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Coca-Cola Amatil prepares for the beer to start flowing

Coca-Cola Amatil (ASX: CCL) is readying itself to re-enter the beer and cider market in mid-December, having been in self-imposed exile from the market for the past two years.

According to a report in the Sydney Morning Herald, Coca-Cola Amatil has created a new management structure for the reinvigorated alcoholic beverages division, which will be headed by Mr Shane Richardson, previously the head of Campari Australia.

Coca-Cola’s re-entry to the beer and cider market comes at an interesting time. According to a recent report by the Australian Bureau of Statistics (ABS), it appears Australian consumers “tastes may be swinging away from beer and towards wine.” In fact, according to the ABS beer consumption is now at its lowest point in 66 years! In contrast, wine consumption is believed to be trending upwards.

The ABS findings on their own would suggest Coca-Cola Amatil is heading into the wrong market whereas Treasury Wine Estates (ASX: TWE) is in exactly the right market; however it isn’t that simple of course. With a beer and cider market estimated to be worth around $11 billion in sales annually and enjoying some of the highest margins in the world (according to the SMH report), there is good reason for Coca-Cola Amatil to be leveraging its production, distribution and marketing skills to capture a share of the beer and cider market’s profits. In contrast, recent problems experienced at Treasury Group highlight the often skinny margins and lack of customer loyalty in the wine business, which makes it a less appealing market .

Adding to the changing beer and cider market dynamics, Woolworths (ASX: WOW) has engaged with contract brewery Gage Roads Brewing (ASX: GRB) to produce exclusive private label beer for the retail giant.

Foolish takeaway

The beer industry has long been regarded as a profitable and defensive industry for players that have achieved scale. With Coca-Cola Amatil’s impressive stable of brands, exciting growth prospects in Indonesia and pending re-entry into beer and cider coupled with a share price trading close to a 52-week low, this is one blue chip worth keeping a close eye on.

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Motley Fool contributor Tim McArthur owns shares in Gage Roads Brewing.

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