Coca-Cola is Rapidly Approaching Jamnica

About ten days after Agrokor’s companies that are still listed on the Zagreb Stock Exchange finally published their annual reports for 2017 (only Tisak has not done so yet), this week they also started releasing their reports for the first quarter of this year. Jamnica was the first to publish its reports in both cases, accompanied by very detailed comments from management explaining the circumstances under which Agrokor’s most valuable company had lower sales revenues last year and at the beginning of this year compared to the same periods a year earlier.

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Jamnica ended last year with sales revenues of 1.4 billion kuna, which was a shortfall of 114 million kuna compared to 2016. Given the circumstances under which it operated last year, including a ten-day account blockade (from March 31 to April 9), this should certainly not be considered a bad result. As operational matters have since been organized under the extraordinary management of Agrokor, the new decline in sales revenue in the first quarter of this year, which amounted to seven percent, however, indicates that the situation at Jamnica is more complex than it wants to portray. It is true that Jamnica lost its distribution contract with Red Bull last year, but this, according to our rough estimate, could account for a revenue drop of about two to three million kuna in one quarter, and certainly not a drop of 33 million kuna. Bad weather, a universal alibi for weaker sales in the beverage industry, was also mentioned. It is true that both last year and this year in the first quarter there was winter, but that doesn’t matter.

However, what caught our eye in the report from Jamnica’s management, led by Mislav Galić, is a small observation on the topic of risks from changes in the competitive environment. It states that ‘in Croatia, our biggest competitor is Coca-Cola, which has strong distribution and financial resources as well as large marketing budgets. Additional investments by Coca-Cola in the market by strengthening its own brands and reducing prices could negatively affect the business of the Jamnica Group. Higher costs required to maintain the position of market leader cannot be compensated by increasing the selling price, and additional investments by the Jamnica Group in the market and customers could significantly impact profitability.’

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In free translation: either we will invest in marketing at the expense of profitability, or Coca-Cola will overtake us. And in that regard, Coca-Cola is on the right track. As early as 2015, Jamnica’s revenues were double those of Coca-Cola. In the meantime, Jamnica has started to decline, while Coca-Cola has continued to grow, increasing its revenues by about ten percent last year, nearly reaching one billion kuna, thus significantly reducing the gap between them by the end of last year. And this trend continues into this year.