Power Play on Powerade

Wal-Mart proposed creating private-label energy drink.

The Coca-Cola Co. and its biggest bottler decided to ship energy drink Powerade directly to Wal-Mart warehouses after the world's biggest retailer said it would create its own energy drink as an alternative, according to a court filing.

The shift to direct shipment -- which triggered a lawsuit by Coke bottlers claiming it violated their contracts -- underscores how giant retailers seek flexibility in a cutthroat market. (This issue was discussed in the April edition of print "Brew.")

Given the challenges to the legal structure of the three-tier system, the four-month-old Coke case is being closely followed by beer distributors. They are watching it because it touches on contractual provisions regarding warehouse delivery and exclusive territories. Legal precedents set in the case could affect the beer industry system later.

In the June 9 issue of Beer Business Daily, Harry Schuhmacher addresses the implications for beer distributors. His take (subscription required): Wal-Mart sought direct delivery because of service problems. To the extent distributors do a better job at DSD than bottlers, they should be shielded from this scenario.

Update: Here's a copy of the filing.