ATHENS, Greece — When Tony Baynes, director of public affairs for Coca-Cola Hellenic, spoke this month at a United Nations economic summit in Geneva, he acknowledged that global economic problems have caught up with one of the most successful bottlers in the world.
In 2007, the Greece-based distributor sold more than 2 million cases of drinks, reaping about $625 million in net profit. But the firm has warned that operating profits and earnings in the current year will be stagnant.
That's troubling news for Atlanta-based Coca-Cola Co. For the past few years rising profits overseas, where the beverage powerhouse generates about 70 percent of its sales, have helped offset a lackluster performance in North America. The company can ill afford a slump by its second-largest distributor, which holds the franchise to bottle Coca-Cola products in most of Eastern Europe and parts of Western Europe.
Still, officials of Coca-Cola Hellenic insist that its rough patch is only a temporary setback, and many analysts agree.
"The company has had double-digit growth in the last seven years, so this year has hit us a bit hard," Baynes said in a recent interview. "When the world sorts out its credit crunch problem, we're confident we'll zoom back into business."
Baynes argued that the company will continue to drive sales by introducing products that appeal to local palates.
For example, over the summer Coca-Cola Hellenic started producing a traditional Russian beverage called kvass for the Russian market under the Krushka & Bochka (Mug and Barrel) label. Targeted at men and women age 25 to 39, it marks the first time that Coca-Cola has used a fermentation technique to produce a drink.
The product, which resembles a non-alcoholic beer, has garnered 2.7 percent of the Russian kvass market.
Also unveiled this year in Greece was a line of flavored waters that contain mastic, a distinctly flavored resin long used in the Mediterranean region to soothe the stomach.
"We have taken that good natural flavoring and put it into the drink," Baynes said. "It is served in little white bottles so that it looks like medicine."
Baynes also said that Coca-Cola Hellenic has been smart in that it branched out early into flavored waters. Non-carbonated drinks, including water, now account for 37 percent of Coca-Cola Hellenic's total sales volume.Eds: Adds
Bottled water continues to be big business in Europe, with sales in Eastern Europe rising by 17 percent in 2007. Analysts predict growth to continue, since consumption remains well below that in the more mature Western Europe market.
Another bright spot is a joint venture signed earlier this year between Coca-Cola Hellenic and Italian coffee maker illycaffe. The two paired up in an effort to grab market share by introducing premium ready-to-drink coffee beverages in 10 European countries this year.
Coca-Cola officials say the products have been "enthusiastically received," adding that they plan to expand into dozens of other markets, and possibly even into North America, by 2010.
Experts in the beverage industry say the joint venture was perfectly timed.
"I have for the past year been saying that ready-to-drink coffee is the sector to watch in terms of product innovation," said Bill Bruce, editorial director for Zenith International Publishing in Bath, England, which publishes trade journals with an emphasis on the beverage industry.
"It automatically commands a premium position, which is so important in these 'credit crunch' times," he said. "The joint venture with illycaffe was not only brilliantly timed, but unlocked some perfect markets through Coca-Cola Hellenic's distribution system."
"If you then look at how successfully Coca-Cola Hellenic handled the almost simultaneous rollout of Coca-Cola Zero in so many markets plus the timely multi-country launch of illycaffe coffee, you can see that the Athens-based business has all the ingredients necessary to weather the coming economic storm," Bruce said.
"Rather than being worried, I would think Atlanta would be delighted with its Greek cousin," he said.
In addition to new product launches, Hope Lee, a non-alcoholic drinks analyst with Euromonitor International in London, said Coca-Cola Hellenic's acquisition-led strategy will continue to drive sales and profits.
"Coca-Cola Hellenic has also invested heavily in Nigeria, which is considered an up-and-coming African market with rich oil reserves," she said. "With the slowdown in the European market, Nigeria may help a bit on the balance sheet."
In general, analysts are confident that Coca-Cola Hellenic's business model can withstand the current market pressures.
Jim Gregory, chief executive of CoreBrand, a brand consultancy based in Stamford, Conn., said that Coca-Cola Co. continues to have the highest corporate brand ranking of 1,200 brands measured — a position it has maintained for five years.
"To be able to hold that top spot the company has to have a good reputation, excellent management, and investment potential," he said. "The company also needs to be able to reinvent itself with new high-quality products periodically.
"Coca-Cola has the magic formula that allows them to continue to grow in both good and bad times," he said.
In a written statement, Doros Constantinou, managing director of Coca-Cola Hellenic, said that the unclear global economic estimates and rising raw material prices still arouse caution.
"Yet we believe that our proved ability to implement our strategy even in difficult conditions and our balanced geographic presence will enable us to gain strong results according to the long-term development model," he said.
COCA-COLA HELLENIC AT A GLANCE
Origin: Based in Athens, it was formed by the August 2000 merger of Coca-Cola Beverages and the Hellenic Bottling Co.
Description: It is the world's second-largest Coca-Cola bottler, employing more than 41,000 people and serving more than 550 million people in 28 countries. Its biggest volume market is Russia.
Products: In 2007, it sold more than 2 billion cases of drinks. The product portfolio consists of 147 carbonated soft drinks and 461 non-carbonated drinks. In 2006, sales volume broke down this way:
— Coca-Cola, 36 percent
— Coca-Cola light/diet, 5 percent
— Fanta, 12 percent
— Sprite, 6 percent
— Other carbonated soft drinks, 8 percent
— Other non-carbonated soft drinks, 1 percent
— Water, 19 percent
— Juices, 10 percent
— Tea, 3 percent