Cover Story: Bottling Industry

Learn more about the bottling industry:
Schools soak up soft drink profits
Bottlers see a solid future in water

Bubbling Up
The growing soft drink industry adds a refreshing lift
to the state's weakened manufacturing sector

By Heidi Russell Rafferty

Just miles from downtown Raleigh, a state-of-the-art Pepsi Cola bottling plant churns out 1,600 cans per minute on one production line and 1,000 bottles per minute on another. And while the 290,000-square-foot facility isn’t fully operational yet, it already is helping boost a sluggish North Carolina economy like the jolt of caffeine in a Mountain Dew.

The Pepsi plant, which began operating this summer, is the latest example of the soft drink industry’s long and profitable history in the state. While some industries have relocated for cheaper labor or softer regulations, soft drink bottlers and producers continue to call North Carolina home. It is an industry larger than most people suspect, creating nearly 50,000 direct and indirect jobs, generating $4.5 billion in sales and $7.3 million in taxes and charitable donations in 1999, the latest figures available from the North Carolina Soft Drink Association in Raleigh.

“They are a feather in our cap,” says Melinda Pierson, spokeswoman for the state Department of Commerce. “What makes them particularly important, in addition to the economic and employment impact, is that this is an economically stable industry. It’s not an industry where you have to worry about good paying jobs packing up and shutting doors. It’s a solid thing for our state to have. For an industry to be so big and stable is something that we can really value, especially now.”

Those in the industry say it’s easy to see why it has been able to remain strong: Soft drinks are a staple of American culture. Even in the worst of economic times people don’t mind digging for change in their pockets to buy a soda. But they might hesitate forking over a few hundred dollars towards the textile industry for an upholstered chair.

The soft drink industry also has a long history in North Carolina. Pepsi’s birthplace, after all, is New Bern, and the company has forged along here for 104 years. Cheerwine also has its birthplace in Salisbury and has been around for 85 years. Likewise, Coca-Cola Bottling Co. Consolidated of Charlotte celebrated its 100th year in business this year and is the second-largest bottler of Coke products in the United States.

“We’re not heavily slanted in intellectual property or intellectual technologies. If things get bad, those industries just get rid of people,” says Scott Jamison, vice president of engineering at Pepsi Bottling Ventures LLC. “We’ve got a big capital investment of equipment, machinery and distribution thereof, and you just don’t walk away from that, even when economies start to turn.”


Pepsi’s Commitment

The new Pepsi plant almost didn’t come to North Carolina. South Carolina and Virginia were in the running as the location when the bottler announced the expansion in 1997, says Doug Heilman, senior vice president of operations at Pepsi Bottling Ventures. Luckily for North Carolina, the company selected a 44-acre site southeast of Raleigh near Garner and started construction.

Then Hurricane Floyd hit in 1999, and the company’s Rocky Mount facility was destroyed. Pepsi had to find additional capacity to keep producing. Because the Garner facility was still just a distribution center, the company beefed up its Winston-Salem facility to replace its lost production capacity. Earlier that year, Pepsi Cola Co. and Suntory, a Japanese company, had entered a joint venture to form Pepsi Bottling Ventures LLC.

Jamison says the two events gave the company the long-range vision to ramp up its site near Garner as a new production facility. When the new plant is operating at full capacity later this year, the company will close production at two facilities on Wake Forest Road in Raleigh and another in Lumberton. Sales, distribution and warehousing will continue in Lumberton, however. Production will continue at the plant in Winston-Salem, and the company also will continue to operate 14 distribution facilities throughout the state. Heilman says that in the last four years, the company has spent $75 million in North Carolina in capital improvements alone.

“We look at ourselves as a balance for the industrial base here in Raleigh,” Jamison says. “There’s been such a heavy slant towards high tech, which is wonderful and exciting. It’s got a lot of pizzazz, but you know what? When things turn bad in the economy, we don’t leave.”

Pepsi Bottling Ventures also had to overcome a battle with residential developers before it could begin building its new Wake County facility. Developers wanted to build homes less than 300 feet from the back of Pepsi’s fence and asked the city of Raleigh for a zoning change. Knowing that 24-hour industrial activity was planned, Pepsi challenged the request. Raleigh City Council agreed with the soft drink maker and denied the developers’ proposal.

George H. Suddath, Pepsi’s vice president of corporate affairs, says the city council’s decision was a good move for the area. Since then, an industrial park has been developed nearby, and convenience stores and fast food restaurants have cropped up to serve the new influx of workers.

The new plant is the last greenfield production site built by Pepsi Cola Co. in the United States and, at 205,000 square feet, is the largest Pepsi has constructed in the past seven years, says Suddath. There’s another 85,000 square feet in distribution space.

The facility employs 250 workers, ranging from a sales force to truck drivers to engineers to information technology professionals. The plant pulls workers from a wide areas, especially those who can travel I-40 to get to work. Jamison says that as unemployment has risen, Pepsi has been able to attract employees with excellent technical skills. “This has actually been a fringe benefit of the tight economy for us,” he says.

One production line in the plant runs 1,000 bottles a minute — “faster than a machine gun,” Suddath says. The plant has the capacity to produce 352 different products of varying flavors and package sizes.

“If they quit running these lines this afternoon, by this weekend, we’d be out of business,” Suddath says. Heilman adds, “We only keep a three-to-five-day supply of the product.”

By the end of the year, four production lines will be fully operational. More than 80 production workers will run the lines, and eventually, the plant will operate six days a week, 20 hours a day.

“What we’ll produce first are the small bottles, and then our second line will produce two- and three-liter bottles. Everything is plastic. We also can produce 1,600 cans per minute on our new can line, which starts in October,” Jamison says. The plant also produces a “bag in the box” product for food service clients.

“Also, most people don’t understand than when you bottle, you’re bottling under a franchise right from the parent company. Pepsi Co. gives us the right to produce their products, and Cadbury Schweppes gives us the right to do Dr. Pepper and their other products,” he adds.

The first step in the production process is the creation of a beverage syrup. Concentrated flavorings of each beverage are computer blended with purified water and fructose (sweetener). The syrup mixing tanks range from 3,000 to 10,000 gallons. The plant also has a 30,000 gallon fructose storage tank that is refilled at least 10 times daily by 6,000-gallon tanker trucks.

Syrup production is controlled by a central computer system, which holds the recipes for every beverage and automatically dispenses the correct ingredients for each batch of syrup. Once the syrup blend passes inspection, it is pumped to a computerized  proportioning system that blends carbon dioxide gas and purified water with the syrup to create the final beverage. The carbonated beverage is then fed directly to the bottle and can fillers for final packaging.

Prior to filling, all cans and bottles are rinsed and drained with purified water prior to filling. Each filler is housed in a climate controlled filling room to  prevent contamination during the filling process. “The quality control requirements for bottled water and soft drinks is highly regulated by our parent company as well as state and federal agencies. This new plant represents a commitment by Pepsi Cola to be a leader in product quality and safety in the state of North Carolina,” states Heilman.

Along with the carbonated products like Pepsi and Mountain Dew, the new facility produces a growing family of non-carbonated  beverages like Fruitworks and Lipton Tea. These products are blended without the addition of carbon dioxide gas. “The consistency of our products is very important,” Jamison says. “Since our products are produced worldwide our biggest challenge is to make sure our beverages taste the same wherever our customers travel.”

The plant near Garner will also bring the production and packaging of Aquafina bottled water to North Carolina. Prior to the construction of the new facility, Pepsi Bottling Ventures distributed Aquafina produced in a Pepsi facility in South Carolina.  


Fierce Competition

The soft drink game can be cutthroat, and tough competition continues to drive a healthy industry that is expected to continue to fuel the state economy for many years to come, says Butch Gunnells, president of the North Carolina Soft Drink Association.

Today, there are 17 bottlers in North Carolina. There were three times that number, Gunnells says, when he arrived at the association in 1989. The industry is three-tiered: Pepsi, Coke and independent soda makers such as Cheerwine.

“It’s no secret to tell you that this is as a competitive an industry as you want to see,” Gunnells says. “This is the American way played out day after day, minute after minute, in store by store. Given the intense competition, it’s encouraging that we have such a strong trade organization — they agree on how they want to be treated by Congress and the state legislature. Those left standing are strong, vibrant companies at this point.”

The makers of Cheerwine are a good example. In 1917, L.D. Peeler created the soft drink in Salisbury. Today, Carolina Beverage Corp. is the family-owned operation that has “worked hard to make good decisions to stay in business,” says Mark Ritchie, president and CEO of Carolina Beverage.

“Our heritage is part of North Carolina’s heritage. We’re a North Carolina corporation, headquartered and managed in North Carolina,” Ritchie says.

The company, with 400 employees, has two operations: one that produces and markets Cheerwine and another that is a group of distribution companies. The largest of those companies is Piedmont Cheerwine Bottling Co., also headquartered in Salisbury. The two arms of the business co-own a bottling facility in Charlotte as well, which has five bottling lines.

Carolina Beverage Corp. also supplies soft drinks to the private label industry, manufacturing brands for such retailers as Food Lion, Bi-Lo, and Lowes Food Stores. The company also has a distribution center in Tacoa, Ga.

“We are a very financially stable company,” Ritchie says. “We’ve done very well in the last 20 years and have been growing our business. We are not about to go out of business. We have found a niche that is profitable and provides a return for shareholders.”

He adds that the company “has to work hard to promote the quality and uniqueness of the beverages we represent.”

“Certainly with Cheerwine, it is a very unique product that creates a strong loyal following, and that helps to preserve that base of business that we worked very hard to develop,” Ritchie says.


Here to Stay

Ritchie and other soft drink makers and bottlers say they have no intention of leaving North Carolina high and dry. Lauren Steele, spokesman for Coca-Cola Bottling Co. Consolidated in Charlotte, says North Carolina is and always has been a high priority.

 “We’re a North Carolina-based company and do a lot of business in North Carolina,” she says.

The company employs 3,000 workers statewide and with 23 facilities around the state, pulls in $1.3 billion in annual sales, Steele says. It handles more than 90 percent of the Carolina Coke market. The production center in Charlotte, called Snyder Production Center, will produce 45 to 50 million cases of soft drinks and water in 2002. Additionally, five to six million cases of soft drinks are brought in from various locations to be re-distributed. There are about 300 employees at that facility, with a payroll approaching $13 million.

Steele notes that such a large enterprise also contributes to the economic health of other businesses. Rexam Can Beverage in Winston-Salem provides the can bodies, for example. Together, the company buys about $60 million a year in goods and services from just this handful: Southeastern Container of Enka, the Rexam plant in Winston-Salem, the Hi-Cone plant in Zebulon, Weyerheuser in Newton (which supplies corrugated trays), Associated Packaging in Statesville, Relizon in Charlotte (which provides forms and stationery) and Seagate Travel in Charlotte.

Jamison at Pepsi points out that the new plant near Garner was under construction just as the economy started suffering. The project infused life into a number of local building companies. “We kept a lot of companies very busy through this last year in the construction trade. Most of the contractors were local — 95 percent were from this area, and they were all begging for work when this project started,” Jamison says.

Thus the industry continues to be a solid mainstay, because it is not rattled easily by sharp fluctuations in the national economy, he says. “When the economy heats up, we don’t experience the same problem as other industries. We tend to have a flatter cycle up and down. While things are tough, a soft drink is always an affordable relaxation for people.”