What happened to the CCL share price?
Back in 2013, shares in Coca Cola Amatil [ASX:CCL] were powering along. Hitting a peak over $15, CCL had delivered its shareholders a compound return of 12% per annum over the previous decade. However, a profit downgrade in May that year was a turning point for the company — it has been in a downtrend since then.
Despite a boost from its recent results in May this year, this former market darling has fallen over 10% over the last two months, trading at prices last seen back in 2009.
Why did Coca Cola do this?
Coca Cola is a company fighting predominantly on two fronts. Despite holding the leading position in terms of market share, brand awareness and margins in the carbonated drinks market, its business is getting squeezed in the supermarket wars.
Both Coles and Woolworths [ASX:WOW] are under massive pressure from newcomer Aldi, with all suppliers being put to the sword. It’s a battle for shelf space. Unless Coca Cola trims its margins, the space will go to a rival, like Pepsi, instead.
The second challenge is that consumer trends are changing. Fizzy pop drinks are no longer in vogue, with pressure now on for healthier alternatives. Although CCL is trying to adapt, it still relies heavily on its premium Coke brand.
What now for Coca Cola?
Further gains in distribution efficiencies, such as manufacturing plastic bottles on-site, all help CCL’s bottom line. But it’s unlikely that supermarket margins are going to return to previous levels anytime soon — if ever.
For the moment, it doesn’t look like there’s any quick fix. CCL will need to keep developing new, and healthier, products, relying on its strength as a marketing and advertising powerhouse to keep sales ticking along.