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Dr Pepper Snapple Group Inc
Origin Energy Ltd
Royal Bank of Scotland Group PLC
It’s not for nothing that they call Australia the flattest continent. Smack in the middle of a summer heat wave, the country is experiencing a disruption in supplies of the gas that gives soda its effervescence. The result: a soft-drink shortage.
“At peak period I’m out of stock by 9:30 in the morning,” says Mark Raynes, manager of the Ritchies Supa IGA supermarket in Balnarring, a beach town 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 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 stretch between Christmas and Australia Day on Jan. 26. The nation’s second-largest soft-drink maker, Schweppes Australia, is already losing sales, and Coke may be affected next. Schweppes, which also has the Australian bottling rights to Pepsi (PEP) and Sunkist (DPS), says production is being hampered by a lack of carbon dioxide due to plant shutdowns at local suppliers Orica (ORI) and Origin Energy (ORG).
Orica’s Kooragang Island ammonia plant, which makes the raw gas as a by-product of explosives production, has been closed since August following an industrial accident. A spokesperson said that while production resumed on Jan. 3, it would take three weeks to get the facility back up to full capacity. Origin Energy, meanwhile, is a month into a planned four-month upgrade of an offshore natural gas project. (Carbon dioxide is often found in petroleum fields and is removed during processing into fuel.)
At Schweppes, supplies have also been disrupted by a three-week lockout at a plant in Victoria state, the result of a pay dispute. The plant, which supplies 30 percent of the company’s total output, has been operating at reduced capacity since Dec. 15. Schweppes Australia, which is a unit of Tokyo-based Asahi Group Holdings, ranks No. 2 in soda sales, with A$670 million in revenue in 2009, according to the most recent data available. “Our customer service levels are well below … what our customers expect of us,” says Schweppes spokeswoman Sara Lettieri.
Michael Nolan, an analyst at Royal Bank of Scotland Group (RBS), warns that market leader Coca-Cola Amatil could be the next to get hit. The bottler, which is 29 percent owned by Atlanta-based Coca-Cola (KO), has domestic beverage revenue of A$2.8 billion. Coca-Cola Amatil, which declined to comment, also counts Orica as a supplier. Nolan, in a Dec. 22 report to clients, wrote: “Any further delay to the startup process [at the Kooragang plant] would leave Coca-Cola Amatil short of carbon dioxide and likely prompt a statement to the market.”
The bottom line: Schweppes’s local unit is losing sales because of disruptions in carbon dioxide supplies. Coke could be hit next.