Poverty Footprint Study on how the Coca Cola - Oxfam America

Overview of informal economy
The informal economy is seen as comprising all forms of informal employment—that is, employment without formal contracts (i.e.,
covered by labor legislation), worker benefits or social protection—both inside and outside informal enterprises, including:
Self-employment in informal enterprises: workers in small unregistered or unincorporated enterprises, including:
employers
own account operators
unpaid family workers
Wage employment in informal jobs: workers without formal contracts, worker benefits or social protection for formal or informal firms,
for households or with no fixed employer, including:
employees of informal enterprises
other informal wage workers, such as casual or day laborers, domestic workers, unregistered or undeclared workers, and temporary
or part-time workers4
industrial outworkers (also called home workers)
The largest occupational categories within the informal economy in most developing countries include casual day laborers in agriculture
and construction, small farmers, forest gatherers, street vendors, domestic workers, workers in EPZ factories or small unregistered
workshops, and industrial outworkers who work from their homes (also called home workers).
M. Chen, J. Vanek and M. Carr Mainstreaming Informal Employment and Gender in <strong>Poverty</strong> Reduction: A handbook for policy-makers and other
stakeholders (London: Commonwealth Secretariat, IDRC and WIEGO, 2004)
Revenue distribution
A cost model for a crate of twenty-four 12-ounce
bottles of Coca-Cola for each country helps to
understand how the revenue per crate is used to
cover supply, production, distribution and sales costs,
including margins kept by the external distribution
channels, retailers and the bottler. This cost model
provides, at a micro level, a perspective of the relative
weight of each value chain player in making up the
value that consumers pay for a crate of
Coca- Cola and is a proxy for how the overall
revenues are distributed. The information below is
represented from the point of view of SABMiller’s
bottling plants, Zambian Breweries and ILC. Note
that since this research was completed in 2009, the
operating models in El Salvador and Zambia have
changed.
The revenues earned from each crate of twenty-four
12-ounce bottles of Coca-Cola are shared among
supply, production, distribution and sales partners.
The proportion of revenue allocated to each partner
reflects the cost structure and profit margins of that
line of business.
In El Salvador, the recommended retail price (RRP)
for a case of Coca-Cola is $4.25. In 2009, the cost to
produce the case including supplies, operating costs,
packaging materials, marketing, and distribution
accounted for 62 percent of the revenue. Distributors
external to ILC collected 8 percent of revenues and
* Zambia law provides that excise duties on soft drinks are levied at 10 percent of ex factory price which in this case has translated into 5 percent of the retail price.
40 Exploring the links between international business and poverty reduction
sugar costs made up just 1 percent of the RRP.
Beyond that, retailers represented 13 percent
of revenue, SABMiller collected a 6 percent margin,
and 10 percent of revenues went to the government
through excise taxes.
In Zambia, the recommended retail price (RRP) for a
case of Coca-Cola is $5.04. The cost to produce the
case accounted for 76 percent of revenue per case.
The portion of revenue per case allocated to retailers
was approximately half (6 percent) of the one in El
Salvador. SABMiller collected 5 percent, and the
government 5 percent of revenues through excise
taxes*. Distributors external to Zambian Breweries
collected 7 percent and sugar costs made up just 1
percent of the RRP.
The profits received by each player in the value
chain from the sale of Coca-Cola products depend
on the volume of sales and the cost structure of that
business in each country.
Interviews conducted during the research revealed
that the overall net profit margins for distributors in El
Salvador was 56 percent, for retailers it was
35.5 percent and for sugar producers, 22 percent. 49
These percentages relate to total operations and
include many lines of business, beyond just Coca-
Cola products. Furthermore, these percentages are
not always comparable due to the different business
types and cost structures.