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CCE catches Olympic fever but French soda tax dampens spirits

By Ben Bouckley , 20-Dec-2011

Coca-Cola Enterprises (CCE) says it is focusing on the London 2012 Olympics to spur sales, but admits that any French soda tax could lead to retail price rises there of around 10 per cent.

In its December outlook call for investors and analysts the US firm (Coke’s third-largest bottler focused on Western Europe) said that next year’s operating and marketing plans were focused on the London Olympics and the Euro 2012 football championship.

But European president Hubert Patricot said the mooted French would impact over 90 per cent of CCE’s portfolio in the country, including sparking carbonated soft drinks (CSDs), both sugar and diet, juice drinks with added sugar.

From January 2012, VAT on soft drinks is scheduled to rise from 5.5% to 19.6% in a move that the French government believes will generate an extra €120m per annum in tax returns.

Asked by Bill Schmitz from Deutsche Bank about the rationale for taxing products with non-calorie sweeteners, CCE chairman and CEO John Brock said: “This is simply an opportunity as the government looks at their whole program as a way of raising money.”

Volume impact expected

Responding to another question on the tax from Judy Hong of Goldman Sachs, he added: “We’re not in favour of this kind of discriminatory tax, and we wish they were not there. However, everything we see indicates that the process is continuing in the French government, and very likely the tax will be enacted.”

“As we’ve already said, we expect that volumes in France would be impacted, but…we believe our French business can still grow modestly.”

Patricot told Hong that most of CCE’s portfolio would be subject to average retail price increases of 10 per cent.

“Historically, the price elasticity in France has been on the low end. We have a strong share in France, the brand love for Coke is very strong…but it’s fair to say we are in kind of new territory there,” he said.

Schmitz asked whether the company was worried that jurisdictions other than France might follow suit with similar taxes.

He said: “What’s the risk that some of these other countries see what happens in France and how much revenue the tax generated, and start to pile on and put similar taxes in place?”

Brock admitted it was always a possibility. “Obviously, because of what’s going on in France, we have dramatically increased our activity in this area. We and the Coca-Cola Company, and the industry in general, are taking a far more co-ordinated and developed view.”

CCE steps-up lobbying

This involved understanding what other countries “might be thinking about, and to make sure they understand just what a bad idea it is”, he said.

“Broadly speaking, we think things are moving in the direction we’d like to see to move, which is not putting in place taxes.”

French excise taxes were currently amongst the lowest, according to Brock, which he said despite the rise “hopefully dramatically reduces” the likelihood of other states following suit.

Brock said CCE also planned to introduce a new large 1.75 litre PET container and a new single-serve polyethylene terephthalate (PET) bottle of 375ml for ‘immediate consumption’ in 2012, to tap new revenue streams.

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