Impact of sweet soft drink slowdown as CCA closes Bayswater soft drink bottling plant
Australian food and beverage manufacturer Coca-Cola Amatil (CCA) has announced it will relocate production from a small soft drink bottling facility in Melbourne to its larger capital city facilities as part of its strategy to increase manufacturing efficiencies and productivity across the business.
CCA’s Bayswater facility will be closed and 57 permanent roles will be made redundant. The Company said the closure program would not be immediate, but will be transitioned over the next 12 months.
CCA Australian beverage business troubles
The closure of the Bayswater facility comes after CCA reported that difficult trading conditions in the Australian business had resulted in a 14.1 per cent decline in Australian beverage earnings.
Trading conditions were challenging across all channels. Volumes and earnings in operational accounts declined as the Company experienced a continued shift to national chains and quick service restaurants. CCA said this decline was exacerbated by reduced promotional activity to the channel, a decline in sales headcount and reduction in outlet call frequency during 2013 which resulted in below required service standards. The Company said these issues were being “actively addressed”.
In the grocery channel, while volumes grew by 3.7 per cent, this was a weak result in the context of the business cycling a 14.5 per cent volume decline in the first half of last year. CCA said promotional activity yielded disappointing results and rate realisation continued to be under pressure due to weaker consumer demand, aggressive competitor pricing and private label activity in both water and flavoured carbonated beverages.
Soft drinks falling out of favour
Australian Food News has reported on trends in both the Australian and global markets that suggest soft drinks might be falling out of favour.
In November 2013, Australian Food News reported that there had been sharp declines in soft drink consumption among the under 35s over the last five years, according to findings from market reserach organisation Roy Morgan Research. Middle-aged Australians aged 35 to 49 years had become the group most likely to have soft drink in an average week.
The trend has appeared in global markets too. In September 2014, Australian Food News reported that findings from global market research organisation Canadean had found that growth in the consumption of carbonated packaged water in the US was expected to be much higher than the global average, with consumers moving away from soft drinks. In August 2014, Australian Food News reported that market research organisation Mintel had found that a quarter of UK consumers were drinking less soft drink than six months ago.
CCA Bayswater closure will “optimise manufacturing footprint”
Alison Watkins, CCA’s Group Managing Director, said that the closure of the the Bayswater facility and the relocation of its three production lines to larger facilities would “optimise” CCA’s manufacturing footprint, and was “an integral part of our plan to reduce our cost base and return CCA to growth”.
“We have invested more than $500m in our Australian supply chain over the past five years and we need to make sure we drive the best efficiencies we can to get the best returns possible on our significant investment,” Ms Watkins said.
Ms Watkins said streamlining CCA’s manufacturing footprint and logistics operations to leverage the Company’s scale was “an important priority”.
“The savings we generate will support more investment in our brands and innovation,” Ms Watkins said.
Closure part of cost savings strategy
At CCA’s interim results in August Ms Watkins indicated that the company was targeting more than $100 million in cost savings over the next three years which would primarily be driven by optimising manufacturing footprint, improving procurement, streamlining support costs and driving greater efficiencies from the supply chain.
The savings generated by the closure of Bayswater, as well as last month’s program to make 100 national supply chain roles redundant, form part of the $100m in cost savings CCA has flagged.
Transition period will mean no manufacturing disruption
The 12 month transition to close Bayswater will mean there will be no disruption to manufacturing capability and no impact on customers.
“While we regret closing Bayswater, we have flagged driving greater efficiencies from our supply chain as part of our plan to return to growth, which is an imperative,” Ms Watkins said. “I am confident that our policy provides for fair arrangements for those people affected, and we have an orderly transition plan to closure,” she said.