Coca-Cola Amatil has revealed its alcohol business suffered a 35% decline in volume during COVID-19 shutdown.
The drop in volume reflected on-premise closures and soft Easter and ANZAC Day trading. The easing of restrictions by mid-May has resulted in a modest improvement in trade.
Amatil’s alcohol portfolio includes a mix of established and emerging brands that it either owns or sells and distributes in conjunction with global partners such as Beam Suntory and Molson Coors International.
Its premium spirits portfolio includes Jim Beam – Australia’s largest spirits and RTD brand – and emerging brands such as Canadian Club whiskey, now the fourth-largest brand by volume in the Australian market.
Amatil provided a COVID-19 trading update for the month of April 2020 and the first three weeks of May ahead of its virtual AGM next week, and said it continues to battle “unprecedented disruption to trade” during COVID-19.
While Amatil outperformed the sector, achieving share growth in its major markets, a significant overall decline in group volume was experienced, down 33% in April compared to the previous corresponding period.
Group Managing Director Alison Watkins said: “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. This has continued.
“Since April 1, 2020 we have traded through the tighter COVID-19 lockdown restrictions, whilst simultaneously cycling the traditionally peak Easter and Ramadan trading periods. With many customers remaining closed or operating at significantly reduced capacity, there has been unprecedented disruption to trade.
“Despite these challenges, our business has demonstrated resilience and the ability to partially mitigate the adverse impact of the disruptions through our flexible routes to market, diverse channels, disciplined financial management and the strength of our brands.
“As the lockdown restrictions begin to ease and local economies begin a protracted recovery, we are seeing signs of modest improvement in trading conditions.”
Amatil said April was a “challenging trading month”, with the full brunt of the COVID-19 restrictions felt across all of Amatil’s markets throughout the peak Easter and Ramadan trading periods. As a result, group volume declined by approximately 33% compared to the previous corresponding period.
While the specifics in each market differed, overall widespread outlet closures and restricted trading impacted the high margin, immediate consumption channels resulting in volume transitioning to lower margin channels and packs.
This had a significant effect on margin percentages, particularly in the Australian business.
Watkins said: “Whilst revenue since the start of April has broadly declined in line with volume, the impact on our Group margin percentages has been much greater, reflecting marked shifts in channel and package mix, particularly in Australia.
“This adverse impact has been compounded by the loss of scale in Indonesia resulting in a pronounced impact on EBIT, despite cost savings being realised through lower marketing spend and other initiatives including leave utilisation and reduced recruitment and discretionary spend.
“Within the context of these challenging conditions it has been pleasing to see the strength of our brands and sales team capability demonstrated by market share gains in Australia, New Zealand and Indonesia.”
Watkins added: “We are now starting to see the gradual lifting of COVID-19 restrictions across each of our markets and with this, signs of some improvement. Trading in the first three weeks of May has seen volume decline by approximately 26% on the previous corresponding period, an improvement on the April run rate of -33%.”
Australian market share grows
In Australia, Amatil experienced an approximate 30% decline in volume in its Non-Alcoholic Ready to Drink (NARTD) category in April 2020 versus April 2019.
This decline reflected not only the stringent COVID-19 lockdown restrictions that many on-the-go (OTG) customers confronted but also changes in buying patterns in the grocery channel.
OTG volume in April was down approximately 55% on the previous corresponding period with convenience and petroleum volume also down approximately 20%.
In the grocery channel, volume declined approximately 10% versus April 2019 as panic buying abated and consumers shopped less frequently albeit with increased basket sizes.
Retailers responded by reducing their inventory levels and cancelling promotional activity during the traditionally peak Easter and ANZAC Day trading periods, which resulted in reduced foot traffic and subdued consumer demand.
Watkins said April saw margin erosion as volume transitioned from high margin immediate consumption and hotel, restaurant and catering (HORECA) channels to lower margin packs and channels such as Grocery and quick service restaurants (QSR).
However, Amatil grew its market share during the period.
The outlook for Amatil
“As COVID-19 restrictions have started to be lifted in May, we are seeing signs of modest improvement, with volume decline rates reducing in the first three weeks of May to approximately 20% down on the previous corresponding period,” Watkins said.
“To ensure we are well positioned to support customers and leverage opportunities as restrictions are eased, we have commenced repositioning team members back into the OTG channel, having temporarily redeployed them into the grocery channel in mid-March.”
Watkins concluded: “The COVID-19 impacts are continuing to evolve with the situation fluid across all of our markets. Looking ahead, whilst it is encouraging to see lockdown restrictions gradually being eased and some green shoots of improvement in trading conditions emerge, the reality is that economic recovery will take time and uncertainty remains.
“We anticipate we will have a clearer view that we can share with the market at our 2020 half year results in August.
“We are confident that our strong balance sheet, ample liquidity, robust cashflows and solid credit ratings place us in a strong position financially and operationally to trade through this period and emerge a stronger and better business.”