A recent menu change at Domino's Pizza Enterprises Ltd. (ASX: DMP) shows that one of Coca-Cola Amatil Ltd's (ASX: CCL) major advantages may be being further eroded as we speak.
Domino's has introduced a range of 'naturally sugar free' beverages by Nexba, that go by the name 'Next Gen' and sport the tagline 'nothing artificial, no nasties. Made in Australia!'
I am not sure if the brand is likely to experience any success, even though it is obviously positioned to target changing consumer tastes. Yet to my mind it illustrates the degree to which Coca Cola Amatil's primacy can be undermined in a wide range of ways – and not just by the advent of perceived healthier alternatives.
For those who don't know, Coca-Cola Amatil is the local ANZ, Pacific Island, and Indonesian bottler of the Coca-Cola stable of drinks (among many other brands). Traditionally it's had most restaurants and fast-food chains stitched up under distribution agreements that see Coke as the primary stocked beverage.
If you want to eat at Domino's, McDonalds, or Red Rooster, for example, you can either have Coke, Coke, Coke, or…Coke Amatil-bottled water, Sprite, or juice.
However, if Domino's is leading the way of restaurant chains offering wider range and variety to customers, I expect it could see Coca-Cola Amatil's competitive advantage further undermined. Instead of making many sales at what are effectively monopoly locations, Amatil will be competing side-by-side with other beverages, and not just in the supermarkets.
This could place continued pressure on the company's margins and sales, which are already virtually stagnant. While this is obviously negative, it does not mean that Amatil is facing the beginning of a long and inevitable decline.
The company has a wide range of brands besides Coke, and has growing ventures in alcohol and coffee. Indonesia is also shaping up as an increasingly important growth market, and customers there are opting for teas and flavoured waters more than conventional soft drinks.
Still, I would be wary of paying too much for Coca-Cola Amatil shares.
