To Terry Davis, keeping the Coca-Cola system’s fourth largest bottler, Coca-Cola Amatil (CCA), firing on all cylinders, “is not rocket science. It’s pretty simple.” Challenge him on this—for example, bring up topics that can keep any bottler up at night like the obesity epidemic, the environment, the economy, competition—and yet he still coolly insists, “I think people try to make it too complicated—I think it’s quite simple.”

It’s this coolness that has probably helped Davis, CCA’s group managing director, lead the company to deliver a record net profit of US$171.9 million for the first half of 2008, 22 percent higher than the first half of 2007. What’s more, these results came amid a challenging business environment hampered by poor weather, rising commodity costs, weakened consumer demand and heavy discounting by the competition.

Beverage analyst Manny Goldman says the results prove that CCA has turned the corner on what he calls “a rough patch” when the company was hampered by an unwieldy territory that included far-flung divisions in Europe and Asia.

Restructuring itself into something somewhat more manageable has been a decade in the works. In 1998, Amatil sold its European operations, in 2001 it sold its Philippines operations, and then last year, it divested its South Korean business. Says Goldman, “they seem now to have gotten back to their basic business, which they’ve been very good at.” That “basic business” includes its home base of Australia, as well as surrounding New Zealand, Papua New Guinea, Fiji and Indonesia.

What’s On Tap?
When Davis took the reigns of CCA in 2001, one thing he was not happy with was the lack of product diversification. “Ninety-five percent of our sales came from carbonated beverages,” he says. “And that was great and we had a wonderful franchise, but there hadn’t been the level of innovation that you would have expected. For instance, unlike in America where there had been many variations of brand Coke over the years, we launched diet Coke in Australia in 1983 and up until 2001 there hadn’t been another variation of brand Coke.”

This soon changed with the launch of Vanilla Coke. Other innovations have followed, including more recently, the hit Coke Zero, Pumped flavored water, new Powerade isotonic flavors (in Australia, unlike the US, Powerade is the leading sports beverage), Goulburn Valley premium juice, smoothies and fresh flavored milk. While many of the brands are trademarks of The Coca-Cola Company such as Lift, Sprite, Fanta and Powerade—The Coca-Cola Co. holds a minority 30 percent share of CCA and has two seats on CCA’s eight-member board—CCA also controls a portfolio of its own beverages including Kirks and Deep Spring.

The company also has moved aggressively into functional waters. Davis says the Coke-owned glaceau vitaminwater has been a huge hit. “We were the first country outside of the US to launch glaceau,” he says, “and we’ve achieved four times the results that we expected.”

But despite being one of The Coca-Cola Company’s largest anchor bottlers—CCA ranks fourth behind Coca-Cola Enterprises in Atlanta, Coke FEMSA in South America and Coke Hellenic in Europe —nearly 20 percent of the profit growth for CCA in the first half of this year came from non-alcoholic beverages.

In August of 2006, CCA announced a 50/50 joint venture with SABMiller plc called Pacific Beverages Pty Ltd to sell and distribute imported premium beer in Australia. Davis says the beers from this agreement, including Peroni, Miller Genuine Draft and Miller Chill, have continued to rapidly increase share of the premium beer market. That same year, CCA entered into an agreement through Pacific Beverages to sell and distribute the portfolio of global premium spirits distributor Maxxium, which includes such brands as Absolut Vodka, Jim Beam and Remy Martin.

CCA also is now poised to become a major Australian brewer in its own right. Last December, Pacific Beverages acquired Bluetongue Brewery (named after a local species of lizard), adding a fast-growing and uniquely Australian premium beer brand to Pacific’s portfolio. Pacific Beverages is also constructing a boutique premium brewery at Warnervale in New South Wales in order to further accelerate its premium beer strategy. The brewery, when completed, will enable Pacific Beverages to increase production of Bluetongue to meet increased national demand, while also providing capacity for the potential production of other Australian premium beer brands. The brewery, with a capacity of 500,000 hectoliters, is expected to be completed during 2010 and is being jointly funded by CCA and SABMiller.

“Unlike in the US,” explains Davis, “in Australia we can be a wholesaler, we can be a retailer, we can be a producer. So it makes some sense for us to be able to offer a broader range of product to licensed premises that allows us to deliver more often, it allows for them to have one invoice, one sales rep to service their account. And that’s resonated very strongly with them.”

Additional diversification likely will follow in 2009. For example, CCA is actively negotiating with Danone to acquire its Frucor unit, which bottles Pepsi in New Zealand and also makes energy drink V, which has a 54-percent share of the local energy drinks market. And Davis has also made it clear that he is interested in acquiring Cadbury’s local Schweppes beverage brands, pointing out that Coca-Cola owns Schweppes in all other markets of the world including New Zealand.

Whatever ends up happening with these additional brands, Davis already has accomplished much of what he set out to do: in 2007 that 95 percent reliance on revenue from soft drinks had shrunk to just 67 percent, with non-carbonated beverages, food and alcohol the growth areas.

A Self-Fulfilling Strategy
Davis is CCA’s first chief executive to come from outside the Coke system, joining CCA in November 2001 after 14 years in the beer and wine business. He had been managing director of the Foster’s-owned Beringer Blass Wines and managing director of Cellarmaster Wines for 10 years prior to that.

From his experience in the beverage business, he has come to the conclusion that while product innovation is important, so is cultivating the market you do business in. When Davis talks about this not being a “rocket science” business, he means, for instance, that sometimes driving revenue is as obvious as understanding that the more cold vaults you have, the more sales you get in return.

“Our cooler penetration per ten thousand of population was well below average,” he recalls. “And we looked at that and said, well, why was it below average? Well, we didn’t have enough variety of products in the fridge. And by increasing the variety within the fridge it meant we could put more coolers in. By putting more coolers in, we sold more. Therefore, we can invest back in the marketplace. The more you make, the more you reinvest.

“So it’s all about that focus on how you improve the returns that then allows you to reinvest part of those improvements in returns back in the marketplace. So it becomes a self-fulfilling strategy.” In other words, sometimes the simpler, the better.

From Beverage World September 15, 2008