Fiji drinks deal sets first round for Coke growth

ADELE FERGUSON
March 20, 2012
The Age

CCA is committed to Indonesia and would fight tooth and nail to keep its deal with The Coca-Cola Company.

COCA-COLA Amatil is expected to give the green light to buy the Fijian brewery, spirits and soft-drinks assets from SABMiller, worth up to $70 million. The company is completing due diligence on the business and by all accounts it is looking like a winner.

It would be a good fit for Coca-Cola Amatil, which holds the Coca-Cola bottling franchise in Fiji. It would also create synergies from the soft drinks business, which includes brands such as Fiji Water, Cascade and Hi-C, which are premium but not high volumes.

And from a beer perspective, the Fijian beer could be ramped up to try to mirror the international success of Fiji Water as an exclusive brand among celebrities, particularly in the US.

But in the scheme of things the Fijian brewery, liquor and soft drinks acquisition is one small step in CCA’s plan to carve out a new growth strategy. For the past few years it has talked up Indonesia and alcohol as its two growth levers.

But in the past few weeks several events have raised questions about the future of both strategies. In the case of Indonesia it is delivering strong growth for CCA with earnings before interest and tax up 17.5 per cent for the full year, and more growth to come. But there is growing concern that it might lose its anchor bottler status in Indonesia after Coca-Cola FEMSA, the largest independent bottler of Coke in the world, announced a 12-month exclusive agreement with The Coca-Cola Company (TCCC) to evaluate the acquisition of the bottling operations in the Philippines. It prompted CLSA analyst David Thomas to write a report saying: ”Two incremental pieces of information have emerged over the last few weeks that raise a question mark over both strategies.” In the case of FEMSA, Thomas argued, ”It will rightfully look for further assets in the region to give it critical mass.”

CCA is committed to Indonesia and would fight tooth and nail to keep its deal with The Coca-Cola Company. But at the end of the day TCCC will have the bigger say.

The second big event was the move by Grupo Modelo to award its Corona distribution agreement to Lion.

Alcohol has long been seen as CCA’s other big growth strategy. Indeed in April 2007 Davis believed CCA would become the third largest beer operator by the end of 2012.

But this target was mothballed last year when he sold CCA’s 50 per cent interest in a premium beer joint venture with SABMiller to the South African brewer. Part of the deal included a non-compete clause that prevents it from selling beer in Australia until the end of 2013. This means CCA is precluded from some of the more lucrative beer contracts that have come on the market recently, following the sale of Foster’s to SABMiller. This triggered a change-of-ownership clause in a number of foreign beers that are distributed – and in some cases brewed – under licence in Australia. The biggest – and most lucrative of these – is the Mexican beer Corona, which its owner, Grupo Modelo, put out for tender late last year. Others that might come on the market include Guinness, Carlsberg and Kronenbourg.

It is believed that Foster’s, Lion and Coopers flew to Mexico to pitch for the licence. Coca-Cola Amatil is also believed to have made a presentation, despite not being allowed to sell beer in Australia until the end of 2013. Speculation has been rife that the deal between Lion and Corona is for two years, which will give CCA the chance to snare it when its non-compete clause is lifted at the end of 2013. But it is believed that the contract is for much longer than two years as long as Lion meets the usual performance targets that all distributors must sign. If this is true, Davis will have to find an alternative brand to spearhead his return to beer.

With all of the Anheuser-Busch Inbev brands and Heineken already with Lion on long-term licensing and joint-venture terms respectively, Asahi with its own route to market through the acquisition of Independent Distillers and SABMiller’s brands now with Foster’s, CCA will have to look for niche alternatives such as Blue Tongue or Casella’s new 10-million-case brewery in Griffiths. The big hope is doing a distribution deal with Adelaide-based family-owned Coopers Brewery, which would give CCA some grunt and give Coopers a stronger presence in the eastern states. CCA certainly needs a new string to its bow in terms of growth options. Its foray into SPC has been a disaster; it missed out on Frucor and Golden Circle and also missed out on Boag’s.

Recent media speculation that the company is considering re-entering the snacks food business, after selling out in 1993, is believed to be untrue. There also is speculation that it might lose its 10-year distribution agreement with global brand owner Beam if Beam is taken over by Diageo or Pernod Ricard, which is on the cards. CCA argues that the agreement protects it for the long term regardless of any ownership changes. Time will tell whether that means compensation for a change of ownership or the agreement is rock solid.

Until CCA sets out a clear strategy for alcohol, the market will continue to speculate on where to from here. While the acquisition of the Fijian beer business is a good start, it needs to look at other deals overseas and put in motion new deals in Australia when its 2013 clause is up.

The market will await Coca-Cola Amatil’s next move, but no doubt its major shareholder, TCCC, will be watching even more closely to make sure CCA’s plans fit in with its own.

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