Shedding a layer to reinforce the core

A new tier of management may need fresh products to leverage Coca-Cola Amatil's first-rate manufacturing and distribution platforms but any major performance uplift will have to come from the core businesses.

Alison Watkins' modest streamlining of her senior executive super-structure is presumably only a slight foretaste of what’s to come in the strategic review of Coca-Cola Amatil’s businesses. Tomorrow’s update on the review at CCA’s annual meeting may provide a better sense of what she hopes to achieve.

Watkins, the former Graincorp chief executive who took up the CCA role in early March, today announced that the group’s managing director of Australian beverages, John Murphy, would leave the group at the end of June.

In February Warwick White, Australasian managing director, also agreed to leave in June so today’s news of Murphy’s departure means Watkins has removed a layer of senior management.

From June, CCA’s core non-alcoholic beverages business will be headed by the group’s New Zealand managing director Barry O’Connell who, with the current director of its licensed and alcohol unit, Shane Richardson, will report directly to Watkins.

Watkins announced a strategic review of the group last month, in response to what are generally considered to be structural changes in CCA’s core markets. Today’s annual meeting is expected to be given an update on the progress of the review.

The challenges confronting Watkins shouldn’t be underestimated. Its core non-alcoholic beverages business had, until the last couple of years, been a stellar performer under former CEO Terry Davis, who presided over a decade of near double-digit growth in earnings. He did that through a combination of very strong cost control, product innovation, selective acquisitions and incremental price increases.

The pressures on CCA that have emerged in recent years essentially relate to very aggressive price-competition from its main rival, the Pepsi/Schweppes brands owned by Japan’s Asahi and the squeeze on suppliers from the two major supermarket chains and the growing presence of private-label products on their shelves. Overlaying those issues is an apparent continuing shift in consumer preferences away from carbonated soft drinks and the generally low-growth state of the sector.

While the intensity of the price-driven competition from Schweppes appears to have eased slightly this year, the supermarket chains are most unlikely to suddenly become more benevolent and across the beverages sector there has been a fragmentation of consumer preferences and a shift away from the CCA higher-margin stronghold of carbonated beverages.

Watkins demonstrated at Graincorp that she is good at restructuring and controlling costs and is not averse to careful and synergistic acquisitions.

Her task at CCA is made more difficult because Davis is seen to have done a good job on costs, limiting the scope for easy and significant gains, although she has foreshadowed a ‘’step-change in our fixed costs and productivity.’’

CCA may need more product innovation and, indeed, probably some new products to generate some growth and to leverage its first-rate manufacturing and distribution platforms.

CCA has re-established a presence in alcoholic beverages after selling out of its joint venture with SABMiller in 2011 but that’s a relatively small business today. Its Indonesian business has been growing volume but has been hurt by significant cost increases. If there is to be a major uplift in performance it will have to come from the core Australasian businesses.

The annual meeting will presumably provide some insights into the direction Watkins wants to take the group, although it may take some time for the outcomes of the review to be established and the implementation phase to begin.

The changes at the top of the group, however, would suggest Watkins isn’t going to be sitting around twiddling her thumbs awaiting that outcome before starting to put her stamp on the group.

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