Following the release of Coca-Cola Amatil’s (CCA) first half year results last week, C&I Week spoke to CCA’s MD, Barry O’Connell, to discover some of the trends behind the company’s results.
What were some of the key points from the first half results?
The key point for CCA has been significant shifts in our portfolio; in the first half we have seen decline in our sparkling volumes. This is not surprising as we were cycling what was one of the biggest product launches in the past 10 years – Coke Life.
However we’ve also seen is a continuation of a shift by consumers from sparkling beverages into still beverages. The ‘new’ news for us is that relative to this time last year we now have a strong sales proposition and we are in a very different place. Our stills volumes are up 9.3 per cent driven by water but we are also getting gains across the board in energy, dairy and sports.
We are rebalancing our portfolio at a rapid rate, driven by innovation in packaging, pricing and new product. In channels like convenience, our sales force is required to go to each and every outlet and sell the product in and then to activate it. So while we’re getting growth across the board in both ‘operational accounts’ (as we call them) and in grocery, but it is more pronounced in grocery.
Has CCA’s new route to market assisted in getting products into convenience quicker with less reliance on sales reps?
Yes, it has, and this is still under development. With [supermarkets] we can supply their central warehouse and within say a week to 10 days that particular NPD is in every store. When you’re doing it even through your digital platform across 50,000 independent customers, it takes that bit longer.
In relation to the greater use of technology in our route to market, an important point is that – although we are introducing technology quite rapidly – it’s not replacing the sales reps.
The sales reps are still there, the technology takes out the transactional element; it frees up the reps to be able to better serve the customer.
As an analogy; when is the last time you can remember going to a bank and the teller waiting for you to process your payment or to check your account balance? You just don’t do that in banks anymore and I guess we’re catching up on that with our sales force.
It’s interesting to note that CCA’s success in water has not been so prevalent in convenience, why is that?
We’ve noticed that with some of the large petrol and convenience outlets our competition is being particularly aggressive in negotiations regarding water. In some of those accounts we’ve chosen not go after that business because it’s not economically viable, but in other cases we are pushing distribution and making gains. So while it’s not balancing itself out yet, we are managing our response to that in a very deliberate way.
On the total water portfolio an important statistic is that our mix of stills is now 2.4 percentage points higher than what it was this time last year. We’ve had 26 new product innovations across all our portfolio in the first half and you can expect to see that accelerate in the back half and into the next year. There’s a lot of innovation happening not only in stills but also in our sparkling beverages.
What’s the future for Coke Life?
Going back to the launch and our expectations of Coke Life at launch, at that point we said publically that we didn’t believe Coke Life was a silver bullet. We thought that it would come to rest somewhere between 1 to 2 per cent of Coca Cola trademark, so, looking now at Grocery Scan data by value, Coke Life is exactly on 2 per cent of Coke trademark. It’s in line with our expectations in regards to performance.
Coke Life gave us a platform to introduce naturally sweetened cola. It’s currently at 35 per cent [naturally sweetened] but in other markets it’s gone to 50 per cent… you can expect to see innovations in that area over the next six months or so. Coke Life is a perfect platform for us to keep developing a naturally sweetened Coca-Cola, and it will take time to get there.
How was the Mt Franklin repackaging received?
At the end of last year we embarked on a very new and very different advertising campaign (which we spent significant amounts on), we realigned the pricing architecture across the business and we innovated.
There’s more innovations to come, around flavours, under the Mt Franklin banner.From my experience in other markets, particularly in Europe, I expect there will also be growth in sparkling. In a developed water market, sparkling tends to be a growth category. Flavours tend to be strong growth drivers as well.
We’ve also introduced more variants under the Glaceau functional water brand, including smartwater. Glaceau is a very, very successful brand in the US.
FUZE Tea and Barista Bros are relatively new products, how are they performing?
FUZE is performing well across channels. In terms of pricing we are remaining competitive but it’s a premium proposition. FUZE also has significantly less kilojoules than our main competitor and we think that’s important to consumers. We are building the brand slowly but surely. You can expect to see further innovations in FUZE over the next six to 12 months.
Barista Bros is performing well, it seems to be a good fit with petrol and convenience in the breakfast space. In P&C, consumption is high in the early morning, but as you go outside P&C into grocery and into more general convenience, the split across the day parts is more even. I think Barista Bros will continue to be strong in P&C in the breakfast space.
Over the next six months we will be innovating in terms of pack sizes to give consumers an even broader choice and we are looking at further dairy innovation over the next 12 to 18 months, so there is a lot of NPD in dairy in our plans.
How will issues like the Container Deposit Scheme (CDS) and community concern about sugar affect CCA in the coming year?
We really don’t know the final shape of the CDS yet, so it is difficult to have a definitive position on it, but we are well prepared. We have an extensive experience of running a CDS in South Australia with our statewide operation and we’ve been closely involved with the various state governments in terms of our interaction and the design of a CDS. To date, a sensible approach has been taken and we are yet to see how it all translates… it is something we’re watching very closely.
On sugar, I think it’s important to recognise that we are a responsible leader in the FMCG category and we are proud of our record so far. For quite some time we have been working to reformulate our packaging and our product.
We started working with portion sizes and portion control and with the launch of the 250 ml can in the back end of 2014. In July this year, we also launched the 250 ml PET package, which is price marked at $2 to make it very affordable. We think this is going to be instrumental in playing our part in addressing the issue of health and obesity in Australian society.