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Is Coca-Cola Amatil about to get its fizz back?

Coca-Cola Amatil (ASX: CCL) has re-entered the $11 billion Australian beer market this week, as it attempts to shore up its traditional soft drinks division.

CEO Terry Davis has told the Australian Financial Review (AFR) that the company’s beer business will easily achieve its cost of capital and drive growth in the soft drinks business, justifying the company’s re-entry into the beer market.

“I said when we sold out of Pacific Beverages we’d be back in two years’ time – this is fulfilling that promise,” Mr Davis told the AFR. “I’m still as confident as I was two years ago.”

Coca-Cola Amatil (CCA) has entered a joint venture company with Casella Wines, The Australian Beer Company, which has started selling a range of beer and cider brands, including Casella’s, Molson Coors and its craft beer business, Blue Moon. Next year the company will add new beers by US craft beer company Samuel Adams and The Boston Beer Company, Rekorderlig cider from Sweden as well as Fiji Bitter and Vonu Beer from CCA’s Fijian brewery.

“Rekorderlig is a very profitable business in its own right, that will be a strong earnings growth driver for 2014,and I fully expect some of the brews we’re launching today to earn profits,” said Mr Davis. CCA and Casella already had one million orders and expected to install 250 draught taps over the next few weeks.

CCA had achieved a 10% share of the premium beer market before selling its stake in Pacific Beverages, and the company is confident it can achieve a similar share with Casella. Australians have a growing preference for premium, expensive and boutique beer and wine, while cider consumption is booming.

But the company won’t have it all its own way, with tough competition from the likes of Gage Roads Brewing (ASX: GRB) – which is partly owned by Woolworths (ASX: WOW) – as well as beer giants Lion and SAB Miller – which owns the Fosters’ stable of beers.

The key will be CCA’s ability to get its products in the liquor stores such as Dan Murphy’s, First Choice, and Liquorland dominated by Woolworths, Wesfarmers (ASX: WES) and Metcash (ASX: MTS).

Foolish takeaway

Coca-Cola Amatil’s beer business could become a significant revenue earner for the company, as well diversifying the company away from its core soft drinks business. Foolish investors may want to add Coca-Cola Amatil to their watchlists.

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Motley Fool writer/analyst Mike King owns shares in Coca-Cola Amatil, Gage Roads and Woolworths. You can follow Mike on Twitter @TMFKinga

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