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Schweppes Losing Australia Summer Sales in Fizz Shortage: Retail

Updated on
Australia Heatwave
Sydneysiders crowd onto the city's iconic Bondi Beach in warm summer weather. Summer is typically the busiest period for the Australia’s A$3.2 billion ($3.3 billion) soda industry. Photographer: Torsten Blackwood/AFP/Getty Images

In the midst of a summer heat wave, Australia is suffering a soft-drink shortage because of a disruption in supplies of the gas that gives soda its fizz. Schweppes Australia Pty. is already losing sales and Coca-Cola may be affected next.

Retailers from Woolworths Ltd. and Wesfarmers Ltd., the nation’s largest, to individual store owners are reporting lower sales of sodas and mixers such as tonic water made by Schweppes, which is also battling a labor dispute.

“At peak period I’m out of stock by 9:30 in the morning,” said Mark Raynes, manager of the Ritchies Supa IGA supermarket in Balnarring, a beach destination southeast of Melbourne. “Our trade doubles at this time of year, and saying you’ve got no drink mixers is like saying there’s no Champagne on New Year’s Eve.”

Summer is typically the busiest period for the nation’s A$3.2 billion ($3.3 billion) soda industry with hotter weather, schools on vacation and many workers taking time off in the span between Christmas and Australia Day on Jan. 26. Melbourne temperatures peaked at 40 degrees Celsius (104 Fahrenheit) this week and Australia’s second-largest city has seen the mercury above 30 degrees on four of the past five days. Temperatures in suburbs of Sydney, the biggest city, reached more than 37 degrees yesterday, according to the Bureau of Meteorology.

Pepsi, Sunkist

Australia is the driest inhabited continent in the world, and the decade to 2011 was equal to the hottest on record, according to the bureau.

Schweppes Australia, the nation’s second-largest soft-drink maker, which also has the Australian bottling rights to Pepsi and Sunkist, said production is being hampered by a lack of carbon dioxide because of plant shutdowns by Orica Ltd. and Origin Energy Ltd.

Orica’s Kooragang Island ammonia plant, which makes the raw gas as a by-product of explosives production before selling to processors, has been closed since August after an accident.

The company began a controlled restart Jan. 3, and it may take as long as three weeks to resume full production as Orica focuses on safety, Nicole Ekert, a Melbourne-based spokeswoman, said by phone.

In addition, the Lang Lang processing plant southeast of Melbourne will be shut for as long as four months as part of planned upgrades to the BassGas offshore natural gas project, Stephen Ellaway, a Sydney-based spokesman at Origin, said by e-mail. Carbon dioxide is often found in petroleum fields and is removed during processing into fuel.

Labor Dispute

A labor dispute has made the situation worse. Schweppes Australia, a unit of Tokyo-based Asahi Group Holdings Ltd., has locked out about 150 workers at a plant in Victoria state since Dec. 15 in a pay disagreement.

Schweppes trails only Coca-Cola Amatil Ltd. in Australian soda sales.

The Asahi unit had sales of A$670 million in 2009, according to the most recent report available from Australia’s corporate regulator. Sydney-based Coca-Cola Amatil has domestic beverage revenue of A$2.8 billion.

Coca-Cola Amatil faces production and supply disruptions if the Kooragang restart misses its schedule, according to Michael Nolan, an analyst at Royal Bank of Scotland Group Plc.

“Any further delay to the start-up process would leave Coca-Cola Amatil short of carbon dioxide and likely prompt a statement to the market,” Nolan wrote in a Dec. 22 report to clients.

Lee Findlay, a spokeswoman for the bottler, which is 29 percent owned by Atlanta-based Coca-Cola Co., declined to comment.

Short of Stock

The country’s largest buyers of soft drinks said they were running short of stock in some areas as a result of the disruption.

Sydney-based Woolworths, the country’s largest retailer, had “localized supply issues” in Victoria and Tasmania states, with Schweppes trying to source inventory from other plants.

“There are a few issues that have hit at once -- the strike, a shortage of carbon dioxide gas, and some problems with their normal logistics supply into Tasmania,” Clare Buchanan, a spokeswoman at Woolworths, said in an e-mailed statement.

House Brands

Second-ranked Wesfarmers, owner of the Coles supermarket chain, is making up for the Schweppes shortage with alternatives including house brands. Closely held P&N Beverages Australia Pty Ltd., the nation’s third-biggest soda maker, is the largest producer of private-label soft drinks.

“We still have product on the shelves, but not our full range and not as much as we would like,” Jon Church, a spokesman for Coles in Melbourne, said by phone.

Coca-Cola Amatil fell 1.8 percent to A$11.68 at the close of trade in Sydney and Woolworths dropped 0.9 percent to A$25.47.

Coca-Cola Amatil has lost 1.6 percent in the past three months, while Woolworths’ 5.3 percent advance almost matches the 5.5 percent climb of the benchmark S&P/ASX 200 index.

Asahi fell 0.9 percent to 1,689 yen at the close of Tokyo trading. The company has annual sales of 1.5 trillion yen ($19.6 billion), including about 392 billion yen from non-alcoholic beverages.

Schweppes accounts for more than 10 percent of the Tokyo-based company’s beverage sales, according to Bloomberg data.

Medical Priority

Australia’s two biggest processors and distributors of carbon dioxide are Air Liquide SA and the BOC unit of Linde AG.

Judy Coulson, a spokeswoman for Air Liquide, and Karen Heidtmann, a spokeswoman at BOC, declined to comment immediately on the gas shortage.

Air Liquide, the world’s largest industrial gas producer, said in a Dec. 6 statement that the Kooragang shutdown had forced it to reduce inventory levels and shift product from other states to meet demand. Priority will be given to supplying gas to water treatment plants and medical consumers, it said.

The Schweppes industrial dispute dates back to June, when the company began moving to 24-hour-a-day operations at its Tullamarine plant near Melbourne airport.

The soda maker said it needed to lock out the staff to avert rolling stoppages by members of the United Voice union. A conciliation session between the sides yesterday failed to resolve the dispute.

“Our customer service levels are well below both what our customers expect of us, and what we expect of ourselves,” Sara Lettieri, a spokeswoman at Schweppes, said by e-mail.

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