The Coca—Cola revival will hinge around product innovation

John Durie
JANUARY 16, 2015
THE AUSTRALIAN
COCA-COLA Amatil boss Alison Watkins has said she wants to “bring back the magic” to the company even as she waves goodbye to two members of the old guard led by finance boss Nessa O’Sullivan.
The timing of the departure was treated negatively by the market but Watkins no doubt sees it as a natural course of events and a staged withdrawal of a talented finance director.
Former boss Terry Davis plainly overstayed his welcome which was a snafu at board level, but presented with the facts Watkins’ desire to take a clean broom to management is understandable.
While O’Sullivan will probably depart in March she is being kept on the payroll until May to help with the hand over. Watkins is looking for a senior person to help with a revival that will hinge around product innovation.
Based on Bank of America Merrill Lynch numbers next month the company will report a 30 per cent fall in earnings per share (EPS) to 46 cents after last year’s 10 per cent fall, meaning it will be a while before the company matches 2012’s return of 73 cents a share.
For the record, the consensus forecast for 2014 is for a 22 per cent fall in EPS and Watkins is on record as saying there will be no further falls this year, and in the 2016 year the company will return to circa 7 per cent growth.
BAML’s David Errington has earnings continuing to slide to as low as 33 cents a share in 2016.
The restructuring ahead comes against an era where the company charged too much for its products in the supermarkets, letting rival Pepsi grab market share, on top of a global move away from carbonated soft drinks.
Watkins is no doubt more confident, having radically changed market expectations with last year’s downgrade, revamped the agreement with 30 per cent shareholder Coca-Cola so that incentives are based on transactions with more people drinking smaller amounts more often.
The Atlanta major shareholder faces much the same hurdles, and Watkins has made no secret of the fact she is keen to work with its circa 100 staff in Australia as well as head office.
Smaller cans are one change and this summer colour has been king, but the push is around health, with IXL Stevia (a natural sweetener in IXL jams) and Coke Life using the same natural sweetener which is derived from the Chrysanthemum plant family.
Zico coconut water is being sold as a source of replenishment, not just a drink. Coffee through Nespresso is another growth market. Whether these products can offset the challenges facing the main brand remain to be seen.