Soda glass half empty? Coca-Cola Hellenic can fill it…

That’s according to analyst Phil Carroll from UK-based Shore Capital Stockbrokers, who pushed out a lengthy note this morning initiating coverage of Coke’s anchor bottler across 28 established and emerging markets.

“During recent years, its operational performance has come under pressure due to challenging economic conditions in many of its markets with low levels of consumer confidence,”​ he wrote.

Although profits have slumped, Carroll said he believes the firm will recover strongly in 2014, due to economic recovery in some markets, low per capita consumption of soft drinks in some regions – 218 liters per annum in second-stage ‘developing’ markets, for instance – and the company’s use of novel revenue growth initiatives.

Noting rising input costs for CCH in recent years – especially in EU sugar, juice, PET and aluminum – he added that the outlook for these commodities now looked more favourable.

Trading-up from tap water​

Dividing CCH’s markets into established, developing and emerging, Carroll said that the developing markets – Estonia, Latvia, Lithuania, Croatia, Czech Republic, Hungary, Poland, Slovakia and Slovenia – were trading up from tap water and homemade drinks to branded beverages.

“There also appears to be a trend towards branded beverages that are associated with fitness and well-being such as water and juices,”​ he added.

But consumers in these markets were very price sensitive, Carroll said, with CCE’s branded products up against non-branded local products with a loyal consumer following.

Emerging markets – including Armenia, Belarus, Bulgaria, Moldova, Nigeria, Romania, Russia, Ukraine, Serbia and Montenegro – are more volatile politically and economically, he noted.

“While branded products such as those sold by CCH are increasingly of interest, they are at an early stage of development in these markets compared with developing and established markets,”​ he said.

Nonetheless, Carroll said political moves to cut beer consumption in Russia via excise duty hikes and sales restrictions “presents the soft drinks industry and CCH with an opportunity going forward”.​

Upsizing, frequency and incidence zones…​

Turning to CCH’s sales strategy, Carroll said its OBPPC tool – occasion, brand, packages, price, channel – helped it provide consumers with the right brand in the right pack at the right time.

“OBPPC was first trialled in Greece nearly three years ago, and since then we believe it has been rolled out to Poland and several other countries. It would appear that where it has been used it has been successful, judging by market value share data gains,”​ the analyst wrote.

How does this work? Well the firm positions 2.5 liter or 1.5 liter x4 PET bottles in the main beverage area of major grocery stores – what CCE calls the ‘upsizing zone’ to cater for the big family shop.

Impulse or convenience channels – the ‘incidence zone’ – is fed with cans and 500ml PET, while CCH ensures that 1.5 liter PET sits near items bought by single people during a weekly shop – meat, cheese, pasta, frozen foods placed in ‘frequency zones’.

“For CCH to drive revenue per case and ultimately higher returns, where possible it wants to increasingly sell ‘single serve’ versus multipack to the independent and convenience channel rather than multiple grocer,”​ Carroll wrote.

“Selling in channels that supply beverages for immediate consumption are generally more profitable that the channels where drinks are bought for consumption in the future.”​