Cott says feeling pressure from national brands

Wed Aug 27, 2008 12:37pm EDT

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(Figures in U.S. dollars unless noted)

OTTAWA Aug 27 (Reuters) - Struggling soft drink maker Cott Corp (BCB.TO) (COT.N) said on Wednesday that customers in its key retail market are turning to big national-brand rivals to help attract traffic and drive sales at their stores.

The world's biggest maker of store-brand soft drinks said that "very, very aggressive" promotions from carbonated soft drink (CSD) competitors such as Coca-Cola Co (KO.N) were partly behind the sharp cut to Cott's 2008 profit forecast on Tuesday.

"There are many retailers that are looking at the big national-brand CSD leaders as people that they can count on to drive volume and bring traffic in the store," interim Chief Executive David Gibbons told analysts on a conference call on Wednesday to discuss the warning.

"At our largest customer, our sales, which have been declining for over a year at a rate greater than the overall CSD category ... declined faster than we had anticipated in July, primarily as a result of promotional activity by the national brands."

Cott's biggest customer is Wal-Mart Stores Inc (WMT.N), which last year accounted for about 39 percent of its sales. Early this year it reduced shelf space for Cott-made Sam's Choice drinks.

Shares in Cott slumped 8 percent to C$1.99 in Toronto and to $1.90 in New York on Wednesday, their lowest level in five months. The stock, down 70 percent so far this year, lost about 16 percent of its value on Tuesday.

Cott said its North American volume fell 12.8 percent in July from the same period last year and international volume fell 9.2 percent. The trend was unchanged in August.

"You are seeing a higher level of national brand promotional activity than in the past," Gibbons said. "It certainly is clear at this point that it will have continued through the summer and into September."

With North American volume down almost 30 percent in the past five years, Cott said that volume growth is the key to recovery.

It remains confident that a plan to focus on core private-label customers while cutting costs will improve its results and it expects to conclude a CEO search in two months.

Cott, which also retracted its 2009 profit target, said it was hurt by higher resin costs, used for plastic bottles, a stronger U.S. dollar and shipment problems at its new bottled water line. ($1=$1.05 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)

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