Coke raises glass to its return to beer market
Outgoing Coca-Cola Amatil chief executive Terry Davis expects his successor, Alison Watkins, to endorse the bottler's return to the $11 billion beer market, even though analysts believe beer is unlikely to generate profits for years.
"The logic for us getting into the premium beer business is still the same as it was two years ago," Mr Davis said on Tuesday as a two-year non-compete agreement with former joint venture partner SABMiller came to an end.
"We become more relevant to our licensed customer base and by becoming more relevant to our licensed customer base we sell more Coke - I can't see why there would be any change to that strategy," Mr Davis said.
"It would have been a surprise that Alison would have taken the job if it's not the right strategy. Until I cease to be the CEO (in August) we'll continue full steam ahead."
CCA has converted a $46 million loan to brewing partner Casella Wines to a 50 per cent equity stake in the Australian Beer Company and has started selling a range of beer and cider brands made by Casella, Molson Coors and the US brewer's craft beer business, Blue Moon - tapping its existing customer base and relationships with the major retailers to win sales.
Early next year, the joint venture partners will add additional brews from US craft beer makers Samuel Adams and The Boston Beer Company, Rekorderlig cider from Sweden and Fiji Bitter and Vonu beer from CCA's breweries in Fiji and Samoa.
CCA has also held talks with global brewers such as Mexico's Grupo Modelo, Anheuser Busch InBev, Heineken and Carlsberg with the aim of snaring distribution agreements held by Lion Co, SABMiller and Coopers.
"The brands we launch today won't be the last," Mr Davis said.
Mr Davis said the alcoholic beverages business would be profitable in the first year and would "easily" achieve its cost of capital, justifying CCA's relatively small investment.
However, analysts believe beer alone is likely to generate losses in the first few years.
CCA and Casella already had one million orders and expected to install 250 draught taps in the next few weeks. "Certainly we've been fortunate we've been able to buy into the brewery at the right price," Mr Davis said.
CCA's Pacific Beverages joint venture, which built a $125 million brewery on the central coast, never made a profit, as earnings were reinvested to build brand equity and distribution. CCA sold its half-share in PacBev in 2011 for a $170 million profit and agreed not to compete in the beer and cider market for two years.
"We would never have been out of the beer business if SABMiller didn't want to pay too much for Fosters," Mr Davis said.
"We haven't had to spend any acquisition money, we haven't had to spend hundreds of millions for distribution rights, we haven't had to pay anything - that makes the difference between us (and Pacific Beverages)," he said.
Casella is using the $46 million cash from CCA to increase capacity at its brewery at Yenda in NSW to 500,000 hectolitres - sufficient to supply 15 per cent of the Australian beer market
Mr Davis and CCA's Australian beverages managing director, John Murphy, believe the Australian Beer Co can achieve at least 10 per cent of premium beer sales by focusing on faster-growing, higher-priced international and craft brews. "We are going to be really clever and prudent about how we fill the portfolio," Mr Murphy said.