Coca-Cola Europacific Partners Vice President Peter West has revealed he hopes to emulate the success of Coca-Cola Amatil New Zealand as he prepares his growth strategy following the company’s acquisition by Coca-Cola European Partners.
West discussed his plans during a Coca-Cola European Partners Q1 2021 earnings call, saying that while the New Zealand business “went right” the Australian business “went left”.
“We are incredibly proud of our New Zealand business and its performance over many years and we also think it acts as a powerful proof point to what is possible here in Australia,” he noted.
“Now, for me, I joined in 2018 and the key question at the time was why has the New Zealand business done so well, relative to the performance in Australia?
“In my first visit to New Zealand, what I discovered was that back in 2014 we were in very similar spots, some volume pressure, some margin decline and the choices that we made. The New Zealand business went right and the Australian business went left. And the key differences between the two markets were as follows:
“The first was 150% confidence in core Sparkling in New Zealand. They really believed where they could take the core business to maintain relevance and growth. And in Australia, we were chasing emerging categories or niche categories that we believe would be growth.
“They also believed in New Zealand in the power of small stores to have a very balanced portfolio for the long term and it’s a gift that has kept giving year after year with growth in store numbers. And at the same time, from an Australia perspective, we declined our investment in small stores and had the resulting impact. That allowed New Zealand to better leverage and manage their price because of the balance of their customer base. And because of their belief in the call, they were able to execute unbelievably within the marketplace because of their strength and their power. So for me that gave me great optimism about the potential for the Australian business.”
West said there would be a review of the company’s portfolio in Australia.
“Our biggest opportunity is to step change our performance in flavours and that’s been the area that we’ve been disappointed in our performance,” he explained. “It’s also the area that is winning in Europe, and in Fanta, in particular, and in the whole Diet segment. So therefore for us this is an intense review to address the performance in flavours.”
He also noted there would be an increased focus on smaller packs and smaller can size or pack size, as that was “where all the growth is coming from”. There would also be less reliance on promotions.
The number one product for CCEP
West said the number one area of focus and acceleration of performance was Coca-Cola No Sugar.
“It is the hot item within the marketplace,” he said. “And we know through increased penetration that we can unlock growth.
“We enjoy a very strong market leadership position and that is powered by the Coca-Cola brand. You can see that nearly accounts for half of our volume and returning it to growth was our number one area of focus. So we celebrated its return to growth in 2019. Despite COVID, we still grew in 2020 and we’ve had a very strong start again on the Coca-Cola brand driven by the performance of Coca-Cola No Sugar.”
He noted that the company had done its research and “knew the postcodes it really needed to win” where the demand is at its highest.
How alcohol fits into the picture
West said the Australian business also has a very strong alcohol division, driven by the partnership in spirits and RTD with Beam Suntory.
He explained: “In Australia, we have a liquor license that focuses the sale of alcohol and it’s sold through on premise outlets where up to 90% of what is sold is alcohol and in off-premise outlets that are made up of hotels, clubs and restaurants and cafe that can be anywhere from 25% to 95% of sales being alcohol.”
He said there were learnings that could be used in other parts of the business.
“We’ve also developed a repeatable model in spirits and RTD with the Jim Beam brand, Canadian Club, Maker’s Mark, and the House of Suntory collection. We also know that in our emerging businesses that there is an opportunity to sharpen our focus with Grinders Coffee, with our Beer & Cider portfolio and also our Neverfail water business.
“In alcohol, we have a proven model of success. We’re seeing a nice move to premiumisation. We’re doing a very good job at the execution in the partnership with Beam Suntory. And we know that we have an opportunity to simplify our approach when it comes to both beer and our cider business.”
When asked if any of the Australian business’ licences would be lost in the transition to CCEP, CEO Damian Gammell said the company clearly had “some fantastic partnerships that come along with this acquisition”.
“And as far as the one that comes to mind when you asked that question is Jim Beam with Suntory and that’s certainly a business that Coke Amatil has developed along with the brand owner over many, many years and created a lot of value for our customers and for our business,” he said. “So, I think there is certainly relationship of scale like that that we intend to build and nurture even further and to continue with. And that’s been built into our transaction.”
Advantage Survey critical to success
West revealed the company placed a very strong focus on the Advantage Survey to understand its performance against the top 25 suppliers in the market.
The Advantage Survey delivers a highly detailed, industry related, benchmark engagement and “mirror” report each year, providing key insights into how retailers view the relationship with their supplier partners though key areas.
“We know that our customers hold the top 25 suppliers to much higher standard than what they would hold in the rest of the industry,” he said. “We ranked number five. It’s good. But we don’t aspire to be number five. Clearly we aspire for much better. And when we see the performance in Europe, we can clearly see the benchmark, but we also get to see some of the core capabilities that sit behind that number one rating in Advantage.
“Our first area of capability focus is to steal and reapply all of the investment that’s been made in world-class care account management. Our clear opportunity in the Advantage survey is that we’re coming into brand focus and not sitting back at a category level to really understand the customer’s business, more about their beverage opportunity and beverage growth where their profit pool set and how we support that over many years and also how we manage the specific execution for that customer. So clearly this is something that we believe will propel us forward.”
Changing shopper behaviours
West told The Weekly Times that the company had believed consumer behaviour would return to what it had been in 2019. Now, he said, “we don’t see people returning to offices five days a week, we see that in our Neverfail business which has a very strong component of office water”.
“In general people want to come back to work three days a week, and that changes where they buy, what they buy and the occasions,” he explained. “So they are not buying water as much, they are home for lunch and then buying different things for dinner.”
He said low tourism numbers were hurting hotels in CBDs but domestic tourism has helped drive drink sales in regions and holiday spots.
“Every 5km from the city, the business improves and the best it gets is 30km-plus from the city, so regional is doing incredibly well. What we are seeing is a return to mobility but it is very different,” West revealed.
He said vending machines sales for his beverages at railway stations were down 25%, airports sales were down double digit, but petrol stations and convenience stores sales had double digit rises.
“People are driving, they are more suburban and more regional,” he said.
Looking to the future
West said CCEP in Europe is “further advanced than where we sit here today” in Australia and that through this integration he wanted customers to experience the benefit and notice the improvement. That included working on joint business planning and addressing the explosion of e-commerce.
“So to put it all together simply through reorientating the portfolio, winning with customers and building on our capabilities and this area of capabilities is where we think that we can really accelerate our performance.
“We believe we have lots of opportunities for success. We’re very confident on our focus but we believe we can accelerate performance through the expertise and knowledge from our European team. Our focus now is on sequencing the work. We know that there is some great ideas, but we want to make sure we prioritise the initiatives that will make the biggest difference to our performance and capability.”
West said that the company had clear feedback from its brand partners that previously “they felt that we were too inconsistent with our capabilities and there wasn’t a common way of doing business as Amatil”.
“So for us, this integration is about that possibility, it’s about the escalation of our performance and leveraging best-in-class capabilities of the system and that’s clearly why we’re excited by the potential,” he said.
Gammell added that the company had great customers in Woolworths, Coles and Metcash, with the the underlying feedback being that the acquisition would open the market up to a much bigger centre of learning and opportunity in Europe.
“I think what they’re excited about is, I mean, they’ve read our presentations, they are excited about our joint value creation mindset, that’s something that they feel Australia could benefit from,” he said. “They’re curious on the brand portfolio side, all the trends around sugar, health and wellness, will this deal unlock more opportunity for their customers, and I think also from the digital agenda, they’ve obviously been watching closely through their own networks, the speed of online grocery shopping that has come on the back of COVID and the speed of food aggregators.
“So there is a big curiosity in Australia and New Zealand and while they haven’t had the massive change impact that we’ve enjoyed with the pandemic, certainly the underlying consumer trends are similar. So I suppose overall, an appetite to learn and share very positive and I think a good degree of curiosity.
“I think that’s what we were hoping for is that they’d open the door and be curious and that’s exactly what we’re seeing. And that’s in all the markets, but definitely in Australia which is very similar to where we are today in terms of GB, trade structure, route-to-market, a lot of similarities that we can share and I think there’s a lot we can learn.
“And I think one of my commitments to my Board and to my leadership team was this acquisition has to make Europe stronger. That is a key objective and that’s where 80% of our revenue sits. That’s where we need to recover back to 2019 faster. So this is going to be a two-way learning and we’ve already seen that, but overall very positive.”