Innovation strategy paying off for Coca-Cola European Partners - Analysis

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From new-to-world products to an explosion in flavour iterations, the Coca-Cola system's innovation pipeline is in full flow.

Coca-Cola Energy is expected to be in all CCEP markets by the end of Q2

Coca-Cola Energy is expected to be in all CCEP markets by the end of Q2

In the notes following Coca-Cola European Partners' Q1 2019 results announcement yesterday, analysts hailed the company's execution of a "long-standing innovation strategy". Going forward, Wells Fargo analyst Bonnie Herzog said CCEP's commitment to innovation will help drive the top line.

She said the company's Q1 results "give us even more confidence in CCEP's growth outlook, and we're optimistic top-line growth should remain strong". As well as innovation, Herzog flagged the company's work to increase its portfolio "across under-penetrated categories", including light colas.

As part of its results, CCEP  highlighted an 18% volumes boost for Coke Zero Sugar, with healthy volumes from Mango Loco and Ultra aiding a 13.5% volumes rise for CCEP's energy drinks. Elsewhere, in stills, Smartwater volumes lifted 13.5%, while Fuze Tea gained extra ground.

"Looking ahead, we're particularly excited about the potential for new products and recent innovation to prove incremental as CCEP leverages its in-market scale and reach," wrote Barclays analyst Lauren Lieberman.

The analyst underscored the recently-announced Coke Energy proposition, which should be "in all of its markets by the end of Q2". Elsewhere, a Costa Coffee RTD, first mooted in February, should prove an "exciting brand in the UK, where initial efforts will be focused", Lieberman said.

Wells Fargo's Herzog also name-checked Coke Energy, though she warned that it is still "early days" for the launch.

"Management was upbeat about Coke Energy noting that, while only in the market for a few weeks, customer reaction has been positive," she said. "Importantly, management also stressed that Coke Energy is quite differentiated from the rest of the category - citing its different formulation and significantly different taste. That said, it's still early days." Herzog expects more detail when CCEP reports H1 results later in the year.

While innovation was largely a hit for CCEP, Barclays analysts warned that it is not always plain sailing.

"Not all of the company's new products have been perfect and our understanding is that AdeZ may need to be re-worked," Lieberman said.

Overall, though, Barclays felt the company had proved itself: "On the whole we're reminded that innovation and the ability to handle complexity were very much regarded as unproven competencies for CCEP two years ago and we're encouraged by the company's success along these dimensions to date."

As CCEP's territories usher in the summer, the company will likely turn up the heat on innovation. 

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Sectors: Soft drinks, Water

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