Watkins puts the fizz back into Coca-Cola Amatil

VICTORIA THIEBERGER
17 FEB, 2016
Business Spectator
Coca-Cola Amatil’s return to profit growth after two years reflects its belated response to the growing consumer resistance to sugary drinks.
Lower sugar products, smaller containers to reduce the kilojoule count and an expansion of its water, coffee and alcoholic drinks all helped fuel a 4.8 per cent increase in underlying profit excluding restructuring costs.
That was a huge turnaround from the 25 per cent profit slump in 2014, with management plans for $100 million in cost cutting on track.
Investors welcomed the turnaround in profits, sending the shares up as much as 5 per cent in morning trade, following a 16 per cent slide over the past year.
Since Alison Watkins took over as group managing director in 2014 and began a three-year strategic review, Coca-Cola Amatil has battled a growing popular discussion of the evils of too much sugar in our diets that has led to a decline in market share in convenience stores and supermarkets.
Watkins responded with investment in new products, a 20 per cent increased spend on marketing as well as cutting costs in the supply chain to arrest the decline.
Millennials in particular consume less of the fizzy stuff than older generations, so Amatil brought in new products to chase the younger demographic such as coconut water and juice, facing off against more nimble players like Nudie and Schweppes owner Asahi.
Watkins told analysts on a conference call the company is in “materially better shape” than it was 12 months ago, and reiterated guidance for mid-single digit growth in earnings per share “over the next few years”.
All the growth in Australian volumes and earnings came in the alcohol and coffee beverages category, as Coca-Cola Amatil expanded its once-controversial excursion into alcohol after renegotiating its partnership with Beam Suntory to include spirits such as premium whisky.
It boosted coffee earnings by 20 per cent, with increased presence in cafes and supermarkets. Volumes for its espresso drinks in the second half doubled volumes in the first half.
Those categories led to a 31.7 per cent surge in earnings before interest and tax for alcohol and coffee drinks.
Core beverages halted the decline, with earnings up a slight 0.2 per cent and volumes up 0.5 per cent. Mt Franklin volumes jumped 15 per cent in the fourth quarter compared with a year ago after a relaunch.
Watkins talked about her strategy to “anticipate and adapt” to new consumer preferences with new product innovation.
She has presided over a series of new product launches over the past 12 months such as Zico coconut water, frozen drinks and Barista Bros iced coffee, and says more are on the way in coming weeks.
By facing up to the big structural shifts in the consumer market for sugary drinks and using Coca-Cola Amatil’s footprint to expand distribution of new products, Watkins hopes to innovate the company’s way back to sustainable growth. It’s refreshing to see a growth strategy that does not rely solely on cost-cutting.