emerging markets, increasing our brand value in developing markets and growing profit in our most developed markets. In emerging markets, we are investing in infrastructure programs that drive volume through increased access to consumers. In developing markets, where consumer access has largely been established, our focus is on differentiating our brands. In most developed markets, we continue to invest in brands and infrastructure programs, but at a slower rate than revenue growth.
In developed countries, Coca-Cola primarily uses traditional distribution models where large amounts of product are delivered via trucks or other motorized vehicles to large retail outlets. In developing countries, road infrastructure, terrain, retail market, cost implications and customer needs are vastly different and require a more tailored approach.
This case study focuses on identifying the mechanisms that allow Coca-Cola to make their product available to consumers in even the most remote areas of the world. Read more below and also watch the following TEDx video, where Melinda Gates of the Bill and Melinda Gates Foundationpoints to Coca-Cola’s Micro Distribution Center (MDC) as a model for the international health and development community. Melinda emphasizes Coca-Cola’s strength in leveraging real-time data, thus allowing for project adjustments and corrections along the way; tapping into the power of local entrepreneurial talent, who are closer to the ground and can do the seemingly impossible; and marketing their products as aspirational.
Micro Distribution Center (MDC)
In Africa, Coca-Cola uses full range of distribution methods depending on the sub-market requirements. In developed, urban areas, Coca-Cola and their bottling partners use the traditional model for supplying large retailers through delivery trucks. Retailers here include grocery stores, hotels, universities, and other large institutions. In the remaining urban and peri-urban areas, where the large proportion of retail outlets are small neighborhood restaurants or bars, corner stores, one-person kiosks, Coca-Cola has adopted a manual delivery approach working with small-scale distributors to deliver products to small-scale retailers. This approach is called the Micro Distribution Center (MDC) model.
MDCs are independently owned, low-cost businesses created to service emerging urban retail markets where classic distribution models are not effective or efficient. The MDC model identifies and engages independent entrepreneurs, who receive business training and in some situations financing, to become an MDC owner. The majority of MDC owners are not from the poorest segment of the population, but instead have a minimum of primary school education and have previously been employed or were in school before becoming an owner. These owners have been identified to have the potential to grow a business, employ others, raise productivity, and increase incomes on a sustained basis.
From the IFC / Harvard Kennedy School Developing Inclusive Business Models report, common characteristics of the MDC include:
- Central point of warehousing of product, with a manageable coverage area and defined customer base (typically about 150 retail outlets)
- Distribution of product is mostly manual (e.g. bicycle, pushcart) to keep costs to a minimum
Outlets served are typically low-volume with high service frequency requirements and limited cash flow, requiring fast turnaround of stock.
Today, there are more than 2,800 MDC businesses, generating more than $550 million in revenues in high density urban areas throughout East Africa, including Ethiopia, Kenya, Mozambique, Tanzania, and Uganda. In Ethiopia alone, MDCs account for 80% of the country’s sales.
MDC owners earn a set profit margin for each case sold, equivalent to the difference between the cost to the MDC for purchasing a case of beverages and the retail price to customers. This pre-determined profit margin, in the range of 3 to 5%, helps maintain a consistent retail price across all MDCs and incentivizes high quantity, volume-driven sales to derive satisfactory income. In addition to the profit margin, some Coca-Cola subsidiaries offer monthly bonuses based on the ability to meet sales targets.
MDC owners also receive management training in areas of basic business skills, warehouse and distribution management, account development, merchandising and customer service.
In short, the Micro Distribution Center is a win-win solution for both Coca-Cola and MDC owners, and is a critical element to the company’s ability to distribute product in emerging markets. Muhtar Kent, Chairman and CEO of the Coca-Cola Company summarized it as:
For Coca-Cola, the MDCs are a wonderful example of the way business can focus on meeting its consumers’ and customers’ needs while supporting the sustainability of communities… It has long been our philosophy to look at our business system holistically and determine where we can have the greatest impact on advancing initiatives that are critical to the communities and stakeholders that we rely on.
Coca-Cola Company. 2009 Annual Report.
Nelson, Jane, Eriko Ishikawa, and Alexis Geaneotes. Developing Inclusive Business Models: A Review of Coca-Cola’s Manual Distribution Centers in Ethiopia and Tanzania. Harvard Kennedy School, 2009.
Interview with Tielman Nieuwoudt, The Supply Chain Lab. http://www.thesupplychainlab.com/
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