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Coca-Cola offers 4,000 North America buyouts; job cuts to follow

Brett Pulley
Bloomberg

Coca-Cola Co. is offering early-departure packages to almost 40% of its North American workforce – a sign the beverage giant is being hit hard by the ongoing shutdown of soft-drink friendly venues like movie theaters, bars and stadiums.

Plans to reorganize the business and cut costs have been in the works for some time as consumer preferences shift away from sugary carbonated drinks, analysts said. But unlike its major competitor, PepsiCo Inc., which has been boosted by its snack and breakfast food products during the pandemic, Coca-Cola is being weighed down by its dependence on sales in public spaces.

In this Oct. 14, 2019 file photo a truck maneuvers in a parking lot at a bottling plant in Needham, Mass.  On Friday, Aug. 28, 2020, Coca-Cola is offering voluntary buyout packages to approximately 4,000 employees as it looks to limit the number of potential layoffs while streamlining its business.

“They are more affected by the shutdown than other beverage companies,” said Laurent Grandet, an analyst at Guggenheim Securities. “They have been thinking about this for months, but Covid may have accelerated it.”

The shares rose 2.3% to $49.34 at 1:56 p.m. in New York. They had dropped 13% this year through Thursday’s close, compared with 7.9% gain from S&P 500 Index and Pepsi’s 1.3% advance.

About 4,000 Coca-Cola employees in North America will be offered packages with benefits if they agree to leave, the Atlanta-based soda maker said in a statement Friday. A similar program will follow in other countries and there will also be an unspecified number of involuntary layoffs, the company said. The company had about 86,000 employees worldwide and 10,800 at the end of last year.

Restructuring

Coca-Cola is also creating new operating units for regional and local operations that will work with category-specific teams under the the company’s marketing leadership. The company will streamline its business units to nine from 17, and expects the severance programs to result in expenses of $350 million to $550 million.

Under the moves, the Coca-Cola brand will be separated from the sparkling flavors business, while coffee and tea products will be combined with hydration and sports drinks. It will also create an emerging categories segment. This will include products like the recently-announced Topo Chico alcoholic seltzer, Grandet said.

With unsweetened sparkling beverages gaining ground and soft drinks and juice losing favor, Coca-Cola has vowed to become a “total beverage company.” Chief Executive Officer James Quincey has acknowledged, however, that the company was slow to act on the popularity of sparkling water.

At the same time, away-from-home channels represent about half of the company’s revenue – and it’s not clear how the company will compensate for their disappearance. Quincey said in an earnings call last month that he expected the global economy to take two or three years to recover. He added the second quarter was expected to be the most difficult period for the company.

Large companies across sectors have announced tens of thousands of job cuts in recent weeks after economies emerged from shutdowns to contain the Covid-19 pandemic, from global airlines to Boeing Co. and Bed Bath & Beyond Inc.

On Friday, MGM Resorts International announced plans to lay off 18,000 employees, or more than one-quarter of its pre-pandemic U.S. workforce, due to the slow recovery of some casino markets.