Shareholders of Australia's embattled beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL) may be somewhat concerned about an article in the Fairfax press late yesterday afternoon.
Following on from a two-year period that saw the share price crushed and investor confidence dragged through the dirt, investors had been holding onto hope that the bottler's newest product, Coke Life, would be an instant success on the supermarket shelves which could perhaps add some fizz to the company's next earnings update.
But rather than talking up the new product, the article instead focused on a recent analysis undertaken by Credit Suisse which estimated that Coca-Cola Amatil had managed to sell just 7 million litres of the new soft-drink since its debut roughly five weeks ago. It also drew comparison to the introduction of Coke Vanilla, which sold 14 million litres over the same period in 2005, and 30 million litres of Coke Zero in 2006.
Coke Life was introduced to the market for a number of reasons. To begin with, there was a clear motive to compete with Schweppes' 'Pepsi Next' product, which was launched in 2012 and also uses stevia as an alternative sweetener to sugar. Less sugar content was also a major selling point, given the changing consumer health trends wanting to avoid excess sugar and calories.
Furthermore, the release of Coke Life also coincided with management's recognition that a greater focus on marketing and product development was needed to revitalise the brand, especially with Schweppes quickly gaining market share locally due to its offering of lower priced products at stores such as Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES). There is also a focus on premium and smaller pack formats to enhance consumer affordability.
But while Fairfax quoted Credit Suisse as saying that, "Repeat purchases of Coke Life are probably short of expectations at this early stage", Coca-Cola Amatil's management are adamant that the overall response from the market has been positive.
Indeed, Fairfax reported Watkins as saying that Coke Life was only hoped to account for between 1 and 2 per cent of total Coke sales by volume for the year (roughly 15 million litres), while "something like 3.5 per cent of all grocery shoppers have tried Coke Life in some shape or form, and that's a very high proportion given the product has been in the market for only a month."
The point is investors shouldn't spare too much time concerned with how the product has performed in its first five weeks, but should instead be focusing on the actions management are taking to turn the ship around over the long term.
Of course, it remains to be seen whether or not Coke Life is as successful as investors (myself included) hope it will be, or whether it will negatively impact the sales of some of its more traditional high-sugar products, but five weeks in is far too early to make that judgment.
As it stands, Coca-Cola Amatil believes it is on track to return to earnings per share growth and with the stock still trading at a depressed level, investors could certainly look to take advantage of the market's negative sentiment to start building a long-term position.
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