Coca-Cola Amantil hoping for a beer buzz after drinks war hits profits

Net profit for the six months to June saw Coca-Cola Amantil’s net profits drop 12.3% to A$215.9m following a costly battle for discounts with PepsiCo.

"While the Australian non-grocery business continues to perform well, the trading conditions in the grocery channel continue to be challenging​," said Terry Davis, CCA’s chief executive, in a statement.

Coca-Cola Amatil said it expected no growth in its profit before interest and tax over the full year, with a worst-case scenario being a 4% earnings slide.

Beer boost​

However, the wider group will be cheering a concurrent announcement that CCA had struck a deal with Molson Coors to distribute a number of its brands, including Carling and Coors Lite, in Australia. The deal will come into effect in December.

This announcement came as no surprise, with media reports speculating on the move over the last week, and marks CCA’s return to the beer market, which it left in 2011 after selling its stake in a joint-venture with SAB Miller.

Of the deal, Davis said: “We believe we are well positioned to hit the ground running with an expanded alcoholic beverages portfolio for 2014​.

“CCA is now... the only independent and large scale manufacturer, distributor and full service provider for premium international alcoholic beverage brands in Australia, and we are targeting over 1% in incremental earnings growth from our alcoholic beverages business from 2014 onwards​.”

Betting small​

Australia’s beer industry is worth A$11bn per year, with the market holding a A$1bn profit pool and massive margins.

But analysts have already criticised CCA’s choice of partner, with Molson Coors’ brands only accounting for a small percentage of Australia’s beer market. Moreover, with a portfolio of industry leaders, like Coca-Cola, there was surprise that the company chose only the world’s seventh-biggest brewer.

The Australian Financial Review highlighted this concern by quoting one analyst as saying: "If they got a big brand like Corona that already has a market share of about 6% or 7%, you can understand [their strategy] ... But they are not going to do that. Instead, this really seems a bit like rats and mice​."

But to justify the scale of the brands involved, Davis cited Peroni as a good example of what could be achieved by his company. It wasn’t big when CCA took it on in Australia but it is now, he said. 

Craft business​

CCA managing director for Australian Beverages, John Murphy, said the company would now focus on the rapidly growing premium and craft segments in its initial assault on the Australian beer market, and the Molson Coors deal would include the “number one craft beer in the US​”, which is widely understood to be Blue Moon.

Last year the company invested A$46 million in the Australia Beer Company, which will be used to acquire a state-of-the-art brewery in New South Wales.

As the opening salvo in its bid to become a beer major, last May, CCA won agreements to distribute Corona Extra, Carlsberg, Coors Light, Carling and Cobra brands in Fiji, PNG, Somoa, New Zealand and Guam.