Coca Cola Europacific Partners : UBS Transcript

Coca-Cola Europacific Partners PLC at UBS Global

Consumer and Retail Conference

14 March 2024

Sanjeet Aujla

Okay. Great. Welcome, Nik. Thanks for taking the time out to be with us today at the UBS Consumer Conference. I think we'll get right to it.

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Great. Thank you for having me.

Sanjeet Aujla

Q. Love to start on Europe. Last year, the European consumer took quite a lot of pain from significant pricing to offset cost inflation, volumes were negatively impacted across many categories, albeit more resilient for soft drinks. Just love to get your take on how you think about stated consumer and the volume outlook in 2024, just putting aside the weather comparatives for one moment.

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Yes. I mean I think -- listen, we've all been pleasantly surprised and pleased with the resilience of our category. NARTD as a whole has been very resilient relative to other FMCGs. And if you look at sparkling in particular, it has really held up very well. I think a continuation of some of the actions that we took during COVID in terms of broadening our range of packs that we offer through retail and clearly, lifestyles patterns in terms of how people are living and working has changed. And so they can continue enjoying our products at home as they do in the away- from-home channel. We've talked about the consumer for the better part of a couple of years now, right?

And I think, again, linked back to our pack offerings, we feel that we've got a pack offering dependent on the channel that can serve any kind of consumer shopper who wants to go there and what we want to continue driving is incidence in the basket of our products.

So i.e., when they do shop, our product should be in there in a range of different packs and formats at price points that they can buy and enjoy.

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And I think that's what we continue to see and monitor in terms of managing what we can on the affordability side of things. Primarily on large packs, large PET, multipack cans, but also keeping in mind the absolute ticket size of what might someone want to spend, right?

So if someone is a little more cautious around if they're spending that 25, 30 pounds, euros whatever on their basket, clearly, to your point, they're probably getting less for that same amount than they did 2 or 3 years ago.

How do we continue making sure that our product stays relevant at a right price point within that ticket that they can put in. So whether it means a promo on a large pack, whether it means a single pack offering as in a single pack PET offering. Those are the types of things that we'll play with.

And then at the same side, on the other end of the spectrum, there's lots of consumers who still want to buy mini cans, who still want to buy glass bottles, who want to buy smaller formats of glass or PET for their home, right, for consumption, 1 liter as opposed to buying a 1.5 or 1.75. And that's the price laddering in the range of packs at different price points that we think continues to keep us interested and available and relevant in a consumer's basket, right?

Sanjeet Aujla

Q. Got it.

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

So household penetration frequency are what we track and both of those numbers continue to play well.

Sanjeet Aujla

Q. I think you suggested that the full year results a bit more focused on increasing promo levels in Europe this year. Can you just give us a sense of where promo levels in Europe are versus 2019 because I think it came down a lot during the pandemic. Do you see them going back to 2019 levels? Or are they structurally lower now?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

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Well, listen, I think the pandemic definitely made our home channel that much more resilient because effectively, 80% of our away-from-home closed. And we realized very quickly that home channel was going to be very important. So again, that range of offerings, the level and depth of promotion that we needed to do, obviously came back a lot as -- came down a lot. And for the most part, that stayed, my reference to that in -- on the call was again playing back to my point that I made earlier.

If we need to make sure that a consumer needs to have a more affordable pack to stay relevant in their basket, then absolutely, we might have to do a little more on promotions, right, on relevant packs in relevant channels and maybe that's what we're looking at. It's very difficult to say, is it going to go back to '19 levels? Or is it not? Because I think it can vary, depending on the period of time, of when you might want to promote, right, depending on what competition is doing, what is private label doing, what might be that squeeze depending on the time of the month when people get their paycheck and they go shopping versus the end of that pay cycle before they get their next paycheck and what do you want to do, right?

So I think we're getting a lot more granular and having a better understanding of when and how do we need to be on promo and sometimes what's the depth and what's the frequency might be very different to what we had in '19 and '18 and '17 because we have just much, much better data, right? So I think of it much more around that incidence, that relevance as opposed to promo levels being back to '19 or '18 levels if that make sense?

Sanjeet Aujla

Q. Okay. I think you also spoke -- started to speak a little bit about shift to discounters. Maybe stepping up during this kind of challenging inflationary time for the consumer. Can you just talk a little bit about your kind of relevance in this channel, how that's evolved over the years? How does profitability compare here versus other channels these days, I think at some stage with a drag, but love to get your take on the channels.

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Well, listen, it's been incredible growth that we've been seeing across the discount channel, right? And most people think of discounters and think of horrible-looking stores, terrible displays and that's really

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changed, right? Because at the end of the day, I think every type of outlet or format has an offering that plays into what a consumer or shoppers need is, right?

And we recognize very early from my experiences in Germany that actually we want to be present where -- anywhere where a consumer shopper is going in, right? Because we want our product to go into their basket, right? So ultimately, it's about having what you started out with, with some of them because their own hesitancy to carry a brands or branded products, but they saw us as a very attractive category and a very attractive brand in that category to be present, right?

And typically, you might have started out with them with just a limited range or even what we called when it's gone, it's gone. Just a certain amount and boom, that was it. They realized, too, the importance of what that was driving in terms of the shopper through their store by having some of the more attractive A brands like ours. And then over time, they wanted to offer a broader range. They wanted to actually even have some single serves in some of our outlets with the discounters. We even have coolers.

So the whole -- the mix of what we're selling, how we're selling has changed. So the growth in discounters have been tremendous, and we've been able to benefit from that because we've been in with them from the early days, right, and in different forms and structures over time.

We see that as an attractive channel because actually, margins are just as attractive because your cost to serve is a lot lower. Most of them actually have you just drop off at central warehouse. We do no merchandising in store. There's very little that we call on, right? Not all the stores have a cooler. So the cost to serve is significantly lower, so your margins are just as attractive, right? But again, it boils down to, ultimately, we want to be everywhere where the consumer shopper goes and have our products available.

Sanjeet Aujla

Q. And do you have your fair share in that channel? Or is there still more to go forward?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

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I think there's always more to go for, right? So I think it'll vary by market and it'll vary by banner within market. And clearly, we have a concerted effort to continue playing and winning with the winning channels, and discounters is clearly one of them.

Sanjeet Aujla

Q. I think you've made quite an intentional effort in recent years to give a bit more margin to retailers across Europe, right? Can you just talk a bit about what sort of impact that's had on your business in recent years and in particular, your ability to land pricing over last couple of years?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Well, I don't know if the word intentional is the right word or a good outcome from wanting to do what we were always focused on, which was around joint business planning with them. And how do they understand the growth in our category and the opportunity to be able to benefit alongside us in terms of that growth, right? And clearly, whenever we take pricing, we're very particular.

As I said, we're not going in and saying we want to take a 5% increase. It's about how do we look at that particular format, the range of what they offer, the packs on which we believe there is relatively low elasticities, and that goes back to just our broader, our RGM capabilities that I think we've honed over the years.

So it's been a nice outcome, which has clearly then supported the importance of our category for them, both in terms of the footfall but also the revenue, the absolute margin and the cash flow that they make from our category, right? So for 6 years in a row, we've been the #1 value creator across Europe, across FMCG, right? That means the absolute sales value growth and the margin that they get from our products is much higher than any other FMCG player in the market, right?

And in Australia and New Zealand, it's been the highest in the NARTD category. So we have more to play for there as well. So to your point around the outcome of that has been obviously a better ability to negotiate with them because I think they also see our capabilities as being strong to be able to do the right things to, again, drive that incidence of our products into their basket on which they can continue making good margin and good cash flows, right? That then clearly helps when you're actually having discussions with them around pricing. It's

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never an easy discussion, but it definitely makes it easier when they clearly see the opportunities that are out in front of them in terms of top line and margin growth.

Sanjeet Aujla

Q. Got it. I think you just pointed about revenue growth management has really come to the fore in recent years. The importance and impact has been validated in your business certainly in the last 2 years. Has this period of successful pricing you've been able to manage, changed your thinking about the role of pricing over the medium term within your growth algorithm? And to what extent have you been surprised about the resilience, the volume elasticities [the year] potentially.

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Well, we love to believe our brand equities are very strong. And so they shouldn't have been a surprise. But yes, we have been. It's been a very positive surprise or positive elements of work that we've done that have actually paid out very well in terms of with the Coca-Cola company, building those FMCGs and making our product -- very relevant to want to go into a consumer's basket for a variety of different occasions, right?

And so there's a lot of work that we've done around, what do each product and package type of offer whether (inaudible) refreshment whether it's about fun with friends, whether it's about watching TV and gaming with family, whatever it might be, right? So we always look at need states, we always make sure our packages and our offerings for a particular channel are relevant to that. And that's a big part of revenue growth management as well as opposed to just what do you do from a pricing angle, right?

From our angle, I think we've taken it to 1 level or 1 click below. And in some ways, it was always implicit, but we wanted to make it a lot more explicit. Firstly, internally for our commercial organizations but then also externally around our focus on not just revenue growth management because it was always about profitable revenue, but we talk about revenue and margin growth management, right?

And that's a margin not just for us, but it's also margin back to that point that we were making earlier for our partners, right? Our customers, right? Because ultimately, the more they benefit from the growth in our category and make better margins, the more attractive they are to want

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to work with us and want to list us and actually bring in innovations and give us more shelf space and more cooler space and all that kind of stuff, right?

So I think that whole subtle change has also had us work in different ways to think about how do we enhance that margin story with that top line as well for both our partners and for ourselves. And I think there continues to be a lot of room to continue playing in that space, right? Your capabilities, your understanding of the markets, the granularity of the data that we now get and have at a store level helps us make better choices and decisions in terms of the offerings and the pricing and the margin story for that particular channel or that particular store in a particular post code as well within the same format.

Sanjeet Aujla

Q. Got it. And as you think about pricing for your business over the medium term, is inflation still an anchor in terms of how you think about the role of pricing within your top line? Or do you feel you need to give a little bit back to the consumer over the next year or two?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

So I think we've always had a mindset and philosophy around -- we want to be able to price in line with inflation and actually continue getting the benefits of mix, right, be it channel, be it pack, et cetera. But we don't take that approach in any given single year that says, inflation's at X, I need to price at X because we try and manage this business for the long term, right? So I don't think our philosophy has changed in any way around wanting to get pricing. In any one given year, the mix of your rate/price versus your mix versus your volume might vary depending on what you're trying to achieve out in the market and what the external environment is like, what competition is like, et cetera. So I don't think there's any kind of change in our philosophy around that. If you go back to 2016 when we formed European partners, we have consistently been taking price in every one of our markets during that period of time.

Yes, it accelerated because of the levels of inflation that we saw. But again, in those years, we didn't go out and say we had to price exactly in line with inflation. And you saw our margins actually contract, but we knew we'd be able to bring that back up over a period of time, right? And I think that philosophy is still very much intact in our mindset.

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Sanjeet Aujla

Q. Got it. Just going back to the creation of CCEP back in 2016, I think at the time, there was a big investment into the away-from-home channel. More feet on the street. How do you think about how that strategy has played out for the last few years and the growth opportunities going forward in away-from-home versus home in Europe in the medium term?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Yes. I mean I want to make sure that when you think about the investment we started making when we formed Coca-Cola European Partners was not suddenly that we saw away-from-home being very attractive because we still have always seen it and continue to see it as being a very attractive channel and a broader diversification of the subchannels through which we can offer our product, right?

Again, when you look at broader FMCG, typically, they're 80-20, retail and then more traditional. We were at that point, maybe 60-40. But the reason for actually investing, so to speak, and let me explain what that was, we had become a business that was too focused on selling large pack in retail, okay, at a heavily discounted price. So you could go into France and buy a 6x1.5 liter and get a second 6x1.5 liter at half price or a discounted price.

Well, think about the fact that you were walking out with 18 liters of product. What was that doing to you? Well, one, you were only appealing to very heavy users, right? Because who else is going to buy 18 liters of product unless you -- you're a very heavy user family that's drinking that product every day with every meal, right?

What that was doing was actually, in some ways, killing your own away- from-home business because if you think about some of those smaller independents, why were they going to actually want to buy glass bottles or cans or small PETs from you, when you were going into knock on their doors when they could go into a large-format retailer and pick it up themselves and pour it into a glass and sell it, right?

So you were killing in some ways your own business right? And you were, again, appealing, like I said, to a shopper that was very unique in terms of that heavy consumer, right? And our whole focus needed to be on how do we drive household penetration deeper, as in more

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households and drive frequency of consumption. We measure weekly plus. So I'd rather have a mix of heavy users and more light users coming in, right? And that was how we started investing in away-from- home by actually taking up our prices in home to make our offerings in away-from-home more relevant as to why they would buy from us and why that consumer who was going to pay a higher price in away-from- home was getting a better consumer experience, right, in terms of the product they were having.

And that's what's really served us well because automatically, what you did was you reinvigorated your away-from-home. And at the same time, you improved your profitability for yourself and your retailers, right, in the home channel by actually pulling back from this very deep discounting.

And that's when we started doing that range of offering in the home channel.

When COVID hit, we obviously realized, unfortunately, well, 80% of that away-from-home just closed down, right? So what was really a big positive for us when we compare ourselves to the others, in some ways, became our Achilles heel because we just didn't have a channel through which we could sell. And it goes back to my point that I made earlier that we realized very quickly for a period of time, and at that time, we had no idea whether that was going to be 6 months or 3 years, we knew we were primarily going to be a home channel business, right?

And so we needed to improve even further the range of what we were offering. We realized, well, we didn't have to promote even where we were promoting because people were going to buy our product. And actually, they were going to upscale and upsize from a perspective, the types of packs and the ticket spend because they wanted to replicate that away-from-home experience at home because they didn't have that away-from-home opportunity, right? And so in some ways, what we had done to drive profitability away-from-home, we started doing in the home channel.

So today, I look at both the channels, and I just say, I've got a great opportunity to continue growing because my away-from-home profitability is strong. I can continue to improve that by driving more efficiencies in my cost to serve, right? My revenue per case is higher. So the more I can bring those costs down, great, that's going to go up even more. And my home channel profitability has improved because of what I've just described. Lower promotions, broader range of packs, different price points at different price ladders that we offer our packs in and that's

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actually great. So I actually want to enjoy growth in both home and away from home, wherever it's coming from.

Sanjeet Aujla

Q. And just on that broadening the price pack assortment, which has played out so well over the last few years. Where are you in that journey? And how much more upside is there going forward to extract value from that?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Yes, the classic, what innings are you in, right? And it's such a difficult one to answer because if you had asked me 3 years ago, I wouldn't have told you we had some of the new capabilities that we've developed to be able to get even more surgical with what we're doing, for instance, with the same pack offering, but in a different post code within the same banner, right? And I think that will just continue to improve, so it's almost a journey that you're going to continue to be on and the innovation pipeline, both in terms of types of packages that we might be able to offer, right?

If you think about what might be coming in terms of the next generation of free style, package list, lighter-weight package options that keep coming out, continued focus on sustainability to drive that in terms of better -- not so much better price realization, but what a consumer is willing to pay for a product that actually differentiates itself from competition in terms of the sustainable credentials as well.

So all that's really important when you think about -- there's lots more to continue going forward. We just have to stay ahead of that curve and continue to thinking on how do we do that better and more differentiated.

Sanjeet Aujla

Q. Got it. I'm going to shift gears a little bit to Australia. Just love to get an update on where you are now on the promo depth and frequency, which is a big focus immediately after the Amatil acquisition. And again, how much more opportunity is there to go for that?

Nik Jhangiani - Coca - Cola Europacific Partners PLC - CFO

Yes. Again, I would say to you, remember, and again, broad numbers, giving you painting a picture. When we took over that market, the

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