Woolworths rolls over on Coca-Cola No Sugar

Sue Mitchell
Nov 15 2017
AFR
Woolworths has had a change of heart about Coca-Cola Amatil’s biggest new product in 10 years – Coca-Cola No Sugar – and plans to stock the sugar-free cola in stores over the next few weeks.
After refusing in July to stock Coca-Cola No Sugar on the grounds consumers already had enough choice of Coca-Cola products, Woolworths is understood to have relented due to customer demand and has started stocking 250-millilitre cans, which will be followed by 1.25-litre bottles.
However, after deleting several Mount Franklin bottled water lines earlier this year, Woolworths has delisted two more Coca-Cola Amatil brands – Glaceau Vitamin Water and Zico coconut water.
The delistings have increased the pressure on CCA to come up with new products and improve its relationship with Australia’s largest retailer.
In a major report on CCA on Wednesday, JPMorgan analyst Shaun Cousins said the delisting of Glaceau and Zico was “disappointing” and further evidence of problems in CCA’s relationship with Woolworths.
“Woolworths is the largest CCA customer. Disagreements occur yet the relationship requires improvement as issues cannot be allowed to persist with such an important customer,” Mr Cousins said.
JPMorgan lifted its recommendation on CCA from underweight to neutral after a 20 per cent fall in CCA’s share price this year. It also increased its share price target from $8 – in line with the close on Wednesday – to $8.25.
However, Mr Cousins remains concerned about CCA’s short-term and longer-term prospects, saying there is a risk CCA will not achieve its guidance for flat profits in calender 2017 and its Australian business faces ongoing structural challenges.
CCA is losing share in bottled water as the market splits between premium and differentiated brands such as Voss, San Pellegrino and Cape Grim and budget brands such as Asahi’s Frantelle and retailers’ private label water.
“Mount Franklin appears somewhat stuck in the middle in still water; it’s not a premium or a value brand,” Mr Cousins told The Australian Financial Review on Wednesday.
CCA’s share of the bottled water market by value has fallen from 40 per cent in 2009 to about 25 per cent, while its share of water volumes has fallen from about 25 per cent to just 12 per cent, even though CCA has reduced prices to better compete with cheaper brands and private label.
CCA is still the market leader in carbonated soft drinks, which account for 66 per cent of the bottler’s sales, but sparkling volumes have been in decline for years and JPMorgan believes volumes could keep falling until at least 2025.
At the same time, smaller nimble competitors in categories such as juice, tea, flavoured milk, sports drinks and kombucha – categories where CCA is underweight – are taking a bigger ”share of throat”.
“Nimble competitors can launch new products or even create new product categories that take share and erode the market position of the CCA portfolio,” Mr Cousins said.
One of the factors that will weigh on sales and earnings in the short term is the launch of container deposit schemes in NSW on December 1 and in Queensland and Western Australia next year.
JPMorgan believes Australian beverage volumes will fall about 1.5 per cent as CCA passes on the cost of the scheme, squeezing Australian earnings by between 2.4 per cent and 7.2 per cent and group earnings by between 1.6 per cent and 4.7 per cent.
CCA chief executive Alison Watkins is expected to release a trading update and more details about the impact of the CDS and the bottler’s plans for restoring sales growth at an investor strategy day on November 22.
Woolworths confirmed that Coke No Sugar would be on supermarket shelves before Christmas.
“We have taken the decision to stock the new range as customers are now asking for the product to be ranged in our stores, as they start to transition from Coca-Cola Zero,” a spokesman said.
It is understood that Coke Zero will be phased out over the next six months
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