COCA-COLA: CONTRIBUTING TO THE

EUROPEAN GROWTH AGENDA

Based on studies conducted by Prof. Ethan B. Kapstein of Georgetown University (Washington DC)

in collaboration with Dr. René Kim, Ms. Hedda Eggeling MSc, Mr. Willem Ruster MSc, Mr. Tias van Moorsel MSc and Ms. Teodora Nenova

MSc of Steward Redqueen in Haarlem (The Netherlands)

IntroductionAs the European policy debate increasingly focuses on the economy and the need to establish the conditions for growth and job creation, Coca-Cola has been looking to identify and quantify the full impact of the “Coca-Cola System” in the European Union (EU27) – including contributions to the economy, tax income and job creation. The Coca-Cola System in Europe is made up of The Coca-Cola Company and 20 bottling partners, covering every step from manufacture (in 87 factories in 23 countries) through to merchandise and distribution of more than 750 different non-alcoholic beverages. Consequently, while Coca-Cola drinks are often seen by consumers as the product of a single company based in the United States, in reality Coca-Cola operates as a largely domestic enterprise in the countries where it does business.

In order to independently assess the impact of the Coca-Cola System, a number of studies in various European countries were carried out between January 2011 and August 2012 and then extrapolated to Europe as a whole. The studies were conducted by Prof. Ethan B. Kapstein in collaboration with Dr. René Kim, Ms. Hedda Eggeling MSc, Mr. Willem Ruster MSc, Mr. Tias van Moorsel MSc and Ms. Teodora Nenova MSc of Steward Redqueen in Haarlem (The Netherlands). They were based on an economic model which consists of ‘driving’ the financials of the Coca-Cola System through the input-output tables of the EU27 economy – meaning that the analysis examines the links between the different sectors in the Coca-Cola value chain in the European Union.

The results have been obtained by using an economic model based on input-output analysis and distinguish between impacts that are direct (related to Coca-Cola itself), indirect (related to trade partners and suppliers e.g. the supermarkets who sell Coca-Cola products), and induced (related to household spending and the re-spending of salaries) of the Coca-Cola value chain. However, in order to err on the conservative side, induced impacts have not been taken into account in topline numbers (they are mentioned separately in the detailed graphs).

This work has enabled the authors to draw a number of conclusions, including:

1. The Coca-Cola value chain is worth EUR 29.8 billion to the EU27 economy in terms of household income, profits and taxes

2. Every euro of value added at Coca-Cola supports nine euros value added in the EU27 economy

3. For every job at Coca-Cola, a further 12 jobs are supported in the EU27 through the Coca-Cola value chain – totalling about 592,100 jobs throughout its value chain

4. The Coca-Cola value chain pays a total of EUR 14 billion in taxes to European public authorities

The Coca-Cola System in the European UnionAlthough Coca-Cola drinks are often seen by their consumers as being the product of a single multinational company based in Atlanta, Georgia, they are in fact generally produced in most countries by a local bottler, which buys syrup concentrates from The Coca-Cola Company (TCCC). Bottlers generate local jobs and incomes directly in their plants, but they also support jobs, incomes, and tax revenues throughout the economy by purchasing goods and services from a variety of suppliers and selling through a widespread distribution network (including hotels, restaurants, and supermarkets). The Coca-Cola Company and local bottling partners make up the Coca-Cola System. This distribution network depends on the consumption of Coca-Cola products for an important share of its revenues.

In Europe, The Coca-Cola Company has been providing consumers with products that they love for over 100 years. About 750 Coca-Cola products are widely enjoyed throughout Europe today and the company’s brand recognition remains unparalleled. First introduced to Europe in France, the Coca-Cola System in the European Union has continually expanded and Coca-Cola products are now served in all 27 countries.

There are two main bottlers in Europe spanning multiple countries. Coca-Cola Hellenic is the local bottler for Estonia, Latvia, Lithuania, Hungary, Slovenia, Czech Republic, Bulgaria, Greece, Cyprus, Slovenia, Slovakia, Poland, Romania, Italy, Austria and Ireland – as well as most other non-EU countries in Central and Eastern Europe. Meanwhile Coca-Cola Enterprises serves customers in the United Kingdom, France, Belgium, Luxembourg, the Netherlands and Sweden – as well as Norway outside the EU.

There are also a number of additional bottlers mostly serving customers in individual markets. Coca-Cola Erfrischungsgetränke serves customers in Germany; Carlsberg serves customers in Denmark and Finland and customers in the Iberian peninsula are served by a number of local bottlers. The Coca-Cola Company works hand in hand with the bottlers and is responsible for marketing Coca-Cola products in all EU27 states.

592,100 JOBS

€29.8 BILLION

80%

the total worth of Coca-Cola’s EU27 value chain

number of jobs in the EU27 supported by Coca-Cola’s value chain

amount remaining in the EU27 for every euro spent on Coca-Cola products

The socio-economic impact of the Coca-Cola System in the European UnionIn the 100 years that Coca-Cola has been operating in Europe, the company has become an integral part of the economies in which it operates. From the growing of agricultural ingredients to the moment when someone enjoys the great taste of a Coca-Cola drink, the Coca-Cola value chain supports the economies of thousands of local communities. Based on data from the 20101 fiscal year, it can be concluded that:

(1) The Coca-Cola System adds EUR 3.4 billion worth of value to the EU27 economy. This includes salaries, tax payments and profits generated that remain in the local economy and direct employment at the company. Beyond this, the System supports EUR 29.8 billion worth of value in the EU27 economy as a result of the broader economic effects of doing business in the EU. This takes into account household income, local profits, savings and taxes– or the equivalent to 0.24% of GDP. This means that every euro of value added at Coca-Cola supports nine euros value added in the EU27 economy;

(2) The tax payments of the Coca-Cola System amount to EUR 1.5 billion and supported through its supply chain EUR 14 billion tax income to the government (or 0.45% of the total EU27 tax income). This is equivalent to 10% of the total 2011 EU budget (Figure 1);

(3) The Coca-Cola System directly employs 48,900 people, and supports almost 600,000 jobs throughout the EU27 economy. In other words, for every one person employed directly by Coca-Cola, the value chain supports another 12 jobs in the broader European economy – from the farmers growing sugar beets in France, oranges in Greece and apples in Central Europe, to young marketers and designers in London or Berlin to the tapas bar owner serving Coca-Cola beverages in Spain. Coca-Cola is a foundation of employment and enterprise throughout Europe, and supports a wide range of industries - equating to 0.25% of the total EU27 labour force.

3.4

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38.0

38.0

EUR 29.8 bln (=0.24% of GDP)

Household Income

Profits & Savings

Tax Income

Total

EUR 8.9 bln

EUR 6.9 bln

EUR 14 bln =0.45% of EU27 taxes

3rd Round: re-spending of salaries

2nd Round: suppliers’ suppliers

1st Round: direct suppliers and trade

0th Round: Coca-Cola System

Figure 1: Value added supported by the Coca-Cola System in EU27 (in billion euros)

Figure 2: Value added per sector supported by the Coca-Cola System in EU27 (in billion euros)

1 All individual studies are based on 2010 fiscal results, with the exception of Germany and the Benelux which are based on 2011 fiscal results. 2 The annual budget of the EU in 2011 was €142 billion http://europa.eu/pol/financ/index_en.htm

When examining the specific sectors in the Coca-Cola value chain (Figures 2 and 3), it is clear that the biggest impact of the System (EUR 13.6 billion) occurs within the European trade sectors. EUR 8.1 billion of value added alone is supported by the on-trade (Horeca) sector, almost a third (27%) of the total value added supported by Coca-Cola in the EU. In a continent with such a large tourism industry, this translates into more than 260,000 jobs, from bar staff and waiters, through to hotel and restaurant owners.

Given the nature of Coca-Cola products, industries that are closely related to the company such as food transformation, industrial machinery and transport are also well represented within the value chain. Coca-Cola’s spending on manufactured products such as sugar supports over 23,000 manufacturing jobs including factory workers and sugar refiners, over 8,000 lorry drivers involved in the transport of raw materials and finished products and 19,000 farmers across Europe.

0.5

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EUR 29.8 bln

Agriculture Manufacturing Services Coca-Cola On-Trade VAT & Households

Taxes

Off-TradeTransport Total

3rd Round: re-spending of salaries

2nd Round: suppliers’ suppliers

1st Round: direct suppliers and trade

0th Round: Coca-Cola System

1.42.4

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Figure 3: Sector breakdown of jobs supported by the presence of the Coca-Cola System in the EU27 (in ‘000 jobs)

761

36

102

12149

35

138

281

592,100 jobs (= 0.25% of labour force)

Agriculture Manufacturing Services Coca-Cola On-TradeOff-TradeTransport Total

3rd Round: re-spending of salaries

2nd Round: suppliers’ suppliers

1st Round: direct suppliers and trade

0th Round: Coca-Cola System

3868

266

45

40

8.2

8.2

49

382

161

169

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3.0

2.5

2.5

2.6

2.6

4.4

4.4

1.9

3.7

2.0

33

63

35

Coca-Cola and the CommunityIn addition to providing soft drinks to consumers and generating profits for itself and for its suppliers and distributors, Coca-Cola also contributes more widely to the European economy as a whole, irrespective of whether or not consumers purchase the company’s products. This contribution takes numerous forms, including training of its workforce, establishment of high-quality industry norms, development of management skills in its supply chain, sponsorship of sporting events, and environmental conservation.

These contributions are more difficult to quantify but their ambition and reach can be measured against a number of concrete commitments the Coca-Cola System in Europe has made and aims to achieve by 20203:

• Energy conservation/climate change: Reduce by 2020 the carbon emissions of Coca-Cola’s business operations by an absolute 15 percent and the overall supply chain carbon footprint per portion by 20% (2007 baseline).

• Water stewardship: Establish a water-sustainable business by applying to all operations the European Water Stewardship standard and by “replenishing” the whole amount of water used in the company’s beverages through local water conservation projects.

• Sustainable packaging/recycling: Reduce the amount of packaging material used by 25%, ensure all plastic bottles are made of recycled PET or plant-based material and ensure on average 80% of packaging is recovered across Europe.

• Activating Choice to enable calorie-management by consumers: Accelerate the growth of diets/lights and zero calorie products (to 2.5 times the growth of regular products), widen the availability of smaller pack sizes and reformulate some flavoured sparkling beverages, reducing their sugar content by 30% – the combination of these actions is expected to result in a further 10% reduction in the average calorie content of Coca-Cola’s sparkling beverages by 2020.

• Activating Balance to encourage healthy active lifestyles: Provide transparent information for consumers using GDA nutrition labelling on its packaging, enact responsible marketing practices aimed at protecting children and empowering parents to take the appropriate purchase decisions for them and support sports and nutrition education programmes in every country where Coca-Cola operates (currently reaching more than seven million Europeans).

3 For further detail on Coca-Cola’s contributions to sustainability and active lifestyles, visit www.thecoca-colacompany.com/citizenship/reporting.html (environment) and www.cocacolabelgium.be/doc/ (health and wellness)

This study has also enabled the authors to analyse a number of scenarios or ‘what if’ situations. In this report a hypothetical scenario analyses what would have happened if Coca-Cola had decided in 1929 to import rather than to locally produce its products in the EU27 – thus using only local distribution and trade channels. The analysis found that the EU27 would not only suffer a significant economic loss of EUR 3.1 billion, meaning lower household incomes, corporate profits and taxes, but would also lose 64,800 jobs (Figure 4).

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64,800 jobs (= 0.03% of labour force)

Agriculture Manufacturing Services Coca-Cola On-TradeOff-TradeTransport Total

3rd Round: re-spending of salaries

2nd Round: suppliers’ suppliers

1st Round: direct suppliers and trade

0th Round: Coca-Cola System

5.0

Figure 4: Import scenario – loss of employment (in thousands)

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© 2012 The Coca-Cola Company. Coca-Cola is a registered trade mark of The Coca-Cola CompanyCoca-Cola Services S.A., Chaussée de Mons 1424, B-1070 Brussels, Belgium

For further information, please contact europeanconversations@coca-cola.com