Coca-Cola Amatil’s (CCA) attempts to address declining consumer interest in soft drinks through new branding strategies, alternative ranges and packaging design innovation have failed to offer the desired boost to profits, according to 2015 financial results just-released.
The beverage supplier has recorded a flat first half profit, partly due to weaker earnings from its core Australian business.
CCA made a net profit of $183.9 million for the six months to June 30, up less than one per cent from $182.3 million a year ago.
The result was weighed down by a six per cent slide in earnings from the company's non-alcoholic beverages business in Australia, which is by far its largest division, due to weak trading conditions.
CCA group managing director Alison Watkins said the first half result was consistent with the company's internal plans and previously provided guidance.
"The results were achieved despite trading and economic conditions that were more challenging than we had expected in Australia and Indonesia," Watkins said.
"Concrete progress has been made in implementing strategies to strengthen the market leadership position of the company across our markets, which we believe will enable us to return to growth over the next few years and generate long-term shareholder value."
Packaging improvements such as the company's new contour bottle and sugar cane bottle, as well as pricing and marketing initiatives delivered improvements in transactions and household penetration.
Carbonates held 69 per cent of the soft drinks market in Australia in 2014, but their rate of consumption has been slowing, with total volumes falling one per cent in 2013-2014. The launch of Coke Life in April 2015 invigorated the category with mid-calorie cola options, but its reception fell short of expectations. Also contributing to declining volumes in carbonates is the trend toward smaller pack sizes such as ‘mini cans’, as health-conscious consumers scale back on their intake of carbonated soft drinks.
However, the company has stated that the move towards smaller packs may result in much-needed growth.
Coca-Cola's 250ml small cans were launched in August last year and have seen a rapid expansion in market share to 12 per cent of total single serve sales. It now has the highest transaction growth rate versus all other single serve options.
The 250ml can is now available in 30 per cent of all retail outlets around Australia and 50 per cent of grocery outlets. 200mls multipacks are also now available in 95 per cent of grocery channels.
Coca-Cola South Pacific says it will continue its commitment to smaller portion sizes, with the 450ml bottle downsizing to 390ml.
Despite these changes, CCA's 2015 financial results revealed competitive pressure from competitor PepsiCo Inc, pricing pressure from Australia’s supermarket duopoly, and demand pressure due to changing consumer preferences away from sugary drinks to better-for-you products, according to Euromonitor International research analyst Lily Lam.
“With carbonates declining, CCA is increasing its presence in high potential non-carbonated categories, with new product launches in RTD coffee and coconut water in 2014 through brands Barista Bros and Zico,” Lam said.
“Both categories are experiencing very strong growth, with RTD coffee forecast to experience annual average growth of seven per cent during 2014-19 and coconut water driving much of the 14 per cent annual average growth forecast within the Naturally Healthy Superfruit 100 per cent Juice category. The company is also investing in sports and energy drinks and bottled water, which are forecast to grow 43.1 and 172.5 million litres, respectively, from 2014 to 2019.”
In the last year, alcohol and coffee earnings increased by 30.4 per cent, driven by improved market share across the Beam portfolio and the launch of new products, according to the Coca-Cola Amatil statement.
The business strengthened its relationship with Beam Suntory in both Australia and New Zealand, entering into a new 10-year agreements which will integrate the expanded Beam Suntory spirits range into CCA’s portfolio. Beer and cider ranging was expanded across the off-premise channel and craft beer Yenda was successfully launched in March. Growth of the coffee business is on track, with the successful expansion of the Grinders capsules range.
CCA also entered the dairy category in the second half of 2014 with Barista Bros, which uses new aseptic technology. Barista Bros has surpassed expectations, taking a three per cent share since its launch.
