Valero Switches Up Distribution

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Valero Switches Up Distribution

Coca-Cola Co. Inc. and its biggest bottler Coca-Cola Enterprises Inc. have started shipping some Minute Maid products to a Texas warehouse servicing Valero Energy Corp.'s convenience stores instead of delivering to the outlets, further escalating the beverage giant's differences with its smaller bottlers regarding distribution, Reuters reported.

Last week, the bottlers filed a subpoena on Valero seeking details on its Minute Maid deliveries. Valero operates 5,000 stores in the U.S., Canada and the Caribbean.

While the Minute Maid refrigerated fruit juice cartons have always been manufactured and warehouse-delivered to retailers by Coke itself, the single-serve Minute Maid juice bottles are traditionally distributed by Coke bottlers directly to retailers' stores and not to their warehouses, which is known as direct store delivery. Bottlers fear sales could be hurt through warehouse delivery as they lose control of display and merchandising.

"We are concerned about this issue because it clearly violates the Minute Maid contract in our opinion and we are now reviewing our next steps," Bill Marks, spokesman for the Coca-Cola Bottlers Association, told Reuters.

In February, bottlers representing about 10 percent of Coke's U.S. volume filed a lawsuit to block Coke and Coke Enterprises from shipping PowerAde sports drink to Wal-Mart Stores Inc. warehouses instead of delivering the product directly to individual stores.

Coke spokesman Dan Schafer said "Coke Enterprises brought the customer's request to us and we consented to it." Both Coke and Coke Enterprises' spokespeople said they didn't know when exactly Valero approached the bottler with its request.

For Valero and Wal-Mart, the benefit of direct-to-warehouse distribution is lower costs by eliminating having to deal with bottlers at the store level, Reuters said.

Valero spokeswoman Mary Rose Brown said the agreement to warehouse-distribute Minute Maid will speed up supply to the 600 stores that the Texas warehouse services. "By utilizing our distribution center, we have more flexibility and control over the supply chain supporting our retail business," she said in an e-mail response.

Coke's bottlers, too, could see cost reductions through warehouse delivery as they would no longer have to make regular trips to retail stores to stock shelves.

"Valero is an important customer to us and we certainly will consider any request they come to us with to help them improve their efficiency," said Coke Enterprises spokeswoman Lauren Sayesky.

Following the PowerAde test at Wal-Mart, Coke had said it did not plan to expand warehouse delivery to other retailers or to other drinks in its portfolio.

"What we had said was that we had no plans ... Those statements were true when we made them," Coke's Schafer told Reuters.