Business Trends

Costco Dumping Coca-Cola

In Uncategorized on November 19, 2009 at 10:35 pm

Costco customers looking for “the real thing” now have to look elsewhere: The warehouse retailer said on Monday that it’s no longer buying Coca-Cola (KO) products. Once stores run out of their dwindling supplies, they won’t be restocking.

Costco is playing hardball; negotiations between the two companies to reach a recession-ready wholesale price have apparently broken down. Costco acknowledges this problem on its Web site: “Costco is committed to carrying name brand merchandise at the best possible prices. At this time, Coca-Cola has not provided Costco with competitive pricing so that we may pass along the value our members deserve.”

Narrow Margins

It’s an uncommon move for Costco, but not a surprising one. Consumers are looking for ways to squeeze their budgets, and retailers are trying to increase profits while cutting prices. That’s been a hopeless quest for Costco this year; the 3% pretax profit margin it posted between 2004 and 2007 is now just 2.5% — a net profit margin of somewhere around one cent on the dollar after taxes, overhead, and other incidentals. With such a narrow margin, the slightest uptick translates into a major value shift.

Every 0.01% the company ekes out on its pretax profit margin translates into a one-cent increase in earnings per share, and a likely 0.5% uptick in its stock value. The superthin profit-margin model, and its major influence on stock value, follows Walmart’s (WMT) example; Walmart, with its 3.3% net profit margin, regularly strong-arms its suppliers into deals that guarantee its famously low prices.

Complicit Coke

Coca-Cola may seem like the wronged party here, but it’s complicit in its own undoing. Coke, after all, caves in to Walmart’s demand for a razor-thin profit margin by slashing its products’ prices, in return for Walmart’s massive distribution — and swamping not only Coke’s smaller competitors but Walmart’s smaller, higher-priced, higher-profit rivals.

The result of recession, unemployment, and an increasingly desperate push for profits have left Walmart, Costco, Coke, and thousands of other companies in a cannibal buffet. Having feasted on the easy pickings offered by smaller chains, these companies now find themselves eyeing each other. With unemployment still rising, retail sales won’t be getting fatter anytime soon.

In Other News: Suit Charges Coca-Cola With Profiting From Seizure of Jewish Property in Egypt

Lawyers for the Bigio family, Jewish Egyptians whose property was seized by the Egyptian government in a 1960s program to rid the country of its Jewish population, are demanding summary judgment and a jury trial to establish damages against Coca-Cola for exploiting “for immense profit” property that Coca Cola has been occupying since 1994 with the knowledge that the property was taken unlawfully from the Bigios. In a brief filed today in federal district court, the Bigios – responding to the Court’s request for supplemental briefing – spelled out the extensive web of international laws violated by the Nasser regime’s anti-Jewish campaign which included the nationalization of the Bigios’ property in 1962.

The Egyptian government has acknowledged that the property was seized illegally and rightfully belongs to the Bigios. A federal court of appeals has twice rejected technical jurisdictional contentions made by Coca-Cola. The case has been before the courts for 12 years.

“Coca-Cola is the occupier of stolen property,” said attorneys for the Bigios. “Coca-Cola has been stonewalling for years, hiding behind a veil of artificial and inapplicable legalisms and it will now be able to respond to our latest brief only by denying that Egyptian Jews were persecuted by the Nasser regime. If it makes such an argument, Coca-Cola will be engaging in the same conduct as Holocaust deniers. Such flagrant behavior will not hold up in the court of public opinion. It is time for Coca-Cola to acknowledge that the property belongs to the Bigios, was unlawfully confiscated from them, and compensate them for its occupancy and use.”

Coca-Cola was aware that the Bigios owned the land, buildings, business and machinery involved in this case because the two companies did business together for more than 20 years prior to the seizure of the properties under the ethnic cleansing campaign of Egyptian president Gamal Abdel Nasser. In 1965, the Bigio family, left destitute by the seizure of their property and business, immigrated, as stateless persons, to Montreal where they now reside.

In 1994, after it was informed by the Bigio family of the Egyptian government’s determination that the family owned the property, Coca-Cola took control of the property under various forms of ownership of Egyptian companies bearing the Coca-Cola name.

The Bigios filed a request for summary judgment September 14. Oral arguments were heard November 10. The letter brief responds to the judge’s request for legal authority demonstrating that the Egyptian government’s nationalization of the disputed property in 1962 violated international law.

Related links

IBISWorld Industry Reports
Soft Drink Production in the U.S.
Big Box Retail Stores in the U.S.

IBISWorld company profile
Coca-Cola Company
Costco Wholesale Corporation

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