Coke caves under Wal-Mart pressure
Report says beverage giant feared the retail giant would launch its own sports drink if Coke didn't agree to new delivery terms.

NEW YORK (CNNMoney.com) - Coca-Cola, fearing Wal-Mart would launch its own sports drink to rival the beverage giant's Powerade if it didn't agree to the retailer's new distribution terms, caved under the pressure and altered its own century-old supply system, a published report said Thursday.

Wal-Mart, the world's largest retailer, asked Coke last year to switch to the straight-to-warehouse delivery method, and Coke's largest bottler, Coca-Cola Enterprises (Research) (CCE), began doing so across much of the U.S. in April, the Wall Street Journal said.

But according to June 1 court filing by Coke, the company stated that it faced a "serious risk" of a Wal-Mart-branded rival to Powerade unless it abided by Wal-Mart's demands of direct distribution instead of having Coke (Research) bottlers deliver drinks to individual stores within their exclusive territories and stack those drinks on store shelves.

The disclosure was made in a lawsuit filed in U.S. District Court in Atlanta against Coke and its largest bottler by 55 smaller bottlers, the paper said.

The smaller bottlers who brought the suit claim the distribution change violates their distribution contracts with Coke, but the beverage giant and CCE have argued that the plaintiffs aren't entitled to "claim nationwide veto rights" over how another bottler serves its territories, the paper said.

Internal CCE documents filed as part of the suit show that Wal-Mart officials criticized the traditional Coke distribution system for failing to keep Powerade in stock on store shelves and for taking too long to introduce products throughout the Wal-Mart chain, the paper said.

"If Powerade continues at the current trajectory - it will be irrelevant in Wal-Mart," Steve Broughton, a Wal-Mart vice president, told CCE officials at a November meeting, the report said.

The Journal said Coke has struggled to build Powerade into a viable competitor to Pepsi (Research)'s Gatorade, which had an 82 percent market share based on U.S. volume in the first quarter, compared with 16 percent for Powerade, according to trade publication Beverage Digest.

Both Coke and Wal-Mart declined to comment on the court filing, the paper said.

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Coke gets buzzed...into the future. Click here for more.

Wal-Mart rethinks 'self-cannibalization.' Click here for more.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.