Cott Beverages: A Case Study in Private Label

A few months ago Cott Corp. looked to be dead in the water.

It’s own brand of soda was nowhere and Walmart had just dropped them as their exclusive beverage supplier.

Now investors have bid up its stock by 215% in a scary bear market. And in spite of challenges to its international business (especially Mexico), analysts are talking up the price even further. The key to the turnaround has been private label sales. The company (based in Toronto’s grimy industrial suburb of Mississauga) makes bottled water, juices, energy drinks and bottled teas, but the sales to grocery chains led to first quarter profits of Cn$20.8MM, despite revenues dropping 5.8% to Cn$367MM on the strength of the U.S. dollar. Lower commodity costs are helping, along with the usual cost-cutting (shedding jobs and bottling lines reduced costs Cn$22MM), some one-time tax benefits and deferred spending.

The Walmart impact hasn’t been felt yet, likely on the surge in demand for private label products as consumers “trade down” from brands. Walmart claims the phase-out will take 3 years, so Cott may be far from out of the woods. The company is looking to rebuild its relationship with the Bentonville Behemoth, who has recently announced a new PL initiative that may help bring Cott back into the fold. But with private label surging around the globe, Cott may find out it doesn’t need Walmart as much as everyone thought.

A bigger question is whether Coke and Pepsi can revive their sales once the recession ends, or if consumers will stick with the move to private label. Sales of colas and other soft drinks have been flat for years, with both brands pushing their non-soft drink products like water, functional waters, and energy drinks.

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