Coke: Channel-stuffing and channel conflict

Coca-Cola's biggest bottler and subsidiary, Coca-Cola Enterprises, has been hit by a combo insider trading and channel stuffing lawsuit, alleging that a consultant and former top executive sold his stock knowing that the stock price was inflated by channel-stuffing.

The claims mirror those filed previously against parent Coca-Cola Co. That case is still pending. According to the new complaint filed in Atlanta: "By concealing CCE's rampant channel stuffing activity, defendants failed to disclose the existence of known trends, events or uncertainties that they reasonably expected would have a material, unfavourable impact on net revenues or income."

To add to the misery in Atlanta, a group of fifty independent bottlers have filed suit against Coke's plans to sell Powerade direct to Wal-Mart.

Coke bottlers fear the move would violate their territory exclusivity and make it easier for the company to move to warehouse distribution with other products. They also contend they’ve had a contract with Coke since 1994 that prohibits warehouse delivery of Powerade to retailers.

Classic channel conflict.

Update Thursday: Here's a more detailed report from Coke's hometown paper, The Atlanta Journal.

Morgan Stanley analyst Bill Pecoriello said the rift is broader than just PowerAde and Wal-Mart.

"While the PowerAde test with Wal-Mart is small, the bottlers worry that other retailers will be next and other product categories will follow, threatening their future relevance," Pecoriello said in a report. "Coke might have to resolve this issue through additional compensation to the bottlers or other structural changes."