Surviving COVID-19: Coca-Cola Amatil to implement cost-saving measures in 2020 even as sales rise

27-May-2020 - Last updated on 27-May-2020 at 04:13 GMT

Coca-Cola Amatil says it has seen improved sales performance across most of its markets in May, but will have to continue to focus on cost-savings initiatives in the coming year. ©Getty Images

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Coca-Cola Amatil says it has seen improved sales performance across most of its markets in May, but will have to continue to focus on cost-savings initiatives in the coming year as the company doubles down on efforts to survive the impacts of COVID-19.

The firm had been besieged with major hurdles since late last year from the bushfires in Australia to the COVID-19 pandemic outbreak. When we last spoke to Coca-Cola Amatil Group Managing Director Alison Watkins, she had emphasised that there was ‘large volatility’ in the market currently due to the latter, although expressed optimism that the firm’s solid foundations would help it pull through.

This appears to have been the case so far, with the firm seeing less sales volume declines this month as opposed to in April, leading a cautious optimism that things are taking a turn for the better.

“At the time of our last COVID-19 update we noted significant volatility across channels and markets as the impacts of the pandemic started to take effect, which has [since] continued. [Overall], Coca-Cola Amatil saw Group sales volumes decline by approximately 33% in April 2020 as compared to April 2019 as a result of this,” Watkins told FoodNavigator-Asia after the company’s AGM yesterday (May 26).

“But as we now start to see the gradual easing of lockdown restrictions across each of our markets, signs of some green shoots are emerging. Trading in the first three weeks of May has seen a modest improvement with our volume declining by approximately 26% compared to the prior corresponding period (pcp), [less than the 33% seen in April],” she said.

“[In Australia, for example], we are seeing early signs of modest improvement in the Non-Alcoholic Ready to Drink (NARTD) sector, with [sales] volume decline rates lessening in the first three weeks of May to approximately 20% (compared to the pcp) from 30% in April (compared to the pcp in April 2019).”

New Zealand sales volumes in NARTD also showed improvements, with declines improving from a 35% drop in April to just 10% in the first three weeks of May.

Indonesia, which was the firm’s hardest-hit market, is still in the midst of lockdown and these restrictions prevented normal Ramadan celebrations causing sales volumes to drop 40% in April.

“Looking ahead, [although] we are seeing some green shoots in May as restrictions begin to be gradually eased, nevertheless uncertainty remains and economic recovery is expected to be protracted,” Watkins added.

The firm is aware that it is not out of the COVID-19 woods yet despite things looking up, and is still working from a base of caution, especially in relation to costs and finances.

“Given the prevailing uncertainty as to the duration of the lockdowns and the ultimate impact on the broader economies we operate in, we have implemented measures to bring our expenditure in line with the COVID-19 trading environment,” Watkins said.

“We decided that it is prudent to defer non-critical projects thereby reducing our capital expenditure for the 2020 financial year from A$300m (US$199.1m) to A$200mn (US$132.7m) [and have] also identified at least A$140m (US$92.9m) of cost savings that we can deliver in the remainder of the 2020 financial year through the removal of marketing and non-essential spend.”

Besides these, she also highlighted that Coca-Cola Amatil had conducted a stress-test of all its financials and ‘re-prioritised’ all projects that it had planned for 2020 to focus on ‘long-term upside opportunities’.

“Supply chain continuity has been a high priority and we are undertaking ongoing reviews and monitoring of these,” she added.

Sustainability and start-ups

Despite its cost-cutting measures, the firm has still placed a good deal of focus on its sustainability initiatives, including a new collaboration with its packaging partner Dynapack Asia to builds a new recycling facility in Indonesia.

The facility is currently in the proof-of-concept phase, and will specialise in bottle to bottle grade Polyethylene Terephthalate (PET) recycling.

“This joint venture [aims to find] a more sustainable approach to plastic and a circular economy by bringing low-quality PET waste back to virgin-quality, food-grade PET,” said President Director of Coca-Cola Amatil Indonesia Kadir Gunduz.

“It is a significant step towards Amatil becoming self-sustaining in the plastic materials we use, ensuring a closed-loop for plastic beverage packaging in Indonesia as a whole.”

Indonesia is undoubtedly one of the markets most in need of efforts targeting recycling and sustainability out of all the markets that Amatil is in, as significant progress has already been seen in Australia and New Zealand, and Gunduz estimates that this recycled plastic could reduce the amount of new plastic resin the company uses by an estimated 25,000 tonnes each year by 2022.

Another of the firm’s projects that has seen priority is its start-up platform Amatil X, which Watkins said would continue to help early stage start-ups aligned with its business objectives.

“Importantly, our Amatil X team is looking into new business models emerging from the COVID-19 crisis as consumer behaviours and habits change, so we can leverage the acceleration of trends, including the expansion of e-commerce, online grocers, order ahead platforms, and food and beverage delivery,” she said.

2019 performance

Coca-Cola Amatil Chairman Ilana Atlas spoke on the firm’s positive 2019 performance during the AGM, and how this had helped them tide through the many challenges it had faced this year.

Atlas highlighted that trading revenue in FY 2019 had increased by a strong 6.7%, and earnings before interest and tax (EBIT)/profits had also risen 0.8% year-on-year to hit A$639.3m (US$420.8m) despite hurdles brought on by the Australian bushfires and COVID-19.

This positive performance was seen across all of its major markets: Profits from Australia grew some 1.9% to hit A$369m (US$242.9m), New Zealand and Fiji profits grew 10.1% to A$123.8m (US$81.5m), whereas Indonesia and Papua New Guinea profits grew 14.3% to A$97.3m (US$64.0m).

“2019 was particularly significant for Coca-Cola Amatil. Not only because it marked the completion of our two-year transition period, but our strong performance last year has helped to provide the solid foundation from which we have been responding to the challenges of 2020,” said Atlas.