The shift in tastes in Australia from sugar-loaded carbonated drinks to still water and low-kilojoule varieties is dragging on profits at Coca Cola-Amatil.
The beverage group expects its first half underlying net profit after tax to fall as people move away from traditional flavoured fizzy drinks and strong competition in packaged water hits drinks sales.
Managing director Alison Watkins says full year underlying net profit after tax for 2017 is expected to be broadly in line with last year’s $417.9 million which was then a 6.2% rise.
“When we first outlined our strategy in 2014 we were clear that our target was returning the business to mid-single-digit earnings per share growth in the next few years,” she will tell shareholders at today’s annual general meeting.
However, trading for Australian Beverages has so far been weaker than last year due to strong competition and changes in demand.
“In particular, we experienced price devaluation in sparkling, pressure on our mainstream water brand and bore higher cost of goods sold,” she says.
“We will continue with our plans to respond to the changes in the Australian market. We also know our diversified business portfolio is our strength and can mitigate some of this impact.”
The company in 2016 launched a program to strip another $100 million in costs from the business.
And among the new products being sold is the energy drink Monster.
The company is also launching new flavours of coke, including Coca-Cola with Stevia (a sweetener and sugar substitute) and Coca-Cola with Ginger.
The company is now also selling fewer drinks with sugar.
“We recognise we have a role to play in addressing the issue of obesity in the communities in which we operate,” she says.
The company is moving to meet shifting tastes in Australia. There’s less demand for fizz — carbonated drinks — and more for still, including water, energy shots and dairy.
More than one third (34%) of its sales volume is now made up of low or no kilojoule varieties. And 79% of CC-Amatil brands have low kilojoule or no added sugar alternatives.
“Our focus is delivering real changes on the ground for consumers in response to their concerns,” says Watkins.
“And our ability deliver further innovation with The Coca-Cola Company in this area presents great opportunities for us as a business and ensures our place in the beverages market of the future.”