One of the things I hear most often when discussing shares in Coca-Cola Amatil Ltd (ASX: CCL) is some version of:
"Yeah, but people are getting more health conscious and they're going to drink less soft-drinks."
"Soft-drink is sooo bad for you and people are increasingly aiming to drink less sugar."
"Consumer preferences are changing and Coke is going to fall by the wayside."
All of which could be true, although the time frame is a big question – none of this is going to happen tomorrow, or the day after. Or even next year, for that matter!
Without commenting on Coca-Cola's prospects, which I've already covered at length, I wish to challenge the assumption that consumer preferences will end Amatil.
As a moderately bullish Amatil shareholder, I think of the problem in this way. Can you imagine a future where people don't drink pre-packaged, serving-sized beverages? No soft-drinks, energy drinks, bottled water, mineral water, juice, milk, iced coffee?
Of course not, the idea is ludicrous; the convenience, novelty, and quick fix factor is far too high. So I think it is safe to say that pre-packaged beverages are here to stay.
While Amatil draws most of its earnings from Coke at the moment, it does have a finger in each of the other pies – nutrient water, iced coffee, etc, that I mentioned above, as well as a fledgling alcohol segment.
Consumer trends are already changing and Amatil is working to meet consumer demand with a range of energy drinks and iced coffees, as well as new products like Coke Life which is a low-sugar, stevia-sweetened beverage.
Over time, preferences could change further which would presumably result in lower sales of traditional beverages like Coke or a favouring of the Coke Zero and Diet varieties as well as a shift to mineral waters and so on.
Secondly, investors are overlooking and underestimating the expertise, facilities, supply chain and support (in the form of US-listed significant shareholder The Coca-Cola Company) that is available to such a major business.
Imagine a world where consumers don't drink Coke anymore. Who are you going to get to bottle your pre-packaged beverages? Presumably a beverage bottler will be your first choice. With Amatil's expertise, national footprint, and brand recognition, it's going to be a strong contender for first place.
Do I think changing consumer preferences could hurt sales over the long run? Yes. Do I think it's going to be a company ender? Absolutely not. Coca-Cola Amatil has a number of powerful advantages, and investors worried about consumer preferences are confusing a changing beverage landscape with a company-ending threat.
