CCL Products fell by about 8% today, as the ANALysts (yes that was intentional 🙂 ) were unhappy with the growth figures, compared to last quarter/six months. I don’t know when they will understand that companies will not grow in a linear fashion. You just have to think long term. Most of their questions in todays call seem to be regarding the deviation from the projected growth path and not about the future of the coffee industry. Estimates are a whole bunch of moving pieces and they should be construed so. Anyway, keeping my disappointment aside, here are some additional insights into the company.
- Value addition in CCL happens via more production for the retail customers (small packs) and in higher end, specialised coffee and both the factors are on an incline.
- Coffee companies have an organisation called the “International Coffee Organisation” and this is a huge advantage coffee producers and growers have in the market. Think of it as a CIBIL score and since the organisation represents over 95% of the world production and 83% of the world consumption, you wouldn’t really mess with your credibility if you plan to stay in the coffee business.
- Technology is really really changing fast. Read this entertaining article of how the kitchen sink has reduced stopped drinking coffee. Also check out these really cool coffee brewing machines that are finding a place in homes.
- Keurig, has with the sale of its vending machines actually created and “App Store”, and each major developer is creating his apps or PODS. They basically just created and new platform in one of the worlds oldest commodities. This almost excited me enough to dump my entire CCL holding and get into Keurig, but then again, CCL is the one who will probably be making all the coffee that is going into the PODS. The only spoiler being that the liquid coffee plant will only be ready in 2017-2018.
- Brazil which has over 35% 1,00,000 MT of capacity can’t really compete with the world market apart from America as they don’t import green coffee from other markets. They can only sell what they produce – a huge disadvantage. Its like telling your kid that he can be as adventurous as he wants, but he should just not leave the house 🙂
- Also the US Labelling laws are on the verge of being changed, the so called “License Raj” will be coming to an end and Brazil will have to compete head on with CCL who doesn’t adulterate their coffee. The average American needs to have atleast 300 ml of coffee in the morning versus our Desi South Indian coffee which is just about 60 ml and here is the best part, the coffee powder that the Americans use is almost 2.5x that off what we use.
- CCL’s market has been Europe and the Far East due to its location and its ability to produce coffee from green coffee imported from all over the world. This is a bigger advantage than it seems like.
- CCL has time and again been winning a lot of “blind tasting sessions”, but have not completely taken advantage of that. This is due to the conservatism of the company. I think this same conservative attitude has protected the company from more losses than loss in profits.
- CCL has been making major inroads into the Army and Police Canteens and has been tying up with hotel chains like Club Mahindra and Sterling. They could be everywhere in a jiffy, if they just changed their credit policy, which consists of just two words ” NO CREDIT”. When you take up a policy like that, and still continue with superior growth, it is a clear example of QUALITY trumping MARKETING.
Caffeine is an addiction. In many ways like nicotine or marijuana. Luckily this drug enhances productivity without cancer or damaging the brain. The world smiles on this drug and uses it as the most common opening line to attract the opposite sex
” How about some coffee.”
Why would you not want to be in on it ?
In short, there are various levers still in CCL’s artillery, so there should be little reason to worry about companies growth, however, if you have entered at a frothy valuation, well ……….. ….. 🙂