Coca-Cola Amatil chief Alison Watkins wary of consumer caution

Coca-Cola Amatil chief Alison Watkins has expressed fears for the state of the economy as consumers ‘batten down the hatches’.

Coca-Cola Amatil CEO Alison Watkins Picture: Adam Yip

Coca-Cola Amatil chief executive Alison Watkins has expressed grave fears for the state of the economy, with the average consumer “battening down the hatches” and constricting their spend­ing due to the subdued outlook.

Speaking to The Weekend Australian after addressing analysts at the company’s investor day on Friday, she confirmed that Coca-Cola Amatil was on track to return to growth targets in 2020 as the bottler completed its investment and transformation program, but this was at a time when consumers were feeling the pinch.

Successive interest rate cuts and tax rebates did not seem to be fuelling consumption, she said, mirroring the pessimistic sentiment expressed by several company CEOs in recent months.

“I definitely think there is an air of caution and we have seen that through people choosing to pay down their mortgages instead … it’s the same with the tax cuts, so there is definitely a feeling of battening down the hatches out there,’’ Ms Watkins said.

“For our business, it doesn’t have an impact that much. It probably does hurt some of our customers who are more reliant on discretionary spending, but overall a Coke is a pretty affordable treat.”

She said consumers were choosing to save rather than spend, or pay down debt, ­especially as there was no clear signal ahead that the economy was about to get better. “I think it’s evident in the economic stats we have seen indicating people are saving the interest rate reduction benefits,” she said.

“They are saving the tax cuts, they are looking forward and not really seeing any catalyst for an increase in wages.

“We know a lot of households are in real terms certainly worse off or no better off at least over the last 10 years or so. So I think ­people are being a little cautious.

“That said, the Australian economy is still in better shape than most developed economies around the world.”

During the investor day, Ms Watkins confirmed her belief that 2019 would mark the completion of a two-year transition period for Coca-Cola Amatil, with the ­bottler envisaging higher profit growth in the second half of 2020 than the first half.

She said its flagship Australian beverages division — which generates more than two-thirds of group earnings — was positioned for growth.

Coca-Cola Amatil was targeting a return to mid-single-digit earnings per share growth from 2020.

“Our Australian beverages business is positioned for growth in 2020 with completion of the additional $10m investment in our accelerated growth plan and with container deposit schemes in NSW and Queensland substantially embedded this year,” she said.

In terms of its offshore operations, Indonesia had delivered consistent growth since April last year, but further work was needed as the company navigated a weak Indonesian rupiah and subdued market growth.

The company’s New Zealand and Fiji, Papua New Guinea and Alcohol and Coffee divisions are expected to deliver growth, although its corporate & services arm is expected to report an EBIT loss of about $12m.

Investors were told that Coca-Cola Amatil was expecting pre-tax one-off costs in 2019 of about $40m, which would be partially offset by one-off gains of about $14m from property sales.

Ms Watkins said the Australian arm had benefited from $50m in investment over the past two years, with her “feet-on-the-street” strategy to have a larger army of sales people directly engaging with key convenience retail customers, delivering stronger growth in that key channel.

“The feet-on-the-street initiative has been particularly effective, so we have really seen a pronounced change in the trajectory with those customers being back in growth,’’ she said.

The strategy has resulted in about 100 extra sales people visiting and engaging with smaller stores, such as pizza shops, fish and chip stores, bakeries and takeaway shops, and in some regions has resulted in the local sales force rising by 40 per cent.