One risk shareholders of Coca-Cola Amatil Ltd need to know about

Credit: Bill Dan

Although it remains one of the strongest brands in the world, it is widely accepted that many of Coca-Cola’s products are not the healthiest items for people to consume, especially when done so on a regular basis.

Many of its products contain loads of sugar and caffeine which can have adverse effects on people’s diets and, therefore, their health, with many individuals (myself included) electing to steer clear of the products for that reason.

It seems that NYSE-listed The Coca-Cola Company has also recognised this threat and potentially tried to swing things back in its own favour.

According to a report by The Sydney Morning Herald, the company has been funding a campaign to focus the discussion about obesity in Australia on exercise, thus taking the focus away from diet as the answer to the health epidemic.

By funding research on the matter, The Coca-Cola Company isn’t necessarily swaying the results of the research, and The SMH said that the researchers themselves had disclosed Coca-Cola’s monetary input. However, it could still act as a conflict of interest, which is certainly worth keeping in mind when reading the results of certain studies about health and weight loss.

This is from The SMH…

“Facing accusations of “astroturfing” opinion, Coca-Cola pulled its funding from the Global Energy Balance Network in the US, forcing its closure.

In an opinion piece in the Wall Street Journal, Coca-Cola’s global boss promised to disclose all financing of health groups and research globally.

Health advocates believe the funding revelations – if and when they come – have the potential to shock and embarrass health organisations here.”

Although obesity is becoming an increasingly large (excuse the pun) problem in Australia, there is another large group of individuals who are becoming increasingly conscious about their health. I myself haven’t had a drink of Coke in around four years now, and I know a number of other individuals who have chosen to give the fizzy drink the flick as well.

While exercise is widely considered to play an important role in living a healthy lifestyle and in losing weight, some studies have shown that diet is the more important factor (by a wide margin).

Now, I’m not questioning the strength of the brand itself (indeed, Warren Buffett has even called Coca-Cola a “forever brand”), but I do wonder how the health trend could impact growth in the long run. That’s one of the reasons I decided to sell my shares of Coca-Cola’s local bottling business, Coca-Cola Amatil Ltd (ASX: CCL), some time ago.

I am aware that Coca-Cola Amatil is aware of this issue, and the threat it could pose to the business. Indeed, the company is also selling bottled water as well as soft drinks with lower sugar content, including Coca-Cola Life and Coke Zero. It’s even selling drinks in smaller serving sizes in the hope of attracting healthier individuals that way (the smaller the drink, the lower the calorie count).

Coca-Cola Amatil could well prove me wrong in the long run, and for the sake of its business and its shareholders, I hope it does. But the report from The SMH yesterday of Coca-Cola’s involvement in bankrolling certain health campaigns – potentially moving the focus away from diet and towards exercise instead – certainly reminded me of why I sold my shares in the first place.

Coca-Cola Amatil Ltd’s share price has fallen 2% today to trade at $8.45, although the shares have fallen 18.9% over the last 12 months and 45% since peaking at around $15 a share back in 2013.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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