Comment - Coca-Cola Amatil - A Canary in the Mine
Coca-Cola is under pressure in some of its developed markets
With a fast-growing developing market in Indonesia and a mature, yet pressurised, base in Australia, there's an argument that Coca-Cola Amatil (CCA) is a microcosm of the Coca-Cola network as a whole.
And just as the Coca-Cola Co is trying find the right balance between investing in high potential (but profitably weaker) markets such as China, India and Africa, and shoring up shrinking-yet-cash-rich regions such as North America and Europe, CCA is also treading a delicate path between its two divergent markets.
That was highlighted this week, when CCA delivered a poor set of H1 results that saw profits tumble and sales flatline. The company blamed intense discounting in the Australian grocery channel that may have led to “promotional fatigue” in consumers. CEO Alison Watkins admitted the group has been “slow to adapt” to changes such as health and wellness concerns. At the same time, despite a 22% jump in volumes, Indonesia's EBIT shrunk by 83% as inflationary pressures and spikes in raw materials took a chunk out of margins.
So far, so Coca-Cola. But if those comparisons are apparent, then what would be of great interest to Atlanta is the outcome of CCA's newly announced rescue plan. To put it into business jargon, there are some scalable lessons to be learnt.
The plan is not due out until October, but in an analysts call yesterday, the group's management team outlined its bare bones. In many regards it mirrors what Coca-Cola is already doing.
There will be the launch in Australia of a AUD2 price-marked 25cl slimline can for brand Coca-Cola, Fanta and Sprite, the same format Coca-Cola is relying on in North America and Europe to boost margins as it tries to move away from the volume-led growth of the past.
CCA's Australia MD Barry O'Connell talked about how the cans can help make Coca-Cola “cool again”, and bring in new consumers, something Coca-Cola in Western markets is desperately seeking to do as teens ditch CSDs for energy drinks.
O'Connell also flagged up the launch of Barisat Bros, a flavoured milk that is an attempt to broaden CCA's portfolio into fast-growing categories, just as Coca-Cola is trying to do with its part-share in Monster Beverage Corporation and other smaller companies.
With Indonesia, Watkins said CCA will continue to invest in the country despite the diminishing returns, and that the country is a “wonderful growth option” for CCA.
CCA's outlay there will be significantly less than the billions Coca-Cola is pouring into markets like India and Mexico in multi-year programmes.
But then the beauty of Australia and Indonesia is that we can gauge the effects of this new rescue plan much quicker, and more cheaply, because of its smaller and relatively compact size. It can be viewed, in effect a canary in the Coca-Cola mine, testing the way ahead for the rest of the system to follow.
Over the next few quarters, CCA's results will make interesting reading as they lay out on the same balance sheet the two extremes of Coca-Cola's market, and show whether Coca-Cola's global rescue plan has a chance at success.
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