Walter Leonhardt: How CCBSA used the sugar tax to their advantage
CFO Walter Leonhardt shares how Coca-Cola Beverages South Africa bounced back after three very difficult years.
On Valentine’s Day, 14 February, Coca-Cola Beverages South Africa (CCBSA) CFO Walter Leonhardt took some time to talk to CFO South Africa about the challenges the soft drink manufacturer has faced in the last three years, and how they have turned these into opportunities to get ahead of its competitors.
The 2016 Finance Transformation and Governance & Compliance Awards winner also shared his role in turning the company around.
The focus areas of Walter’s role start with making sure the right people are in the right positions and having a structure in place that is appropriate to meet the requirements of CCBSA’s customers and stakeholders.
From a finance point of view, his role requires him to supply the business with valuable information which changes perceptions, informs decisions and steers the company in the right direction to achieve its organisational goals.
There’s also a strong governance aspect to ensure processes are being adhered to, and that annual financial statements and transactions are reflecting reality.
“The fourth requirement, which has been elevating over the past couple of years, is stakeholder engagement,” he said. “Specifically, regulatory and government interfaces, which have become ahead of the level I’ve trained in. So it’s something I had to learn and get used to.”
Walter added that this can be difficult sometimes. “As a business, we’ve got strong commercial objectives, and the government’s objectives aren’t limited to just commercial. I’ve come to understand and appreciate that these objectives, which I haven’t always considered as important, are actually very crucial.”
He said that this collaboration goes to understanding what the intent and heart of the matter is that they’re dealing with and to appreciate it. “Sometimes, in the wording of the regulation, you don’t necessarily understand the essence and intent of the message and you might not always like the rules that get slapped on you. Getting to understand the true intent helps a lot. It guides you to go further and beyond what is required.”
The sugar tax is a perfect example of this for CCBSA. “Last year we paid R2.7 billion in sugar tax, which was introduced in April 2018. Before that, we didn’t have a R2.7 billion expense item in our P&L. Now we do and we’ve made it work.”
The company’s first reaction to the sugar tax was like with any shock. “You go into a period of denial, where you kick and scream and call it unfair,” he explained. “Eventually you get around to accepting and embracing it.”
The sugar tax shocked the entire soft drinks industry and, in retrospect, the Coca-Cola system in South Africa was “too slow to change and adjust to that”. However, they implemented a comprehensive set of changes, predominately on the package and pricing architecture of its products, which helped the company be successful in 2019.
The major adjustments were package sizes. “You may remember before the 300ml cans there were 330ml cans. And while you will still find the Coke Zero range in 500ml bottles, original Coca Cola buddy bottles have been reduced to 440ml,” Walter explained. “You might also remember the 2.25 litre Coke bottles – we discontinued those. You can still find a Coke Zero in 2.25 litre bottles. You will only find original Coca Cola in maximum 2 litre bottles.”
CCBSA also introduced a new pack that has been very successful – the 1.5 litre bottles. The company has also reduced the prices of their low and no-sugar products to compensate for the increased prices on original Coca Cola because of the sugar tax.
“This has set us up to win against our competitors, which we hadn’t been doing in a very long time.”
As part of recovering from three very rough years following the merger of 6 different companies in 2016, CCBSA plans to put more than 30,000 new coolers into untapped market areas in 2020.
The company also plans to unlock more productivity. “Something we’ve been pushing quite hard, for example, and fairly successfully is Sunday deliveries,” Walter said. “In December, we managed to put out 10 percent of our sales on Sunday deliveries.”
Walter believes it is also important for the senior leadership of the company to be in contact with what’s happening in the market. “When the senior leadership is out of touch with what’s happening in the market, bad decisions are made.”
He used the rising gin trend as an example, saying the leadership needs to ask “What are we doing to benefit from it and to contribute towards it? How do we play a role in winning with that trend?”
When asked about the challenges he is currently faced with, Walter shrugged it off saying: “It’s Valentine's day on a Friday, life’s a breeze.”
The hardest period of Walter’s professional life followed the merger in 2016 when he was the financial director of ABI. He, and five other FDs, were hoping to get the CFO role for the newly merged CCBSA. “But here I am. Today still”
“I joined SAB in Bloemfontein 25 years ago and haven’t changed employers since. In 2006 I moved to the soft drinks division. After 11 years in the beer division, I knew things,” he adds. “ABI was struggling and a new MD was appointed. He did things very differently, albeit successfully.”
Walter learned a lot from the MD. “The way he did things was very different from what I had been taught and grew up to know at SAB. It caused a lot of internal conflict, but I had to adjust and everything worked out fine.”
Walter keeps sane in such a stressful job by keeping his work and life “uncontaminated”. He doesn’t believe in a work-life balance, because to him work fits into life. When he leaves the office, he leaves his work behind. “I have learned to become fully present where I am,” he said. He has a wife and two daughters who keep him grounded. “They are quick to point out where I can get off when they don’t agree with me.”
He also cycles and will be taking part in his 20th Cape Town Cycle Tour this year. “In 1996 my wife and I lived on the same apartment floor as one of her colleagues. I became friends with her colleague’s husband and, even though we were mild cyclists at the time, we agreed to do the Argus. We’ve done it together ever since.”