Photo by Reuters.
A new generation does not appear to believe Coke is the
''real thing'' but more the unhealthy thing, Morningstar
analyst Daniel Mueller says.
Morningstar has released a research report on Coca-Cola
Amatil asking: ''Has Coca-Cola lost its fizz?''
The company had experienced a challenging 18 months,
characterised by falling volumes, a resurgent Pepsi and
volatility in Indonesia.
Mr Mueller said Amatil's narrow competitive advantage
afforded it pricing power, which was significant given half
of its volumes were sold to the Australian supermarket
''Health is the new `black'. It is possible today's parents
are convincing their kids soft drinks are bad for you,''Baby
Boomers to Generation Y were brought up on Coke but that was
in the past, he said.
A recent Roy Morgan report indicated soft drink consumption
in Australia had fallen in the five years to December 2013.
Morningstar believed historic 1% to 3% category growth in
CSDs (carbonated soft drinks) was a thing of the past.
''In our view, volume growth will be flat to slightly down.
It remains to be seen whether growth in other categories,
particularly water, can offset this.''
Unlike CSDs, water was highly competitive and Amatil appeared
to have no competitive advantages, with minimal brand equity
in its water range, Mr Mueller said.
Consumers appeared to be unwilling to pay for brands, with
private-label water growing 80% during the last two years.
Amatil was at a competitive disadvantage in terms of cost
competitiveness in water because of its decentralised
production mode. Its Mount Franklin brand cost more to
produce per litre than the selling price of private-label
brands on supermarket shelves.
''We believe Amatil will address its cost position in water
over the long term and will centralise manufacturing and
bottling to gain production efficiencies. However, the
category is ripe for price deflation.''
Despite growing promotional activity in private-label water,
Australian prices were considerably higher than in some other
developed countries, he said.
Coke: At a glance
• Challenging 18 months
• Falling volumes
• A resurgent Pepsi
• Health-conscious society