Coca-Cola Bottlers Japan Holdings Inc

TSE:2579

Earnings Call Transcript 2020-Q3

[Raymond Shelton, executive]

Good afternoon. I'm Raymond Shelton, Head of Investor Relations and Corporate Communications for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our third quarter 2020 earnings call for analysts and investors.

I'm here with the executive leadership team of Coca-Cola Bottlers Japan Holdings; and Mr. Takashi Wasa from the Coca-Cola Japan Company.

Following prepared remarks, we will be happy to take your questions. This presentation is intended for analysts and investors, so we ask members of the media listening to today's call to please hold your questions for our media session scheduled separately. Simultaneous translation in both Japanese and English is being provided for today's call and during Q&A with separate telephone lines for Japanese and English.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including statements concerning annual and long-term earnings objectives and should be considered together with cautionary statements contained in our supporting presentation deck. Both are posted to the Investors section of our website at ccbj-holdings.com. Please look on our website for this information in both Japanese and in English.

Now I'd like to turn the call over to Calin Dragan. Calin-san?

[Calin Dragan, executive]

Thank you, Ray, and good afternoon, everyone. I'm Calin Dragan, and thank you for joining today's earnings call. Today, we will present our third quarter financial results as well as updates on various strategic initiatives and current conditions in Japan given the ongoing uncertainty from the COVID-19 situation.

First, I would like to express our collective thanks to the many people helping to keep us safe and healthy during these difficult times. My thoughts and condolences are with those who have experienced loss or hardship as a result of the COVID-19 pandemic.

Our mission here at Coca-Cola Bottlers Japan is to deliver happy moments to everyone while creating value, and now more than ever, this mission motivates us to work every day in new ways to provide a safe and secure supply of beverages and services to our customers, who themselves are also navigating new and challenging situations.

Let's start by reviewing our year-to-date performance on Slide 5 on the presentation deck. Although still negative, we have seen moderating volume trends in the industry compared with the second quarter, which reflected the full weight of various COVID-19 restrictions across Japan. In the third quarter, volume, revenue and business income for Coca-Cola Bottlers Japan have shown gradual recovery versus previous quarters this year, and quarter 3 stand-alone business income was almost even versus last year. Although there has been a meaningful decline in vending, consumer traffic and sales volume as a result of COVID-19, we are making steady progress in this important channel and have grown market share for 18 consecutive months while accelerating our head start on transforming that business. Our focus remains on growing OTC market share as we now selectively reinvest in updated marketing plans after a summer without the Olympic Games.

In this tough environment, we have delivered significant cost savings by accelerating and completing important transformation initiatives like the vending and sales route operation projects as well as other major cost efforts.

But we have not pulled back on initiatives to drive future growth. Our expansion into new consumption occasions, such as alcohol have been successful. The Lemon-dou alcohol brand has performed well since its launch, and we now expect to sell about 8 million cases in 2020. We continue to expand production capacity to meet this growing demand.

Finally, on October 5, we have announced updated full year 2020 earnings guidance, targeting flat business income in spite of the heavy top line impact of COVID-19 with no change to the JPY 25 per share year-end dividend forecast.

We continue to drive fundamental business transformation to become a more agile and resilient organization guided by our mid-term strategic plan while navigating the challenges of the current COVID-19 environment.

On Slide 6, I would like to update the slide I have shared with you in prior earnings presentations this year. The Japan beverage industry is seeing some signs of traffic recovery, especially recently, as the government to -- GO-TO campaign ramps up and the restrictions have been eased, although uncertainty remains. Stabilization and recovery is not one-size-fits-all though. Recovery has been uneven by channel and stabilization. It's still at lower levels than before the outbreak. We are seeing a bit more recovery in supermarkets and the drug and discounter channels.

In the vending channel, indoor locations such as train stations, and leisure venues have been slower to recover than outdoor locations, though we are seeing improving trends in offices now as well.

And online continued to grow driven by strong demand for home delivery and at-home consumption. We have provided an overview here of what we are seeing in the vending OTC and online channels. Amid this environment, we are rolling out new investments in marketing and market execution in the fourth quarter to set a solid base for recovery and growth guided by our strategic priorities and, of course, changes in consumer demands.

At the same time, we are working with urgency to ensure the business -- the fact that business is more resilient with initiatives to lower our high-cost structure both through fundamental transformation and shorter-term mitigation.

Please move to Slide 7. Although a trend of daily new COVID-19 cases in Japan came down after the second peak in August, it has started to creep up again in November. We will need to keep close watch on how the situation progresses while finishing out this year and working on our scenario planning for next year. This is how we navigate with COVID-19, especially, this means we are keeping a strict focus on managing what is in our control and building what we believe is a solid foundation for the next stage of recovery and growth.

Though many things remain unclear, what is crystal clear is that we must view this crisis as an opportunity rather than a threat. The beverage market, it's starting to show signs of stabilization, but still at lower levels. We have achieved significant cost savings to mitigate the current top line pressure while making major progress on reducing our high fixed cost base. And the initial transformation of vending channel operation is complete. This contributes not only to a lower cost service model, but also to better service quality and better market share performance. We have also completed the rollout of 7 new aseptic production lines since last year, so we have capacity for evolving consumer demand. And we see conditions stabilizing. We are investing again in marketing initiatives in the fourth quarter, which will set a good base for recovery and growth in 2021.

So let's look in more detail at how we are managing what we can control and building a foundation for recovery and growth. First, on Slide 8, our vending transformation. We announced the creation of an integrated vending business unit in early 2019 when we combine our bottler vending team and Coca-Cola Japan vending team into one virtual organization. Since that time, we have started to see concrete results. Vending value share has been growing 18 months in a row, and momentum continues in October, supported by share growth in coffee and tea and the Coke ON smartphone app to drive traffic. Volume per machine has been recovering, turning positive in October in outdoor locations.

The Coke ON Welcome Back campaign in October attracted nearly 1 million new or lapsed consumers, driving traffic to our vending machines. And we have reduced the number of vending routes by 20% from our accelerated transformation programs, resulting in expected annualized savings of 10% in the important vending business. This helps to protect vending profit margin in a tough year, but also sets a solid foundation for future profit growth as traffic recovers, and we believe it will recover eventually.

Let's look at Slide 9. We recognize that our over-the-counter or OTC channel market share has been contracted this year as we maintain wholesale pricing and promotional discipline amid intensified competitive activity and the loss of the Olympic Games in 2020, impacted marketing plans for our 5 core brands: Coca-Cola, Georgia, Ayataka, I LOHAS and Aquarius. We have started selectively reinvesting in marketing activities with more to come in the fourth quarter. Examples are the new 350- and 700-milliliter packages for Coca-Cola and Coca-Cola Zero Sugar in Tokyo, and the 950-milliliter package size for Aquarius in the convenience store channel. We are seeing strong growth in the online channel and recently achieved the #1 market share position with one of our major online retail customers.

As part of our mid-term strategic plan, we identified new consumption occasions as a priority for growth. We have successfully grown our new alcohol business to an expected 8 million cases this year. And Lemon-dou brand gained a #1 market share in the lemon sour section category since its nationwide launch in October last year.

On Slide 11, our infrastructure and foundation for recovery in growth. We recently celebrated the inauguration of our new world-leading Hiroshima plant with a unique virtual plant opening ceremony together with leaders from the Coca-Cola Company. In total, we have increased our aseptic manufacturing capacity nationwide by 20% from 2018 with 7 new manufacturing lines. We are also adding manufacturing capacity for the growing alcohol business. We started production of the Lemon-dou brand at a new line in our Kyoto plant in October, and we have plans for additional capacity in 2021.

Also, the Shinsei logistics optimization project is making real progress. We expect to close 14 sales centers in 2020, and we reduced our regional sales structure from 6 regions down to 3. Construction at the Saitama Mega Distribution Center is on track to be completed early next year, and we started construction of a second Mega DC in Akashi.

Finally, please look at Slide 12. We have been making strong efforts in sustainability, too, not as a stand-alone target, but as a core element to our value creation story including as a driver of growth. Here, you can see the progress we are making in the second half of this year in identifying opportunities to partner with customers, local governments, and other businesses partners towards our global -- towards our goal to achieve a world without waste.

If I can leave you with one important idea for how we are managing our business during these difficult times, it is what I say to my employees all the time, business as usual is not an option. Again, we are actively reducing costs and increasing flexibility and resilience in the business. We look at this crisis as an opportunity to accelerate transformation rather than as a threat. And although the COVID-19 outlook is still uncertain, we are clear in our focus to return the business to growth.

One thing I know clearly is that the Coca-Cola business and brands are resilient and have a long history of going through challenges and coming out stronger here in Japan and all over the world. Our task is to prepare the business to perform well once circumstances recover, and that is what we have been focused on.

Let me now ask our CFO, Bjorn Ulgenes, to review our year-to-date results and provide some color on current conditions and outlook. Then I would like to ask Wasa-san of Coca-Cola Japan to discuss our marketing approach during this with-corona period. Bjorn?

[Bjorn Ulgenes, executive]

Thank you, Calin. Good afternoon, everyone. I'm Bjorn Ulgenes, CFO of Coca-Cola Bottles Japan Holdings. Let me direct your attention to Slide 16, which shows the summary P&L view of our year-to-date third quarter results.

Consolidated revenue declined 11% as beverage volume also declined 11%. So overall, we have managed in a period of extreme uncertainty to keep the impact of mix relatively neutral. This is in part due to the benefit of large -- last year's large PET wholesale price increase, growing alcohol business sales and lower deductions from revenue as we reprioritize how we invest in promotional and marketing expenses.

The decline in consolidated business income has been moderating versus first half as we continue to generate strong cost savings in the period to counter some of the top line pressure from COVID-19. We had an operating loss of about JPY 6.3 billion year-to-date, which was a JPY 46 billion improvement from the prior year, as we cycled onetime expenses such as goodwill impairment in 2019.

Business income for the health and skincare segment improved 5% as top line has seen less of an impact from COVID-19 due to its online and telesales business model.

On Slide 17, you can see the main drivers of our year-to-date business income. Stand-alone third quarter showed a moderating trend versus the second quarter, with third quarter business income almost even with the prior year at about JPY 12.5 billion. We made strong progress in cost savings, partially offset the top line pressure with about JPY 25 billion of net cost savings year-to-date, including both recurring and onetime savings from across the business.

Starting on the left-hand side of the slide, you can see volume, price and mix, which shows the year-on-year change in marginal profits from the commercial activities of our beverage business. We experienced a net JPY 35 billion decline in marginal profits driven by 11% beverage volume decline and negative channel mix. The marginal profit decline in the stand-alone quarter was JPY 14.5 billion, which was a slight improvement versus second quarter. Of the JPY 35 billion decline, negative volume and channel mix make up approximately JPY 38 billion as the vending, convenience store and retail food channels declined. Price and product mix were also negative as package mix declines offset the ongoing benefits of the large PET wholesale price increases in April 2019.

Our alcohol business sold 5.7 million cases year-to-date after expanding nationwide in October last year. This, and a decline in variable expenses, such as vending, commissions and promotional discounts, helped to offset some of the volume and mix pressure.

Fixed marketing expense or DME decreased JPY 5.9 billion as we cut back on marketing spend during the peak of the coronavirus period and as we navigated the summer without the planned Olympics-heavy marketing campaigns. We are expecting to ramp back up our marketing activities in the fourth quarter as the market shows some signs of stabilization, and we look to build momentum for growth into 2021.

Raw materials and commodity costs continue to ease with a JPY 900 million benefits, driven by favorable foreign exchange and commodity trends, including PET resin.

Manufacturing costs increased JPY 3.1 billion, reflecting lower-than-planned production volume and higher depreciation expenses from the investments we have made in new production capacity. This has offset some of the ongoing efficiency gains in manufacturing we are seeing from transformation work.

In others, there was a benefit from significant cost savings in labor, IT, travel and entertainment and other areas we are focused on during this COVID-19 period. We are also seeing a benefit from accelerated transformation in our vending operations as well as lower logistics and distribution expenses. Business income for the health and skincare business increased slightly as the business have been less impacted by the COVID-19 outbreak compared with the core beverage business, and we are focusing on promotional cost savings. Business income in the fourth quarter is expected to be negative as this quarter traditionally is a lower volume quarter in the year, and we are bringing back marketing investments in the quarter to about the same level as prior years in order to build momentum toward recovery and growth in 2021. You can find volume performance for nonalcoholic beverages with commentary by channel and category, on Slide 18.

As explained previously, retail and food, vending and convenience store channel volumes have been significantly hit by COVID-19 since March. Conversely, drug and discounters and the online channel have grown. We are seeing double-digit online channel growth, which now represents about 2% of overall volume.

Average wholesale revenue per case declines in supermarket and drug and discounters was driven by cycling the prior year wholesale price increase for large PET packages introduced in April '19. And the package mix shift in these channels as consumers look for larger size in case offerings for increased at home consumption. These trends will likely continue for the balance of the year.

On the next slide, Slide 19, you can find third quarter volume data as well as by-package information. Declines in syrup and powder reflect the broader trends in retail and food channels, as consumer traffic has not yet bounced back, and the growth in large PET packaging is a function of the more stable performance we have seen in supermarkets and the drug and discounter channels.

Now let me move to our rest-of-year outlook. Slide 21 shows our updated full year earnings guidance announced on October 5. We are expecting even or flat business income for the full year driven by a 10% decline in revenue and partly offset by cost savings. The decline in the beverage business is expected to be offset by JPY 3.6 billion business income for the health and skincare business.

Slide 22 shows drivers of 2020 consolidated business income based on our updated full year guidance. Overall, the story for the full year is similar to the year-to-date performance. Heavy top line pressure, partially offset by major efforts to drive cost savings. We expect recurring savings in the year to be 1.5 to 2x higher than our initial plan for transformational cost savings that we announced at the beginning of the year. This is a testament to the hard work of our teams and the head start we have had in addressing the fixed cost base of operations like vending and transactional processes we have moved over to a shared services model.

I'll end my discussion today on Slide 23, with an update on our financial framework. In this tough year, we are staying focused on being what I call good stewards of capital. We reinstated our plans to pay a year-end dividend, JPY 25 per share in August, and there is no change to that commitment. During the transformation period, we have prioritized a stable dividend payout, and that remains our focus going forward as we get back to a more normalized operating environment. This year, in particular, is a year to look for opportunities to do what I call a cleanup of the balance sheet. We have identified about JPY 12 billion in land and office space to sell during the year. Of which JPY 9 billion are already under contract. We have also sold approximately JPY 800 million in cross-held shares year-to-date, and we continue to look at further opportunities to do more.

Finally, we have identified about JPY 21 billion in reductions to this year's planned CapEx while not pulling back on investments in the most mission-critical projects to support our long-term vision. I expect we will continue to identify further CapEx opportunities versus the mid-term outlook we shared last year.

Now I'd like to introduce Chief Marketing Officer of Coca-Cola Japan, Takashi Wasa, who will take you through an update on our marketing initiatives and outlook for the year. Wasa-san?

[Takashi Wasa, executive]

[Interpreted] Good afternoon. I am Wasa from Coca-Cola Japan. Today, I would like to take a look back at 2020 and share with you some marketing highlights for the fourth quarter. First, let's take a look back at 2020.

This year, Coca-Cola system was preparing a marketing plan to boost its sponsorship of the Olympic and Paralympic games. However, in March 2020, amidst the spread of the coronavirus, the games were postponed. In response to the significant change, the Coca-Cola system has come together to review its annual plan more quickly and flexibly than ever before to capture the new market environment and consumer needs.

Today, I would like to share with you the results of the new initiatives we implemented in the second half of 2020 and our activities for the fourth quarter.

First of all, let me recap our main activities in the third quarter. This year, we fully relaunched Coca-Cola Zero Sugar on August 31. Due to the impact of the coronavirus, consumers are spending more time in their homes, and their need for refreshment is increasing. In addition, more customers are seeking a 0-calorie option due to the lack of exercise. This renewal has greatly improved the taste, especially the aftertaste. And in the 2 months since it was launched, it has contributed to an increase in market share in the sparkling beverage market, and the number of drinkers is steadily increasing.

Next, here's an interim report on the Georgia Test Your Luck campaign that started on September 7. This campaign is a promotion where if you win a price at the bottom of a pull tab, you can get another Georgia product on the official Coca-Cola app, Coke ON. As of the 50th day of the promotion, the total number of participants in the campaign has reached to 1.5 million and the total number of times the campaign has been conducted has reached 14 million times. We have provided great coffee with the excitement of trying one's luck to many of our consumers.

Next, I would like to talk about the I LOHAS × UNIQLO Eco ACTION campaign that launched on September 28. This is a program that promotes environmental protection actions that transcend corporate boundaries. This campaign aims to promote the SDGs by offering a limited edition fleece jacket made of recycled polyester to 10,000 customers who purchase I LOHAS package in collaboration with UNIQLO.

Let's talk about the performance of our new products in the third quarter. First up is the introduction of Kochakaden Craftea. On October 5, Craftea was joined by a new flavor, Lemonade. And at the same time, we launched peach tea and orange tea in a new 440-milliliter package. Thanks to this, Craftea lemonade was the #1 new product in the beverage category in the Nikkei POS rankings in the first week of launch, with sales tripling from the previous year in the first 3 weeks.

Next up is the introduction of Peach, the second in the Fanta Premier line of products. Fanta Premier Grape was introduced in March of this year as a sparkling beverage for adults. And despite its high price of JPY 150, it is the best-selling new product from Fanta over the past 10 years. And the new addition in October, Premier Peach is exceeding Premier Grape's momentum in its performance for the first couple of weeks. Purchasers are mainly people in their 30s and 40s or older people who have not been drinking Fanta in the recent past. The Premier launch are helping to recruit them to the Fanta brand.

Lemon-dou celebrated its first anniversary nationwide on October 28. Given it commanding stalwart position in the low-alcohol beverage market among comparable brands, with a wide range of flavors and different alcohol content to choose from, the brand has attracted a wide range of users including young adults and women, contributing to the growth of the category. One of the key features of Lemon-dou is that the brand's world view, including its taste and package design, has been widely accepted by them and been spread on social media.

Through November 30, we will continue to run the campaign to bring [ dou ] lemon that we have been running since August. And we'll continue to take unique measures to make the Lemon-dou brand even more beloved. I can't give you any details on our new products yet, but we will be introducing a major new product before the end of this year to further increase sales in the alcoholic beverage market.

For vending, a campaign was designed to lure users back to the Coca-Cola systems core business. During the campaign, we ran a weekly campaign that gave 1 Coke ON drink to give for every first purchase for those who are making their first purchase through the Coke ON app or hadn't purchased in a while. As a result, the campaign was successful in attracting approximately 1 million users and contributed to an increase in downloads of the Coke ON app. We are also preparing for another Coke ON Pay cashback promotion at the end of the year in December, which will put more focus on Coca-Cola's digital platform.

Now I would like to introduce you to some of the key marketing programs that will take place from now until the end of the year. Coca-Cola's Winter campaign was launched on October 26. Time together is the best gift you can give is the key message. And we will execute our comprehensive campaign with new TV ads, packages and promotions. The commercial song is a cover of Happiness, classic Christmas song by [ Ito ] and a special online event will be held in December.

The design of the ribbon bottle, which is now in its fifth year, has also evolved into a colorful and festive bottle, a design that will make people feel the excitement at Christmas just by looking at it. To liven up store displays, we will be running promotions where customers can win Christmas cakes and other prizes, as well as the promotion using PayPay. This is a great way to promote the Christmas season and deepen bonds with family, friends and other important people.

Last but not least, is the Shibuya Coca-Cola Vision. On October 26, Shibuya Coke Vision was born with outdoor images and lighting that make Coca-Cola appear as if it were floating in the air. We chose a Shibuya Scramble intersection for its location since the place is one of Japan's famous landmark, and we believe that many will be seeing it. A combination of approximately 180,000 LEDs and lighting from the back of the screen, creates a 3-dimensional image.

The Coca Cola Company's mission is: Refresh the world, make a difference. Today, many people are living in difficult circumstances. We hope that through the Shibuya Coke Vision, we will be able to provide them with a sense of surprise and excitement as well as refreshing and positive feelings that only Coca-Cola can provide.

That's it for my presentation today. But this year was also a year in which we discovered a variety of business challenges and opportunities as a result of the COVID-19. We will take what we have learned this year and apply it to the business for 2021. I hope to be able to tell you more about our progress for the next time we meet. Thank you for listening.

[Calin Dragan, executive]

Thank you, Wasa-san. Calin here again. Truly, this has been a uniquely challenging year. It is still too early to provide much color on 2021 given the current COVID-19 uncertainty. What I can say, though, is we do expect the currently stabilizing trends in the market to hold and improve over time. How much time remains to be seen. I mentioned before that the Coca-Cola business in Japan is resilient and has a long history of going through difficult times and emerging stronger. We will emerge stronger from this crisis, too.

Today, we have talked about some of the concrete ways we are putting in place an agile and resilient cost structure to navigate this current year and to position better for recovery and growth. This includes the major cost savings, operational transformation, optimized organizational structure and new ways of working that you see here.

We are putting our best efforts towards returning to growth, and I reviewed some of the specific reasons to believe we are in a better position to do so. We have efficient, flexible production capacity in place. Our vending business has a share momentum, and we are stepping up the marketing investments to drive growth, and we can expect additional savings to reinforce the foundation that is already in place.

We remain committed to the challenge we have set for ourselves by driving fundamental transformation to sustain and recover our business into the future.

Let me now ask Ray Shelton to come back for questions and answers.

[Raymond Shelton, executive]

Thanks, Calin. Let me remind everyone, this Q&A session is intended for analysts and investors, so we ask members of the media on the call to please hold your questions until our media session scheduled separately today. We are using simultaneous interpretation so please make sure to ask questions in the language of the line -- the telephone line you are joining. Japanese on the Japanese phone line and English on the English phone line. [Operator Instructions] We're now ready for your questions.

[Operator]

[Operator Instructions] We will receive questions from the Japanese line and the English line now. The question is for -- from Saji, Mizuho Securities.

[Hiroshi Saji, analyst]

So I have one question. This is about next year. And I want a little bit more flavor on the guidance for next year. And I would like to know from 3 perspectives. Firstly is about volume. This year, the volume has dropped by 10%. And we didn't have the Tokyo 2020 Olympics, and you mentioned this as one of the reasons. But let's say it happens next year. In that case, next year's volume, is it going to be the original volume that you have planned for? Or in other words, what is the growth versus 2019 for next year if the Olympic happens? And secondly is on the fixed cost. You have offered the VSP and you said that the personnel costs will go down by JPY 34 billion. But you have the Saitama DC that has started its operation, and I'm sure there will be more [ depreciation ] for next year. So I want guidance on the fixed cost for next year.

And thirdly, margin. This is not just about next year, but in your mid-term plan, the business profit margin, you said that you want to rise it from 3% to 4% by 2022. And you have gone through the VSP, and I heard that this is forming your mid-term plan. But once again, I would like to know about the BPM, the business profit margin, from next year on. And is there no change for the numbers that you have projected for 2022?

[Raymond Shelton, executive]

Saji-san? Let me just repeat your question because there were a few questions within the 1 question. You're asking about next year's guidance, mainly in 3 areas: the first on volume. Given this year's declines and the expectation that Tokyo 2020 may well come back into next year? Secondly, you're asking about fixed cost outlook given some of the investments that we've made and other programs that we've announced. And third, when it comes to margin, what is our thoughts around margin progression given the original mid-term plan that we announced in 2019.

I'm going to start with Calin, and then I think we'll probably pass over to Bjorn, and we'll see if we need to go on anyone else after that. So let me start with Calin-san.

[Calin Dragan, executive]

Hello, Saji-san, thank you so much for the question and for the continuous interest in our business. I just mentioned during my prepared remarks some of the characteristics of this 2020 year when some of them are going to be reflected on 2021 trends. I have to say that so far, there is nothing yet crystal clear on how the future is going to progress. It's still uncertainty in COVID outlook. And as we speak, we are working on our plans for next year so that we are returning back to growth. As well, we are continuous to our transform -- our fundamental transformation.

If there is a learning of 2020 that we can take with us onward is the fact that we need to transform our business to reduce the cost and ensure a strong foundation and put that in place in order to be able to win in the market. Quarter 3 showed gradual recovery, but this year was heavily affected by primarily 2 factors. This is our learning, looking backwards. One, it is a decrease in traffic of people in -- across Japan. Now that traffic is coming back. However, still, it's at a lower level than in the previous year. And that's valid for the whole industry, particularly for our business. We have been heavily affected in quarter 3 this year through the postponement of the Olympic Games. And as we know -- you all know, we are proud partners of Olympic Committee, and we collaborate in organizing, and as well, we were planning to use this Olympic Games in all our activations for 2020 massively. This is an unprecedented postponement and was harming us significantly. However, we have regrouped in quarter 4. You see already different trends based on our market investments, redirected market -- in marketing investments.

But one thing that I want to really highlight today is that overall, we have been able during this difficult time is to transform and to save about JPY 25 billion in costs, and we have been able to mitigate part of the top line decrease. We are very proud of the fact that we are gaining market share for 18 months in a row. And please bear in mind the fact that, that involve cycling of more than 1 year. That involved as well significant decline in traffic. And overall, as you can see, the channel is suffering momentarily. But the results, I would say, it's impressive, and the market share results are at an unprecedented levels. We are investing for growth, and you have seen that we have put out 20% more capacity for the winning consumer proposition like aseptic products. And that position us for growth undoubtedly for the future. And as well, we are investing in these new white spaces, and we are going to have the latest investment in the Kyoto plant Lemon-dou line. So this is what I can say about our continuous focus on controllable areas and drive fundamental business transformation towards a more agile organization guided by our mid-term strategic plan in the middle of this COVID-19 challenges. If there is anything to add Ray, Bjorn, please.

[Raymond Shelton, executive]

Thank you, Calin. I think we'll pass it over to Bjorn. Bjorn, the second question was around an update on our fixed cost outlook, essentially. And the third one, how are we thinking regarding our originally shared mid-term plan, especially as it comes to margin, I'll pass that over to Bjorn now.

[Bjorn Ulgenes, executive]

Thanks, Ray, and thanks, Saji-san, for the question. When it comes to the expenses, as we have announced for 2020, we have a good JPY 30 billion as our target for cost savings. That includes about 2/3 of onetime costs and 1/3 of recurring costs, up to 1/3. And as we move into 2021, I think it's a logical assumption to assume that the onetime contraction we had in revenues for 2020 will ease as we move into 2021, assuming, of course, that the markets continue to stabilize and consumption habits come back to different levels.

And that cycling of revenues will help us, of course, offsetting some of the costs, onetime costs we're managing for this year. We are planning and continuing our transformation activities, as you heard Calin talk about later, and we expect similar levels to continue into 2021. So therefore, in summary, I think it's fair to say we expect a recovery in volume and revenues for 2021. But you have to see and observe as the environment stabilizes, how the markets develop, and we will come back with further guidance when we see that materializing.

When it comes to the SVP margins, you're absolutely right, we called a 3% to 4% business income margin for the initial period of the SVP. But as we all know, we have gone through a big crisis in the world and Japan, and it has impacted all businesses in most markets. So our focus at the moment is more to continue the transformation, Saji-san, and make sure that we do everything that we can control and drive that transformation and change of how we operate the business. Again, as we see we have more clarity of the future, of course, we will come back with updated guidance, what the evolution might look like. So thank you.

[Raymond Shelton, executive]

Thanks, Calin and Bjorn. Saji-san, I hope that answers your question. We're now ready for the next question.

[Operator]

[Interpreted] The question from Morita-san from Daiwa Securities.

[Makoto Morita, analyst]

[Interpreted] This is Morita speaking. I want to ask about the price for the retail price and strategy. Right now, you are throwing the 'buy one get one' kind of campaign. So I was just wondering whether is there any possibility that you will suffer from the price competition in the future. I know you're struggling with the share expansion. So what would be your plan in shifting your marketing strategy and how are you going to obtain the market share going forward? So I would like to listen to your strategy on this.

[Raymond Shelton, executive]

Thank you, Morita-san. Just to repeat. Question is on the competitive environment, pricing in the marketplace and how that links with our own plans for recovering share going into 2021. And I think we'll pass that question over to Costin Mandrea, our Head of Commercial. Costin-san?

[Costel Mandrea, executive]

Thank you. Good afternoon. This is Costin. First of all, we see the total market in 2020 being negative for the full year. But for the last months, we see the trend moderating. We had a significant impact with the delay of Olympic and Paralympic Games. And as Wasa-san mentioned, most of our marketing plans were centered toward Olympic activations.

It took time for us to replan the marketing activities, and we saw a temporary share decrease in Q3. But one thing, it is very clear, our strategy of driving value stays unchanged. We are disciplined in terms of pricing in the market. And as you saw from the comparison versus the rest of the market, we are over performing significantly. Moving forward, there is no reason why we changed the strategy. We stayed disciplined in driving revenue and not in discounting. And I will give you one example that it's working very well this year. It is replacing a 500 ml, milliliter package of Coke with 2 packages, 350 ml and 700 ml. We introduced this in Tokyo for this year, and we see significant results with 14% increase in transaction and more than 25% increase in revenue. So a clear proof that we are prioritizing revenue. As well during the COVID crisis in Q3, we identified a new shopper need, a new consumer need in CVS, and we launched the 950-milliliter package for Ayataka, Sokenbicha and Aquarius, again, performing very well. And again, with higher revenue per case. Moving forward, of course, we stay very focused on understanding what are the trends in the market and acting accordingly. Thank you. I hope this is answering your question.

[Operator]

[Interpreted] The question is from Tsunoda-san from JPMorgan.

[Ritsuko Tsunoda, analyst]

[Interpreted] This is Tsunoda from JPMorgan. I have one question regarding cost. In the second half, you reduced the vending route by 20% and the fixed cost by 10%. This is your plan for the second half. And with that, what is the impact on the vending profitability? Will it be reduced? Will there be any negative impact because of that? Comparing to the traditional level, what is the profitability level on the vending? And the further -- is there any room for the further cost reduction in terms of fixed costs? As an industry as a whole, the volume is not really recovering. It's quite weak. And next year, we are expecting some recovery in terms of the volume. But there is a possibility that the recovery is going to be weak, particularly in the first half next year. That is why there is -- you may have the risk for further reduction in volume. And in order to offset that, are you going to offset that impact through further cost reduction? That's all from me.

[Raymond Shelton, executive]

Tsunoda-san, let me just summarize the question, and we're going to send it over to Costin-san to start. The question was really around costs, specifically to the vending business related to our achievement of a 20% reduction in vending routes and anticipated 10% annualized cost savings starting from the second half of this year. What's the impact on that? How should we think about profitability of vending going forward given some uncertainty? And is there any more room for further cost savings from transformation or otherwise as we move forward? Costin, would you take this first?

[Costel Mandrea, executive]

Thank you, Tsunoda-san. This is Costin. Thank you for your continuous interest in vending, and we are very happy to share with you the results of our vending transformation. First of all, we all know vending, it's a very important channel for consumers and especially during COVID crisis, being low touch, being highly convenient, and CCBJI commitment stays very high. We are proud to lead in the vending channel transformation. And there are 3 big aspects of what we are doing in vending.

First of all, yes, the traffic in vending was affected by COVID, and we see this especially in the busy areas and in the offices. However, as we move Q3 and Q4, we see gradual recovery of revenue. And great news is that in outdoor channel, in at-work channel and recently in the big shopping mall, the traffic is recovering very well. Our volume per machine year-on-year is positive for the last weeks.

Second, we are very happy to see the share increasing consistently for the last 18 months, which is a very clear proof that our combination of marketing programs and operational programs are delivering results. We see amazing progress for coffee in vending, for sparkling and for tea. Coke ON, which is a proprietary tool, delivering results. We have 23 million downloads for this year. And as Wasa-san was mentioning, in only a few weeks, we were able to bring 1 million new consumers of Coke ON.

The third aspect is the transformation. So during the crisis of 2020, we took this opportunity to accelerate the transformation. We looked at the end-to-end process. We reengineered everything. And as a result, we are able to reduce the number of routes by 20%. We streamlined operations. We started to close down warehouses. We decreased labor cost. We see -- after going live in July, we see stabilization of performance, very good customer service, drop sizes and out-of-stock rate. So it is a successful transformation. And this accelerated transformation, to come back to your question, will bring further cost benefits to us in the years to come. As well, this transformation of vending is positioning us better for the growth to come when the market will recover at the new level. I hope this answers your question.

[Raymond Shelton, executive]

Thanks, Costin, and I'm going to ask Bjorn to weigh in as well, I think, on part of Tsunoda-san's question around [indiscernible].

[Bjorn Ulgenes, executive]

Thanks, Ray, and thanks Tsunoda-san for the question. So as you heard Costin said, vending is going through a significant change in how they operate and how they work. And in 2020, the transformation work and the onetime cost savings we have been able to implement has helped offset the revenue contraction in vending. And you heard also earlier in our presentation, we talked about how traffic has impacted the sales in vending and convenience stores, but now is on a recovery pattern again, back again. This has helped us, Tsunoda-san, to maintain approximately the margin for vending in 2020, even with this fairly significant revenue contraction.

And the work on transformation, as you heard Calin said several times in his overview, will continue. And whether it's going to be more in vending or in the business in general, we are evaluating that and executing it as we solidify the programs. But the focus on reducing our fixed costs will continue beyond 2021.

When it comes to the savings, the 10%, those are annualized. And again, coming from the drivers that Costin talked about. So I think that's clear. I think there's always going to be room to improve in these type of businesses, especially a complicated one as ours, as we change our processes, we change our systems, and we find new and smarter ways to deal with this. So vending, I think, has been the proof point that we can do it massive scale in Japan, and we will continue those efforts. I hope that answers your question.

[Ritsuko Tsunoda, analyst]

[Interpreted] Thank you very much, but additional questions about the risk you have for the numbers next year. And at this year, if you have risks, I'm sure that you're going to protect the profit and do everything that you can. Is that the correct understanding?

[Raymond Shelton, executive]

I think sort of risk and profit focus in the next year?

[Bjorn Ulgenes, executive]

Thanks, Tsunoda-san. As I said earlier to Saji-san, that I think it's a fair point, assuming the market is coming back again, that we can expect recoveries in volume and profits in 2021. And as you also heard me say, we are focusing on continuing the transformation efforts. That will never rule out onetime cost saving opportunity if it should be required or if we need to execute that. So it's top of mind to us. And we will, of course, manage through the events of 2021 as required, and we will come back with guidance later when things have stabilized. Thank you.

[Operator]

[Interpreted] The question is from Miyake-san, Morgan Stanley MUFG. Miyake-san, please.

[Haruka Miyake, analyst]

[Interpreted] This is Miyake from Morgan Stanley. So this year, you have costs related to structural change, which will amount to JPY 10 billion. Will I be able to get a breakdown on that? When you announce your revised plan, you have JPY 3.3 billion to JPY 2.5 billion for the VSP, and you explained that, that was included in the initial plan. And I would like to understand what you are doing additionally to fill up that JPY 7 billion to JPY 7.5 billion because you mentioned the total will be JPY 10 billion. And also versus your original plan, there are elements that you have been accelerating probably. So I would like to know about them. And overall, I have heard that for the vending machine, there are still room to reduce costs, as I understand. And putting the scale aside, next year, what are the actual things that you're planning to work on for vending as well?

[Raymond Shelton, executive]

This question will be for Bjorn. A breakdown on the cost savings. Specifically the recurring cost savings in the range of JPY 10 billion that we're targeting for this year compared with the initial target at the beginning of the year, pre COVID-19, of JPY 5 billion. And then some color on thinking about next year. Bjorn, please?

[Bjorn Ulgenes, executive]

Thanks, Ray. And thanks, Miyake-san, for the question. So yes, correct. We are looking at approximately JPY 30 billion of cost savings for this year, of which, about 1/3 up to JPY 10 billion is what we will call recurring or transformational savings. And we believe this is about 1.5 to 2x the original target we had in the plan for this year. The drivers, though, are still very consistent with what you heard us talk about in our strategic business plan back in 2019. And you heard us talk about how we have to transform in commercial. And you already heard several mentions of the vending route to market transformation. We have the sales force transformation going into place. We are significantly scaling up our shared services environment, which was one of the key drivers of efficiencies in our strategic plan. You're hearing continuously in all our presentations, how we talk about Shinsei and manufacturing transformations in the business, and that also includes logistics costs. In addition, for this year, we have also optimized many of our processes that have led to about 900 reductions in our workforce, which also will be counting into the recurring efficiencies going forward.

When it comes to vending, your statement about there's always more to be saved in the channel. Of course, we will continuously look to look for further optimizations. But I think also, it's important we recognize the share magnitude and depth of the transformation that are happening at the moment, but that doesn't mean we will not continue to look for further opportunities going forward. So we will definitely go after this in the future, too. Thank you.

[Costel Mandrea, executive]

This is Costin. If you allow me to add what -- please allow me to add what we are doing in vending in next year. Very simple, 3 big buckets that we have in business plan. First of all, continue the good share performance, increased revenue. Here, we have good examples of this year with the Kochakaden Craftea launches with Georgia coffee, a significant share increase with Fanta adult promotions. But also next year is the year of Olympics and Paralympics game, and vending is an important channel. So we expect to gain transactions from this event.

Second bucket has to do with digital. We need to continue our journey in digitizing the vending. Coke ON, it's on a very good path, we need to accelerate even further, include more payments, consumer understanding and bundles. We have some good offers, and you'll see them starting in Q1 next year.

The last one, Bjorn was touching it. We discussed about Shinsei. We invested a lot in supply chain capabilities and new facilities, warehouses. So we need to look again, at the vending blueprint and to see where do we have opportunities for further efficiencies, to further reduce cost. So overall, we are -- we have a set to continue the efficiency in the vending channel.

[Haruka Miyake, analyst]

[Interpreted] May I ask you another question? And want to know about the breakdown of JPY 10 billion. Maybe what part of it is commercial? What part is like manufacturing? What part is like some other division? Would I be able to get the breakdown of the JPY 10 billion by function maybe?

[Raymond Shelton, executive]

Bjorn, I'll pass it over to you.

[Bjorn Ulgenes, executive]

Yes, Miyake-san. Thanks again for the follow-up question. As I said in the beginning, most of these efficiencies are gravitating towards commercial because by far, that's our biggest function and the 2 bigger impacts we have for this year is in the vending route to market transformation and the sales force transformation supported by the shared services efficiencies, so substantial part of these savings will be commercial. Hope that answers your question.

[Raymond Shelton, executive]

Thank you very much. I've just been signaled that no one else is in the queue for questions. So I will take this opportunity to close our call for today. I thank you very much for your interest in our business. The replay webcast of this call will be available on our Investor Relations website soon after finishing this call, and we invite you to reach out to our team and the Investor Relations department with any questions or feedback, and we'll look forward to continuing the discussion. Thank you very much, and have a good weekend.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]