Cott profits stung by soft drinks market shift

By Chris Mercer

- Last updated on GMT

Related tags: Cott, Soft drink

The world's largest supplier of private label soft drinks, Cott,
says 2005 profits will be badly hit by low fizzy drink consumption,
rising PET costs and poor performances from own-label bottled
water.

Cott withdrew its earnings forecast for 2005 and said it would only post revised estimates once it had completed a review of cost-saving initiatives.

The only guidance was that it expected this year's earnings to be "substantially below"​ last year. The announcement sent Cott's share price to its lowest level for more than a year on $18.74, though a poor performance in the first half of the year had already indicated the firm was having problems.

"Earnings are being impacted by continued carbonated soft drink volume softness in the US, product mix shift towards lower margin bottled water and escalating raw material costs."

Cott's warning suggests that the firm has struggled to cope with the shift to non-carbonated drinks led by health-conscious consumers.

The company's statement on bottled water may also be a sign that private label bottled water is finding it hard to stand up to the big brands and drinks firms, which are increasing their presence in the sector.

Coca-Cola has openly given greater attention to non-carbonated drinks this year and has taken a greater interest in bottled water, despite the troubled launch of Dasani last year.

Meanwhile the existing giants, Danone with Evian and Volvic and Nestlé with Vittel and Perrier, continue to dominate, whilst also focusing on innovation - mainly in flavoured water.

Added to this increased competition, the lower value of private label water makes it harder for firms like Cott to insulate against rising PET costs.

Cott's problems in the low-value water sector now place even greater importance on its recent acquisition of Macaw, a large private label drinks supplier in the UK.

The deal gives Cott a first inroad into aseptic drinks production, something Andy Murfin, managing director of Cott's UK and Europe divisions, said was good way of targeting fast-growing sectors like energy drinks and bottled water.

Aseptic lines are growing in popularity because they enable firms to dive into health trends by allowing drinks to be made without preservatives and with a high juice content. They also help firms to add value to products by fortifying drinks with vitamins and minerals.

Murfin said Cott would look to continue using Macaw's aseptic filling line to help branded players as well as develop private label 'brands', and that the acquisition as a whole is expected to improve Cott's UK sales by 50 per cent.

It remains to be seen how badly PET costs will continue to damage Cott profits, though company president John Shepherd said this was something affecting the "entire soft drink industry"​.

Related topics: Soft Drinks & Water

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