Кока-кола (англ) лучшее решение

ICEFMath team:

Pavel Taranin

Dmitrii Kazantcev

Alexandr Petrov

Artur Yurovskikh

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

By focusing on value adding processes in both production and marketing, the strategy will generate NPV of 17 bln rub by 2020 What we sell

How we sell

Based on Volume, Natural growth and Brand strength, 3 segments are top priorities:

Sales increase is achieved by selection of key areas in:

Premium carbonates: highest growth

How we produce Effective energy management will reduce carbon footprint by 13%

Sales channels

Increased water conservation will result in 30% water consumption decrease

Juices: highest volume and brand power

Water: high volume and natural growth

Premium carbonates Launch of European and American

 market growth-driving product Juices

Addition of mineral water and domestic

 fruits juices to suit customer needs 

Exotic fruits and healthcare focus for the premium price segment

Water

Acquisition of a water company to

 increase market share

Enrichment of flavored water with

 vitamins to boost demand

Sources: case materials, ICEFMath analysis

Marketing Sales channels Future consumption: focus on supermarkets and hypermarkets

80% of packaging will be recycled

The project will generate NPV of 15 bln rub by 2020

Project summary, Mln rub

31 631

Immediate consumption: focus on fast-food restaurants, bars and cafes

Marketing

14 567

Trade promotion: exclusive dealing

15 207 1 857

15 207

Consumer promotion: data-basing Viral marketing: mobile content Partnership: self-promotion on coming FIFA championship

NPV without CAPEX

Discounted CAPEX

Base scenario NPV

NPV

1

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Currently, Russian economy is not growing fast and soft drinks market will also experience moderate growth Oil prices will remain lower $90 before 2020 Oil barrel price, $

Together with structural problems it will lead to slow development of Russian economy Russian GDP growth, %

89,54 80,17

77,01

76,22

78,44

3,68%

3,45%

82,88

3,90%

3,00% 2,10%

65,23 0,50%

2014

2015

2016

2017

2018

2019

2020

Market of soft drinks, bln liters

12,74

13,12

13,50

13,86

2015

2017

USA

Russia 2016

2017

2018

2019

2019

2020

14,50 336

West Europe

2015

2018

Consumption of soft drinks, annual liters per capita

12,30

2014

2016

Russian soft drinks market is a long way from saturation

Soft drinks market will show positive volume growth 14,18

2014

0,30%

221

90

2020

Sources: case materials, ICEFMath analysis, McKinsey forecast, BofAML forecast, Euromonitor International

2

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

In order to optimize its current product portfolio, CCH should focus on premium carbonates, juices and water Currently, the biggest markets are the most desirable for CCH…

High

10

Premium carbonates

Ice Tea

Water

Juices

Medium

8

Coca cola brand strength

12

6

4 Energy drinks

Secondary priority

Low

2

Top priority Local carbonates

0

0

Low 1 000

2 000

Medium 3 000

4 000

Natural growth High 5 000 6 000

Sources: case materials, ICEFMath analysis, Nielsen, Euromonitor International

… and in order to sustain leadership in these segments, CCH should realize market trends  Market is highly consolidated  Marketing is effective in this sector  4% long-term market growth  Growing health concerns  Market is saturated in the largest cities but not in regions  Currently, low-price juices are the main factor of growth  Price of inputs will grow  The most dynamic market among the largest  Main factors of growth are mineral and flavored water  Market is far from saturation

3

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

In water market, CCH should correspond to growing trends by acquiring mineral water producer and developing flavored water product line Market of water has great potential to develop Spain

Mineral water is the largest segment, but CCH is not well-presented on it

150

France

6%

4%

Drinking water

27%

Russia

Mineral water

130

US

63%

105

33

Mineral water market is not consolidated, thus the best way to expand is to acquire existing player

In choice of company, CCH should minimize cannibalization effects Turnover, mln rub

Price segment

Karachinskiy istochnik

1763

Low

Kavminvodi

766

Medium

Merkury

1910

Low

Visma

1021

High

Narzan

1798

High

37%

Top-5 players Other

Other

Consumption of water, liters per capita annually

Name

Healing water

63%

Region-based competition

Sources: case materials, ICEFMath analysis, Euroresearch Consulting, Spark Interfax

In flavored water segment, we recommend to enrich current products with vitamins Main reason, why people buy flavored water is that it is a healthy and natural alternative to carbonates Currently, there is no developed flavored water, which has focus on enrichment of vitamins, so by adding this product to Russian market, CCH will gain competitive

advantage

4

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Regions with high consumption potential are geographical priorities for juice product line, with shortterm and long-term focuses being Low and Premium price segments Moscow juice market is saturated, while regions have large potential for expansion 2X 40 35

Regions with high consumption potential are current priorities

Annual juice consumption, liters per capita

30

USA

25

Western Europe

20

Russian Federation

15

Moscow

10 5 0

2000 2000

2003 2003

2009 2009

2011 2011

Highest priority

2014 2014

High priority

Priority

Due to worsening economic conditions, Low price segment is a priority in the short-run, whereas Premium segment will face growth in a longer perspective Recovery

Recession

9,8% 5,6%

55,3%

18,1%

8,4% 4,3%

51,2%

7,1%

3,3%

46,3%

7,0%

46,3%

3,2%

7,3%

46,2%

3,5%

7,6%

46,1%

3,8%

7,9% 4,1%

8,2% 4,4%

8,5% 4,7%

46,0%

45,9%

45,8%

Premium price segment Middle price segment Mass price segment

21,5%

24,9%

24,9%

24,8%

24,7%

24,6%

24,5%

24,4%

11,2%

14,6%

18,4%

18,6%

18,2%

17,8%

17,4%

17,0%

16,6%

2012A

2013A

2014F

2015F

2016F

2017F

2018F

2019F

2020F

Sources: case materials, ICEFMath analysis, RBC Russian juice market research

Low price segment Lowest price segment

5

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Current products in the selected price segments could be improved to suit customer needs: focus on naturalness and healthcare Clients value products’ naturalness and Russian origin

Clients prefer healthy products of high quality

Families with children of age 4 to 11

Persons of age from 20 to 45

Low to average income

High income

Prefer Russian and natural products

Prefer high quality products

Family wellness is of great importance

Personal health is of great importance

Use mountain water Currently, Dobry juices are produced using tap water.

By creating a product line with mountain water, brand can increase its naturalness in the eyes of customers

Use Russian ingredients Russian fruit production is growing at 11% CAGR, hence Dobry can use domestic fruits in concentrates production

Effect:  Differentiation of the product  Increased attraction of new customers from the target segment Sources: case materials, ICEFMath analysis, gks.ru

Launch juice line with exotic fruits and vitamins, focus of which is healthcare Focus on Brain power

Energy

Antioxidants

Taste

Active elements

Pomegranate, blueberry

Omega 3/DHA

Strawberry, kiwi

Yerba Mate

Pomegranate, lemon

Vitamins C and E 6

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Carbonates product line should be reorganized to account for the latest innovations and growing health concerns Russians start to care about their health, but traditional carbonates are not considered healthy 4

3 28

29

3 15

Taste: according to consumer polls, taste of CCL is significantly different from CC

Yes, special diet from doctor

25

27

22

23

3 19

Current carbonate alternative is Coca Cola Light, which has problems with taste and naturalness

Yes, create diet by myself Yes, try to eat helthy food

33

34

7 4

8 4

10 5

13

2008

2009

2012

2014

artificial sweetener is considered as damaging health

No possibility to think about diet Cannot answer

6

However, there already exist products that solve these problems!

CC Zero has taste which is almost the same as usual CC and is the main growth driver in European countries…

Sales volume increase,%

16,50%

Naturalness: aspartame,

Eat whatever I want

38

35

… and through the use of only natural sweeteners CC Life’s launch has been a commercial success

70%

33%

80%

Rate product’s taste 4 or more stars out of 5

Of people who saw the product have bought it

Of buyers say they will buy it again

15%

CC Zero

6,50%

CC Light

-1,50% 2011

2012

-5,50%%

-5,50%% 2013

Sources: case materials, ICEFMath analysis, US market survey data, Coca Cola annual reports

7

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

In Immediate consumption, fast-food, bars and cafes are the most attractive segments for Coca-Cola Hellenic There are two best segments, which should be priorities for CCH Volume, $ Share of Cola Growth mln in order Vending

190

6%

Café & bars

2731

7%

Fast food

5606

11%

Restaurants

1869

3%

Market share, %

32,8

… thus, we should increase consumption in current FF We suggest to reward high Coke consumption by:

Trips to factories 5,3

4,5

4,3

3,3

Discounts Coca cola souvenirs

Youth accounts for the half of cafe & bars customer base Distribution of respondents by Moscow age

In fast-food, the biggest market players already have exclusive contracts…

SPB

Young people appear to be more positive … thus, we should focus on café & bars aimed at young people via trade and less sensitive in terms of leisure off exclusive dealing and promotions expenditures during recessions …

Other cities

18-24

15%

14%

22%

25-34

27%

28%

30%

35-45

20%

14%

26%

46-54

29%

33%

10%

54 and older

9%

11%

12%

Sources: case materials, ICEFMath analysis, Euromonitor Internation

43%

Share of people positive about the end of recession, % 31%

High consumption in café & bars for youth can be achieved by the following:

Price promotions & bundling

Advertisements

Coca cola souvenirs Youth 18-24

Other

8

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

In Future consumption, CCH should focus on the Advanced sales channels: the middle-sized supermarkets as well as hypermarkets, taking the advantage of customers’ behavior analysis Mln rub 200 000

Advanced Sales Channels showed 12,3% growth in monetary terms in Russia…

…as well as 8% growth in natural terms…

Mln units 4 500

Juice

150 000

100 000

Juice

Carbonated 3 000 Soft Drinks

Carbonated Soft Drinks

Water

Water

1 500

50 000

Other

0 2012

Research of customers’ preferences Positions of highly demanded complementaries

Type

40,00%

30,00% 2012

Effective zoning and planogram

Sales Data

50,00%

Other 0

2013

...and share of Advanced Sales Channels in Future consumption steadily increases

Visualization

Supermarket Sales Area Sales

CSD

28%

19%

Juice

33%

57%

Water

33%

20%

Other

6%

4%

Sources: case materials, ICEFMath analysis, Nielsen Report, Magnit Report

2012

2013

Marketing BTL marketing

2013

Growth in revenue of 3 shops shows the positive impact of zoning and visualization

25,00%

Trade promotion Consumer promotion

20,1% 14,1%

5,5%

Viral marketing Partnerships

2014

0,00%

No

Z

Z+V

9

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Despite of the recession, Coca-Cola Hellenic should strengthen the use of its marketing tools ATL Marketing

Consumer base increase

Marketing

Loyalty increase

BTL Marketing

Trade marketing and promotions

Consumer promotions

Sources: case materials, ICEFMath analysis

with‌

Viral marketing

Partnership

10

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Consumers are more price sensitive in recessions, therefore offering careful price promotions could make a lot of sense for CCH, while exclusive dealing is the priority in trade promotion Trade promotion

Consumer promotion

Exclusive dealing Extra shelves for increased range of products

Less competition and increased turnover Additional Income

Additional Costs

=

1.18

40% 1.3%

of promotions appear to be unprofitable higher the annual growth in equity for firms advertising without dependence on cycle

Careful and diversified promotions based on data analysis should be frequently conducted

Price promotion estimation matrix Evaluation of additional sales of promoted product

Cross-selling effect.

Cannibalization

Analysis of promotion costs

Impact of promotion on the image of CCH

Talent management of sales representatives

Assessment of workers Hero of the present

ďƒź

Star of the future

Results Competence Potential

Sources: case materials, ICEFMath analysis

ďƒź

Distribute clients between sales representatives based on assessment Offer different training programmes

Special placement

Effective pricing

Bundling Promotions alternation 11

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

CCH should develop and maintain its industry leadership in sustainable water use, packaging, energy savings and climate protection

Targets to be achieved by 2020 Energy management and climate change

Water conservation

-10% -15% -11% Carbon emissions from manufacturing

Carbon emission from transportation

Energy spent for cooling

Reduction water use ratio in plants

Plants with European water stewardship standard implemented

-30%

Water footprint meaning more efficient water saving

Carbon footprint of the drink on the environment Efficient water and energy usage

100% -15% -10%

23%

-13%

Sustainable supply chain

Sources: case materials, ICEFMath analysis, Coca Cola Integrated Report

Sustainable packaging

Amount of material used for packaging

Natural resources used for packaging

80%

of packaging will be recycled Low CO2 emission

12

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

CCH should manage people, time and money for greatest effectiveness Production

People

Strategic goals:

Strategic goals:

 Increase people’s company knowledge  Inspire people’s passion for our brands  Recruit and develop diverse people

 Standardize and simplify business/IT processes  Create cost advantage across supply chain  Minimize energy/water use

Indicators to measure success:

Indicators to measure success:

 Employer of choice in Employer Rankings  Workplace rights  Diversity

 Supply chain costs  Overhead per unit  Total energy/water use

Sources: case materials, ICEFMath analysis

13

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Majority of core strategic measures will be implemented within three years Key initiatives

2015 I

II

III

2016 IV

I

II

III

2017 IV

I

II

III

2018 IV

I

II

III

2019 IV

I

II

III

2019+ IV

Production

Marketing

Channels

Products

1.1 Acquisition of Merkuriy 1.2 New product development 1.3 Production facilities adjustments 1.4 New trade treaties establishment 2.1 Implementation of zoning, planograming and visualization 2.2 Exclusive contracts establishment 2.3 Special offers in cafes, bars and fast food 3.1 Viral marketing 3.2 World football cup support 4.1 Refrigerators substitution 4.2 Ecological cars purchase 4.3 Implementation of European Water Stewardship Program 4.4 Supply chain program

Phase timeframe Sources: case materials, ICEFMath analysis

Event timeframe

14

Summary

Overview

Products

Channels

Marketing

Production

Conclusions

Proposed strategy will significantly affect key financial indicators and generate 15.2 bln rub NPV Profit margin will return on growing trend Return on sales, % 4,00%

NPV of cash flows until 2020 will be more than 15 bln rub Mln rub

3,50% 3,00% 2,50% 2,00%

14 567

1,50% 1,00% 0,50%

0,00%

1 857

31 631

-0,50% -1,00% 2013

2014

2015

2016

2017

2018

2019

2020

15 207

Market share* will increase by 4%

15 207

54,0% 52,0%

NPV without CAPEX

50,0%

Discounted CAPEX Base scenario NPV

NPV

Assumptions:

48,0%

ďƒź WACC=13.67% ďƒź Initial investments consist of 3.6 bln acquisition costs and environmental investments of 0.4 bln

46,0% 44,0% 42,0%

40,0% 2014

2015

2016

2017

MS withous strategy

Sources: case materials, ICEFMath analysis

2018

2019

2020

MS with strategy

* Considering sales in super- and hypermarkets 15

ICEFMath Team

Pavel Taranin

Artur Yurovskikh arthur_940608@live.ru

petrovalexandrig@yandex.ru

kasantsevdima@yandex.ru

 NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year  Cup Russia, Finalist, 2014  Global Management Challenge, Finalist, 2014  Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014  McKinsey Academy, 2014  Risk Analyst in commercial bank

 NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year  Russian National Olympiads in Economics, Social Science and History, prizewinner, 2010-2012  Alfa-bank scholarship  Global Management Challenge, Finalist, 2014  Cup Russia, Finalist, 2014  Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014

 NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year  Global Management Challenge, Finalist, 2014  Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014  Cup Russia, Finalist, 2014  Risk Analyst in commercial bank  McKinsey Academy, 2014  Winner of various table tennis competitions

 NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year  Russian National Olympiad in Economics, winner, 2011,2012  Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014  Alfa-bank scholarship  Cup Russia, Finalist, 2014  Risk Analyst in commercial bank  McKinsey Academy, 2014

paveltaranin@yandex.ru

Alexandr Petrov

Dmitrii Kazantcev

7

3

1

6

4 5

Low

Medium

Sources: case materials, ICEFMath analysis

High

1

Declining consumer demand

2

Input costs

3

Legal restrictions Organizational integration of Merkuriy failure

4

2

Low

Medium

High

Severeness of risk

The most severe strategic risks are external

5

Climate change

6

Supply chain fault

7

Disruption of IT service

Probability of risk 1

Coca Cola Hellenic’s current risks can be mitigated Risks

Actions to manage risks Optimization of product portfolio, development of current and new

Declining consumer demand production channels and marketing Input costs Legal restrictions

Hedge risks using commodities swaps and futures Closely work with Russian government to ensure that our products are not singled out unfairly

Organizational integration of Create integration plan which will account for cultural and organizational differences between companies Merkuriy failure Climate change

Supply chain fault Disruption of IT service Sources: case materials, ICEFMath analysis

Increasing efficiency and reducing ecological impact of our production facilities to protect licenses Minimum standards for suppliers to ensure their quality and get early warnings of potential issues Run existing IT system on dual architecture landscape, use remote data centers to ensure that information will not be lost in case of IT disruption 2