[ad_1]
In this segment of Home of the industry: Consumer goods, Motley Fool contributor Vincent Shen and Daniel Kline take a step back to see how Coca Cola& # 39; s (NYSE: KO) The Costa acquisition is part of the vision of management for the future and other major initiatives.
A full transcript follows the video.
This video was recorded on September 4, 2018.
Vincent Shen: The last comments I will mention for the agreement, unless you have something to add, relate to valuation. With respect to the process of implementing this agreement, the two management teams mentioned that the process was fast. The paid price tag drew a bit of attention when calling investors. 16X EBITDA. I compare this to another agreement recently in the drinks space, which is PepsiCobecause they've recently picked up SodaStream. Some people complained, some investors were unhappy, because it was this huge bonus. They bought it at some of the highest prices that SodaStream traded, nearly 25 times EBITDA. What we see here, certainly expensive deals in the beverage industry, regarding the opportunities that giants are looking for.
Dan Kline: I think it's because there are sharks out there right now. We have done full broadcasts on JAB, but you want to call them, a holding company that owns a billion coffee brands, some of which you have heard of, others not. They own Panera Bread, they own equity in what was once Keurig, now Keurig and Dr. Pepper. They were probably a player here. We do not know, but even if they were just sniffing, it's very easy to go to Coca-Cola and say, "If you do not pay our premium, we do not want to sell to these guys, but they "buy" It is very likely that it is there.
Shen: Yeah. Talking about Coca-Cola more widely now, just providing context to how this agreement fits into their strategy for the future. There have been a lot of changes with the company. In the end, you see Coke pursuing this capitalist model, where they can be the master puppet by pulling the string of brand management and marketing. In terms of operations, they have tried to do without the manufacturing and bottling because of the significant capital outlays and most other expenses associated with this business. For example, in 2017, Coke completed the refurbishment of its bottling operations in the United States. Significant efforts have also been made to consolidate bottling operations in major markets such as China and Japan.
In addition to these reorganization efforts, there are also significant changes in product portfolio, to address health concerns, sugar content. They have killed a lot of what they call zombie brands that do not work well, and with that hundreds of references in some markets. There was new leadership, with James Quincy as CEO. They also have a growth manager that they added. Many shifts there too.
What this ultimately means, if you look at Coca-Cola as an investor, is that its turnover definitely decreases because of these efforts. But at the same time, with this asset-based economic model, their profitability is becoming stronger. There is a give and take there. The way the company sees its product brand strategy is to become the first market or product number one or number two because it brings the greatest profitability and the best returns for the company. I have a quote from Quincy, the CEO, in which he basically says, "It's better to be the leader in the half of the world than the world's No. 3 in terms of the scale and the profitability". This, again, explains why they chose Costa, right?
Kline: This is a big problem for RC Cola.
Shen: [laughs] Exactly. This last agreement with Costa, it makes sense that they have a dominant name in their US market, and something very strong in Europe, which extends from there and takes this strength to blend into their system.
Kline: And it's a brand that could likely become the # 2 in the United States in some of these categories. This will not be coffee number 2. This could be absolutely the # 1 or # 2 restaurant brand. It could become the # 1 or # 2 convenience store brand.
Shen: Brand ready-to-drink, yes.
Kline: I think that ready-to-drink is more difficult because it's a lot more, if you look at the labels, it's about the brand. If you want a nice hot cappuccino and that they put this great machine, you probably will not think about who made the beans. You will think "I want a coffee prepared by a barista, and it's the closest I can get." I'm worried about their ability, for a long time, to put a Costa bottle next to a Starbucks and McDonalds. You've seen the Starbucks-Nestle deal, which is all about ready to drink and expanding. It's a space that everyone targets. Dunkin Donuts quickly. These are very big names. Costa has proven that this can be a name, but it will take time in the United States until it's a name.
Shen: Yeah. The last thing is the new brand and retail stores. A big part of this is the ability to experiment. You mentioned a few examples of Starbucks. The position of Director of Growth, I think it's really interesting, he talked about experimenting at a presentation in June. In the first quarter of 2018, he said, Coca-Cola increased its number of experiments by 30%, the volume of these products increasing by 32%. The coffee is basically this brand new playground now for them, to see what works, what does not work.
Again, I think it's a very interesting case for Coca-Cola. You think of their dominance in these soft drinks. It makes sense. You have basically opened all the extra market that coffee and hot drinks provide.
Kline: The coffee has also become a bit like craft beer. I'm not sure about the size of a coffee, but I'm a big coffee. If a new café opens in my neighborhood, I will check it out and I will try three or four different things before deciding if this is part of my turnover. There is some anti-Starbucks. It's not that you do not like Starbucks, but you've been there a thousand times. When they are in a market, when they open in China, where there are thousands of Starbucks, and a Costa comes, your coffee enthusiast will try it in a way that does not necessarily work in the fast food or other. places, just because it's new. And the product is good. There is evidence that people like it. This will allow it to grow in markets where there is no need to supplant anyone. They just have to take a piece of business. Maybe they will be a # 2 strong in many places that do not exist. The United States has a whole lot. There is a lot of fragmentation in the rest of the world.
Shen: Yeah absolutely. It's something they talk about for coffee. I'm going to leave the listeners, the last comment of this case – the potential that you always have to remember when you're dealing with a company of this size and experience, with respect to beverages, there's a reason. Coca-Cola has its distribution system, they receive about two billion drinks every day in 200 countries. Now you have just added this new perspective that they consider as a platform for the mix. I am very excited to see what Coca-Cola will do with this, but I am delighted to have another agreement with PepsiCo and SodaStream to see how it works. We will certainly follow up on that. It's been too long since we've talked about majors in drinks.
[ad_2]
Source link
