Coca-Cola Amatil suffers as Australia is opting for water

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Coca Cola
Coca-Cola is poured into their branded glasses during a presentation in Paris, France, January 19, 2016. Reuters/Benoit Tessier

Coca-Cola Amatil secured sixth spot on a poll of 3000 people about which soft drink brands they could not do without based on a research by Canstar Blue. However, it was also revealed that sales of the world's biggest-selling soft drink in history were declining in Australia for more than a decade as people prefer to drink water instead.

According to investment bank Citi, bottled water currently accounts for over one-quarter of the non-alcohol ready-to-drink market in grocery stores. In comparison from five years ago, the current situation sees a surge of 14 percent.

Consumers are reportedly opting for cheaper private-label water sold by supermarkets such as Woolworths and Coles. Coca-Cola Amatil has higher percentage of the soft drink market than it does bottled water.

Sydney Morning Herald reported that the company downgraded its half-year guidance, accounting for at least two-thirds of its market after it has seen falling sales in the Down Under. Shares continued to drop on Monday, 11.7 percent down in two days.

Citi’s Craig Woolford has noted that supermarkets dropped private-label water prices by 10 percent in January. Citi believes that water is the culprit of the malaise in the soft drink market as cheap private label water is categorised as the latter’s “biggest headache,” The Australian reports.

Woolford went on to explain that Amatil is facing a twofold impact. Affordability is perceived as a major reason why consumers are opting for water instead of carbonated beverages. Secondly, Amatil’s Mount Franklin loses share because it is more than two times the price versus the category average.

Citi told clients that water accounts for at least 17 percent of Coca-Cola Amatil's total volume sold. However, it may account for between 25 and 35 percent of the amount it earns.

Ian Carmichael, consumer analyst at Watermark Funds Management, also enumerated some issues with Coca-Cola Amatil's local beverages arm. “Why pay a premium for Mount Franklin when there is no taste difference?" he asked.

Monik Kotecha, chief investment officer at insync fund managers, agrees that Coca-Cola Amatil is facing challenges ahead, but mentioned that sentiment may possibly turn when Coke's core brands become stable and growth segments as energy, juice, dairy and tea deliver. She thinks it is interesting that there is this focus on health, diet and obesity and yet businesses like Starbucks, Monster and Red Bull are doing very well. "Global consumption of sugar has stayed fairly flat,” Kotecha has noted.

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