New Cott CEO Sees Continued Growth.
20 Share in Supermarkets for PL 'Possibility.' Price Gap.

New Cott CEO John Sheppard, who took helm Sept. 1, predicts Cott and private label share gains will continue. Since 1998 in U.S., Cott has added about 200 mil cases of volume, and its market share has grown +2.0 share points (BD 3/5/04). Management. Frank Weise, who remains chairman, joined Cott in 1998 when company was staggering and in need of major turnaround work. Coke veteran Sheppard has been at Cott since 2002; most recently COO. Wall St. analysts/industry executives give Weise and team high marks. At end of 1998, Cott's stock price was around $3.50. It has recently traded in $28 range.

Highlights. In interview with BD, new CEO says private label (PL) -- called retailer brands by Cott executives -- is growth driver of CSD category. Notes price gap between brands and PL has room for narrowing without hurting PL's growth. Also says Cott continues small effort in selling "Cott"-branded CSDs.

Interview. BD asks Sheppard: Will you take Cott in different direction? Sheppard: "I don't see us going in any new directions. I see us continuing to try to develop and grow the business with a change in focus in certain areas. When Frank came in ... the focus was on turning the company around and sweating the assets. The company is no longer a turnaround story, it's a growth story. And my focus will be on managing the growth of the company."

Is your growth today mainly from same-store sales or program expansions? "Most is from same-store growth, not just expansion of new customers. It's the core business that's growing." Why? "It's (the) retailer brand phenomenon -- not just CSDs -- continuing to grow and develop in the U.S. Specifically on CSDs, it's the commitment by retailers. As they continue to consolidate, there is a need to differentiate, and they continue to embrace the retailer brand concept as a way to differentiate themselves from each other."

Will private label CSD share in supermarkets surpass 20, as it has in Wal-Mart? "I think it will depend on the retailer. I do believe the retailer brand market shares will continue to grow. Whether it hits 20 or not, I think long-term that's certainly a possibility. We'll see continued growth, and I don't see any reason why the market share shouldn't continue to grow."

Is CSD category weakness affecting PL CSD business? If not, why? "(Re) the weakness in the CSD category, we have not seen the impact on PL or retailer brands. The reason is that the major retailers where we do business have a strong commitment to retailer brands which is the growth engine of the CSD (category)."

What is optimal price gap between PL and brands? What is it now? "It's currently around 37%. We believe the low-30% (range) is optimal." Price gap could narrow and still be okay for Cott? "Absolutely."

With costs going up in 2005, will Cott be able to raise prices to cover that? "Interesting question. I think what you'll see is that Cott is taking and will be taking price increases to offset ingredient and packaging costs."

Status of 'Cott' brand? "We re-launched the Cott brand in the northeast as a premium brand (in supermarkets and C-stores). It's in three or four northeast states -- New York, Pennsylvania and Massachusetts. It's a very, very small launch. It's not a major focus of ours. It's more of a niche brand. We had some demand for it, and we decided to relaunch to meet some customer demands." Competing with your own customers? "No. It's a premium brand. We had certain customers who wanted a premium 'Cott' brand. (Some of their) customers grew up with Cott, and they'd been asking for years for Cott. We're very careful where we sell it, so we don't compete with our current customers. In those very, very few instances where the Cott brand is there and there's a retailer brand program, (retailers) would get very strong margins (on Cott brand)."