Soft drink industry losing local flavor

In the $60 billion soft drink industry, two big players have all the pop, and the rest try to keep bubbling with their own brands.

'Years ago, every little town had a bottling works,' says Paul Bowser, 77, owner and operator of Natrona Bottling Co. in Natrona. 'Now the pop men are pretty far and in between. Some of them are too big to get small, and too small to get big.'

Bowser says he used to have plenty of company in the business, with smaller local bottlers, including Tom Tucker, Roma, Howe's, West Park, Mission, Meyer and Cotton Club. While some of the brands survive, their parent bottling companies have fallen victim to stiff competition and consolidation in their business, and in the retail market. Now only a handful of small independent bottlers remain in southwest Pennsylvania.

One of the smallest is Sam's Pop & Beer Shop, in Arnold. Sam's - a third-generation bottler owned by the Lombardo family, brothers Sam Jr. and Louis and sister Sandra - uses returnable 16-ounce glass bottles imprinted with 'Sam's 16 oz.' in yellow and white.

The company has been bottling soda since 1929, when Nunzio Lombardo bought the company and renamed it City Bottling Co. It became Sam's in 1970. All of the Sam's sodas are sold in the family-owned store, adjacent to the bottling plant. The fewer bottles returned, the fewer cases of soda the plant can produce.

Sam's and Natrona are among the approximately 500 bottlers that operate across the United States, producing 450 different drinks, according to the National Soft Drink Association, which says that Americans consumed more than 63 gallons of soft drinks per person last year.

The two big players in a rapidly consolidating business are Coca-Cola (the dominant brand of Atlanta-based The Coca-Cola Co.), and Pepsi-Cola (the chief brand of Purchase, N.Y.-based PepsiCo). Between them, Coke and Pepsi products control 72.3 percent of the Pittsburgh-area market, with Pepsi leading with a 58 percent market share.

Most of their products are bottled at massive plants that are increasingly owned by either Coca Cola Enterprises, an independent public company, 40 percent owned by Coca-Cola, that produces Coca-Cola products; or The Pepsi Bottling Group Co., also an independent publicly-traded company that is 40 percent owned by PepsiCo.

In recent consolidation moves, Coca-Cola Enterprises announced the purchase of Chicago-based Herb Coca-Cola, the nation's third largest Coca-Cola bottler, for $1.4 billion. The acquisition will give Coca-Cola Enterprises 80 percent of the Coca-Cola Co.'s bottle and can packaging volume in North America. Two days later, Pepsi Bottling Group finalized the purchase of Pepsi-Cola Bottling of Northern California (bringing them to 55 percent of PepsiCo's U.S. volume).

In addition, Toronto-based Cott Beverages USA, the world's largest supplier of private label brand beverages, purchased the Honickman Group's Concord Beverage bottling operation, based in Concordville, Pa. Cott produces Wal-Mart's private label, along with beverages for Safeway, Pathmark, A&P, Acme and Giant food stores. Giant Eagle's name brand sodas are bottled by American Bottling Co. out of Columbus, Ohio.

'The consolidation is happening all through the industry,' says John Bitzer III, chairman and president of Abarta Inc., which owned Coca-Cola Bottling of Pittsburgh before selling it to Cameron Coca-Cola in 1983, which was in turn purchased by Coca-Cola Enterprises in 1998.

'Pepsi is pursuing the strategy started by Coke in the late '80s. That is really the driving force in the consolidation, the parent companies want to have more control, and they also want to speak to their customers with one voice as their customers consolidate.'

'There have been some very fundamental changes in the retail, the grocery end,' says John Sicher, editor and publisher of Beverage Digest in Bedford Hills, New York. 'Retailers have consolidated. Many of the grocery and convenience stores are national, or span fairly large regional geographical areas. That has been part of the impetus for the bottlers consolidating, because promotions have become less local and more regional and national.'

Instead of bottlers trying to market their soda pop on the shelves of individual regional grocery chains, they now find they must market nationally, which requires more money and more production than they can handle on their own, says Sicher.

As a result, many name brands have been absorbed by the big boys, Coca-Cola and Pepsi, and the larger independents, like Cadbury-Schweppes, which makes Dr. Pepper and Seven-Up. Pepsi purchased SoBe and acquired Gatorade in its purchase of Quaker Oats. Cadbury-Schweppes recently bought Snapple, and beer giant Anheuser-Busch Inc. has announced it will enter the isotonic (energy drink) market with '180.'

Coca-Cola Enterprises' Washington County plant now bottles Dasani water only, producing 5 million to 6 million cases a year. The production facility was revamped after it was purchased from Cameron Coca-Cola in 1998. Bottled waters and other 'stills' (non-carbonated beverages) are the fastest growing segment of the beverage market.

Pepsi Bottling Group operates two bottling plants in western Pennsylvania, in Johnstown and Laurel. The facilities produce the Pepsi core brands (Pepsi, Diet Pepsi, Pepsi One, Mountain Dew, Mug, Slice and Fruit Works).

The consolidation has put the squeeze on smaller bottlers, such as Regent Bottling Co. in Swissvale. Regent (named for Pittsburgh's Regent Square neighborhood, where the bottler was founded as the Regent Square Bottling Works) is the last soft drink bottler in Allegheny County.

Regent does 80 percent of its business with grocery warehousers, such as SuperValu.

'We still do some direct sales, mostly to small chains and smaller independents,' says Carl DePasquale, vice president of Regent Bottling Co. He and his two brothers, Mark and Mario, bought the bottling company last year.

Regent, with 15 employees, produces about 1 million cases per year, mostly its own Regent label, but it also produces some private label brands and has moved into the flavored water business with a product called Kwencher.

Regent's plant can produce 1,000 cases an hour, about half the speed of the state-of-the-art plants owned by the major bottlers. The bottler uses 400,000 pounds of sugar (they don't do diet drinks) and 2,000 gallons of syrup a year. Carl DePasquale says he has a good relationship with the other small bottlers.

'We are more coexisting than competing,' he says. 'If somebody needs a part, or some equipment, we don't have a problem helping out. They can come to us.'

'We've seen some of our competitors who tried to do direct store distribution, and they are no longer around,' says DePasquale. To market directly to stores, companies need to employ salesmen, merchandisers and truck drivers and assume costs for trucks, maintenance and labor. 'It is too hard to absorb those costs,' he says.

'The downside to that is we can't do the kinds of marketing and advertising we want. We're at the mercy of the wholesaler. They make the deals with the stores, and sometimes those deals don't feature our products. They might make our product a TPR (temporary price reduction) at the wrong time, or make our competitors a TPR. We've had that happen.'

'There is still room for the small operations that have niche markets,' says Jim Finkelstein, an analyst with the National Soft Drink Association. 'It is a tough road, though.'

Finkelstein adds that bottlers are constantly trying new products, with 1,500 new products last year. 'That shows that there are still a lot of people out there. Everybody wants to create the new Snapple.'

Bowser's Natrona Bottling used to bottle Red Ribbon chocolate drink. He now sticks to three specialty drinks - Mint Julep, Champayno, a non-alcoholic sparkling beverage, and Jamaica's Finest Ginger Beer - producing about 100,000 cases of the beverages each year.

The drinks are the brainchild of Sidney Harris, 98, who started Tom Tucker beverages and still advises bottlers on the nuances of the business. Harris, who says he has been in the business since age 17, says his advice to anyone who is thinking of going into the bottling business is, 'not to go into the business. They don't have a chance, unless they have something that is entirely different.'

'It's getting harder to compete,' says Philip Schmidt, owner of West Penn Nehi Bottling in Farrell, Pa., which produces about 130,000 cases of Nehi soda annually and distributes through Mercer County and parts of Lawrence County.

'The Pepsi-Cola bottler in the area sells more in a month than I sell all year.'

Schmidt's firm is one of the smallest bottlers left in the industry, and he has seen the downward trend. 'There were six bottling companies in this area at one time,' says Schmidt, who has been with the company since 1963. 'Basically, I'm just trying to provide a good service at a good price.'

'We're the last of the Mohicans,' says Bowser, who admits he is entertaining inquiries to sell his operation. 'There's nobody left, just Coke and Pepsi.'