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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. I am Masaomi Gomi, Investor Relations Department Manager for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our third quarter 2021 earnings call for analysts and investors.
I'm here with President, Calin Dragan; CFO, Bjorn Ulgenes; 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. Both are posted to the Investors section of our company website at ccbj-holdings.com. Please look on our website for this information in both Japanese and English.
With that, I'd like to turn the call over to President, Calin Dragan. Calin-san, please go ahead.
Thank you, Gomi-san, and good afternoon, everyone. Calin Dragan here. I will begin with an overview of the third quarter and an analysis of the current situation.
Please turn to the Slide 5 of our presentation. First, the environment surrounding our company. We have to acknowledge that we continue to be impacted by external factors. While the state of emergency was lifted in October, the third quarter was affected by the continued impact of COVID-19, which delayed the recovery of the consumer traffic. The Olympic Games were held without spectators. Changes in consumer spending behavior impacted the mix and rainy weather during the critical peak summer season had a negative impact on sales. The competitive environment continued to be intense and the raise in commodity and raw material had an impact.
As a result of such an external environment, our business performance was weak. Despite the challenges, our initiatives are delivering results. Our important vending channel continued to grow its value share for 30 consecutive months. We are also seeing signs of market share recovery in supermarkets and drugstores and discounters, which was a channel that experienced market share contraction last year. I'm confident that once traffic picks up, we will be better positioned.
Also, our new product innovations are contributing to the volume growth. We have been able to leverage our digital platforms such as Coke ON. Our efforts in digitalization is not only in commercial areas, but also in our transformation efforts. Transformation continued to progress in commercial and supply chain. We have put in place action plans to mitigate the impact of these external factors and areas of improvement. And we are focusing on what we can control and continue to implement initiatives to achieve sustainable future growth.
Please turn to the Slide 6, our financial highlights. With new products contributing, sales volume grew by 2% in quarter 3, year-to-date. However, COVID-19 driven factors impacting consumer spending patterns and drop in the wholesale revenue per case have resulted in a quarter 3 year-to-date revenue decline of minus 2% year-on-year.
For market share, as mentioned earlier, we are seeing good results in most of the channels. Business income decreased by JPY 18.4 billion year-on-year for quarter 3 year-to-date. Marginal profit declined due to the mix impact from changing consumer purchasing behavior, impact from the rainy summer and the cycling of onetime cost savings achieved last year.
We continue to be prudent and selective on marketing spend and investments in human capital, while staying conscious of the short-term implications and recognition that is necessary for our long-term growth.
The transformation efforts are on track. We have achieved JPY 8 billion of recurring cost savings to date. We have also announced our full year earnings forecast for 2021, which was previously not decided. We are assuming the impact of COVID-19 to subside somewhat in quarter 4, and I will explain the details later.
Now let me ask our CFO, Bjorn Ulgenes, to go through the details for the quarter 3 financial results.
Thank you, Calin. Good afternoon, everyone. This is Bjorn. Let me direct your attention to Slide 8 to talk about our Q3 year-to-date results.
Before I start, I would like to preface and remind you that our results this year are compared against numbers that have been adjusted to exclude the health and skincare business due to the sale of the Q'SAI business. While the skincare business impact is excluded from revenues to operating income, net income from the previous year includes about JPY 1.8 billion of profit from the health and skincare business.
As you can see, revenues to date declined by about JPY 9 billion. which is a minus 1.5% decrease versus the previous year. While total beverage volume increased by 2% versus the previous year, we continue to incur a loss at the business income and net income level. As Calin briefly touched upon, there are several factors that impact this performance. We continue to see a cycling impact across the quarters. At the top line, you will recall that Q1 cycled a period that was still largely unaffected by COVID-19. While some of Q2 and all of Q3 cycled higher levels of traffic from the no state of emergency and the benefits of the go-to campaigns in the previous year.
At the bottom line, we are cycling onetime cost savings achieved in the first 9 months last year of about JPY 17 billion. This year, we have achieved about JPY 9 billion of onetime cost savings. Also, in net income, the gains of JPY 12.5 billion from the sales of our subsidiary, Q'SAI, in February is included.
On Slide 9, you can see the primary drivers of our business income. Starting on the left-hand side of the slide, are volume, price and mix, which show the year-on-year change in marginal profits from the commercial activities of our beverage business. We experienced a JPY 13.1 billion decline from volume, price and mix. While there was a contribution of 2% volume, it was not able to offset the impact of intensified competition, leading to pricing pressures, driving increases in rebates, especially in the OTC channels, where we continue to see intense promotional activities.
Fixed marketing expense, or DME, increased by JPY 6.2 billion versus last year, reflecting a decision to invest in marketing and new products at appropriate levels after we briefly paused our investments last year with the postponement of the Olympic Games due to COVID-19.
We believe the appropriate levels of investments are necessary to build a foundation for future growth.
Commodity and raw material costs have impacted us compared to the prior year. When looking at this impact in consecutive quarters, the positive impact in Q1 was offset by rising commodity prices in Q2 and then in Q3. In Q3 specifically, we saw a JPY 1.8 billion negative impact from pricing commodities. We continue to implement measures as we foresee rising prices to continue.
Manufacturing costs positively impacted us by JPY 1.2 billion to date, reflecting production efficiency improvements from higher volumes in Q2 and Q3, offsetting the increase in depreciation from new production lines.
In others, cost decreased by JPY 1.6 billion compared to the previous year. While the recurring cost savings contributed favorably, we recycled the impact of onetime cost savings in the previous year. By item, overall labor costs has decreased. While we cycle the impact of bonus payment cuts last year, we continue to implement temporary leases and reduced transformation-related personnel costs.
While the challenging environment continues, we also believe in the importance of investing in our people for building a strong foundation for sustainable growth. By a combination of onetime factors, logistic costs saw a rise compared to last year. Increased volume from last year, stronger-than-expected demand for new products, an extremely volatile demand during the year all added to an increase in long distance transportation and additional storage requirements as we try to supply our products in a timely manner. As a result of these drivers, business income for Q3 year-to-date was negative JPY 14 billion, which was a decrease of JPY 18.4 billion compared to the previous year.
Please see Slide 10 for our volume performance by major channels of nonalcoholic beverages. Q3 year-to-date volume growth was plus 2% and impacted by slow recovery in traffic and rainy weather. Growth in supermarkets, drug stores and discounters was achieved by capturing the at-home demand and grew by 6% and 8%, respectively. Initiatives to protect our market share has started to show good results.
On the other hand, CVS remains to be an area of improvement. Traffic recovery in CVS remains to be slow, while competition continues to intensify. The vending channel grew 1% year-to-date. This reflects the cycling impact of Q1 last year when the traffic was not impacted by COVID-19. Also, in the second quarter, when traffic and volume temporarily returned, there was an improvement in volume of 18%. And in the third quarter, compared to the previous year, where the decline in traffic was offset by economic policies such as the go-to campaign, we were able to keep the volume at a similar level as the previous year despite this year being mostly under a state of emergency.
In addition, as Calin mentioned, vending has continued to grow its value share for 30 consecutive months. This is a great achievement.
Online continues to grow with volume growing by plus 65% compared to last year as we capture the at-home demand. Again, we are growing where the growth is.
Average wholesale revenue per case continues to be negative to date for most of the channels, primarily driven by intensified competition, package mix with volume growth in large 2-liter PET water packages and decline in small PET and cans.
As mentioned in our previous calls, this year's wholesale revenue per case was greatly impacted by changes in configuration or number of bottles per case for the 1.5-liter PET package from 8 bottles per case to 6 bottles per case. When adjusting for the case configuration change, supermarkets wholesale revenue per case was about minus JPY 10 decline and drugstores and discounters was about a JPY 30 decline.
Please move to Slide 11. This is our category performance to date. In sparkling, although sales of small PETs were negatively affected by the rainy weather in summer and growth in large PETs, the premium-priced Fanta Premier series contributed, resulting in us being flat versus last year. Nonsugar tea achieved 8% growth in Q3 and 5% growth in Q3 year-to-date. Through the contribution of new products such as Yakan Barley Tea and the Ayataka Macha Latte.
Water volume grew in all channels as we were able to capture the at-home demand. On top of growth in large PET and supermarkets, drugstores and discounters and online, new products such as ICY SPARK Spark and small [ petty Lojas ] also contributed.
For coffee, new product such as COSTA Coffee, Georgia Japan Craftsman, Georgia Shot & Break contribute to small PET volume growth, but not enough to offset the weakness of cans. Canned coffee recovery was slow driven by the vending channel where the coffee ratio is high.
Finally, juice volumes reflect the ongoing soft trends in the on-premise food channel, given store closures and restricted operating hours.
Page 12. In vending, despite the challenging environments, we continue to grow value share in Q3 with 30 consecutive months. Year-to-date market share has increased by 4.3% compared to the previous year. This is an important reflection that our transformation efforts in this channel are delivering results through our transformation efforts.
Shared in our last earnings call, initiatives such as product assortments, location improvements, improving the quality of our operation and digitization using Coke ON are delivering results. We believe that once traffic picks up, we will begin to see growth as the environment normalizes.
In the OTC channel, supermarkets, drug stores and discounters, value share grew by 0.2%, while volume share also grew by 0.5%, back on a growth trajectory. We have implemented measures to protect our market share and remain competitive. As a result, we are able to grow where the growth is. While challenges remain for the CVS channel, we need to focus not only on short-term strategies but implementing mid- to long-term strategies based on customers.
On retail pricing trends in the third quarter, while the overall price trend shows contraction, we have observed continued price premium versus the market average. We have had to take actions to balance and protect our volume and value market share. we believe that this shows that we are maintaining our pricing policy while limiting our investments to those necessary to maintain market competitiveness.
Please turn to Slide 13. I would like to give an update on our focus on good stewardship of capital. As CFO of the company, my focus on the shareholder value creation remains unchanged even during these challenging times. We are always looking for ways to increase our shareholder value and act upon them as necessary.
For dividends, we plan to pay a year-end dividend of JPY 25 per share as forecasted at the beginning of the year and maintained the dividend target of JPY 50 per share for the full year. This will be an increase of JPY 25 per share from the previous year from when we had no choice but to revoke the interim dividend.
We are continuing our efforts to clean up our balance sheet. We maintained a healthy balance sheet with an equity ratio of 57.1%. This year, in addition to the sale of Q'SAI shares in February, as part of our efforts to review our business portfolio, we are working to swiftly sell of idle assets that arise in the process of transformation. In addition, we are reviewing the purpose of cross-holding cross-sell shares in line with the corporate governance code and selling them in stages. We have generated JPY 4.5 billion in cash for Q3 year-to-date. We will strive to further improve our balance sheet.
In the current volatile environment where the future remains uncertain, it is important to keep a tight control on capital investments. This year, we continue to invest in key transformation initiatives that will serve as the foundation for medium- to long-term growth. We have reduced capital investment by approximately JPY 20 billion compared to the previous year, mainly in investments for new vending machines as we accounted for the severe business environment. We are making progress as planned for the full year, and we'll continue to monitor the market environment and focus on being selective in our investments.
Finally, on Slide 14, let me finish by talking about the progress against our targets at the beginning of the year. As we navigate through these dynamic times, we continue to remain focused, achieving the targets set forth at the beginning of the year that are under our direct control. For market share, as explained before, vending, supermarket, drugstores are on the growth trajectory.
In market share, on top of the continued growth in lending, supermarkets, drugstores and discounters are seeing a return to growth. Transformation initiatives are going as planned, and our recurring cost savings are our own targets. We have achieved JPY 8 billion of recurring cost savings to date. Our revised target also achieving JPY 9 billion for the full year, which is at the upper range of the original target.
As explained in the previous page, we continue not only remain focused on our P&L, but also on the balance sheet and cash flow. Within that framework, we continue to exercise prudence with our CapEx and depreciation. We are on track to deliver this within the original range and look to spend JPY 49 billion for the year in CapEx. As a result, depreciation is also expected to be within the original target range of JPY 58 billion for the year.
For the dividends, as mentioned previously, we are on track. In the area of recycled PETs, we are on track to achieve 40% renewable packaging in 2021 and are well positioned to achieve 50% in 2022. We are expanding the use of 100% recycled PET.
Now I'd like to introduce Chief Marketing Officer of Coca-Cola Japan, Takashi Wasa, to take you through an update of the marketing initiatives and outlook this year. Wasa-san, please.
[Interpreted] This is Wasa from Coca-Cola Japan. I would like to share with you a review for the period of January to September 2021 and highlights of our marketing activities in the fourth quarter.
Let's look back at the new products we introduced this year. In April, we launched an Yakan no Mugicha. It is a new type of barley tea that tastes like it was made in a kettle that uses 100% carefully selected barley and is made by adding barley extract to Coca-Cola's original high-temperature boiling process. In the 6 months since its launch, it has shipped more than 200 million bottles, contributing greatly to the revitalization of the barley tea market.
Next, in May, Coca-Cola Japan launched its strongest ever sparkling water, ICY SPARK. Generally speaking, the lower the temperature of water, the easier it is for gases to dissolve in water. Focusing on such characteristics, ICY SPARK is the strongest carbonated water in the history of Coca-Cola Japan, made possible by cooling Spark technology. By responding to the stimulation demanded by consumers drinking sparkling water, ICY SPARK has contributed to a net increase in sales and value share in the growing sugar-free carbonated water market.
COSTA Coffee, a coffee brand that has been launched for 50 years in Europe, the home of coffee, has launched new premium coffees, COSTA Black and COSTA Cafe Latte that offers the taste of high-quality hand brewed coffee in PET bottles. When the product was first launched, the sales volume was much stronger than expected, and the product became in short supply, resulting in a temporary suspension of shipments, but it was relaunched in June and succeeded in attracting coffee lovers in their 30s to 50s. It is contributing to a net increase in the value share of the small PET coffee market.
Next is Ayataka coffee Matcha Latte. When released in March, it was well received, especially by consumers in their 20s and 30s. The sales exceeded expectations and shipments were temporarily suspended immediately after its release. It is a new type of matcha latte that uses 100% domestic matcha in a luxurious way and offers an elegant milk flavor that complements the taste of matcha. It has received high praise from a wide range of consumers for its taste and has now surpassed 100 million unit shipment.
As I have explained, the new products introduced this year has successfully entered the growing market of barley tea and sugar-free carbonated water and by introducing highly profitable new products, we have been able to contribute to the growth of our sales and value share. Also the expansion of the Coke ON experience contributed to the increase in the value share. The number of downloads of the official Coca-Cola app, Coke ON exceeded 30 million as of September 2 and purchased through Coke ON and vending machines through January to September saw a strong growth of plus 49% year-on-year. It has grown into an app used by many consumers.
The Tokyo 2020 Olympic and Paralympic campaigns have utilized this Coke ON app to provide an exciting new marketing experience. Haruka Ayase appeared in a TV commercial immediately after a game in which Japanese players participated as she congratulates the players and calls for a toast to them, a 2-dimensional code appears on the TV screen. As Ayase Haruka pours, Coca-Cola on the screen, Coca-Cola is for on the screen on the mobile phone in virtual reality and everyone toasts together. This was followed by a new real-time marketing campaign in which users were entered into a join to win Drink Tickets that could be used at Coke ON, which attracted a total of 750,000 participants.
In addition, for every medal won by the Tokyo 2020 Japan National team, a campaign was conducted in which 20 -- 2,020 people won Coke ON Drink Tickets and a total of 1.26 million sampling tickets were distributed.
For future growth, further opportunity lies in CORE brands, especially for brand Coca-Cola, cycling of large PET bottles due to last year's stay-home demand and intense competitive environment, caused us to lose value share. In addition, the Georgia brand also experienced a decline in its value share due to intense competition. We see these as opportunities for growth, which we hope will lead to improvements in the fourth quarter of this year and next year onward.
Next, I would like to introduce the key activities of our CORE brands in the fourth quarter. From September, the Coca-Cola brand launched a new global campaign, Real Magic. The campaign message is, the magic happens in ordinary every day, conveying that the best moments are magic. Real magic exists in ordinary everyday life.
At the same time, the Coca-Cola logo in the familiar Spencerian font is emphasized. And the package design was redesigned to make the Coca-Cola brand color red to stand out.
From November, Coca-Cola will launch a Christmas version of the Real Magic campaign with the message in time together, magic happens. Coca-Cola will bring excitement to the moment we share with our loved ones and bring about a special winter.
For the coming chilly season, Georgia has expanded its lineup of hot products that warm up the body and make you feel relieved and launched the Georgia Hot campaign to convey the deliciousness of its hot products. COSTA Coffee, Europe's #1 Cafe brand will also launch COSTA Latte Espresso, a high-quality PET bottle coffee that offers bitterness, a bitter-sweet flavor and richness of espresso, which has the right amount of sweetness and 100% domestic milk.
At the same time, COSTA Black Hot and COSTA Cafe Latte Hot will be launched for the first time in autumn and winter season.
In October, Lemon-Dou, a brand specializing in lemon sour celebrated a second anniversary of this nationwide launch and launch a campaign to commemorate the second anniversary. In addition, Lemon-Dou home run size Oni Lemon , a 500-milliliter can with plenty of lemon juice and a powerful drinking experience will be launched in October, aiming to attract heavy users.
For the coming year, the direction of our marketing activities is to further leverage our strength and improve our growth opportunities. First of all, let's talk about our portfolio. In addition to further strengthening our CORE brands, we will strengthen our portfolio by introducing a well-balanced mix of new core and premium products. The next step is to optimize ROI. In addition to sales growth, we will improve the mix of our channels and portfolio. We will also aim to further improve the efficiency of our marketing investments.
Lastly, we will further strengthen our collaboration as the Coca-Cola system in Japan by further expand the areas of collaboration, such as collaboration in creating annual plans and collaboration in customer planning.
With these major guidelines, we will continue to respond flexibly and swiftly to changes in the environment next year. That concludes my part of the presentation today. Our marketing plan is based on our mission, refresh the world, make a difference. We will continue to strive to deliver refreshing moments and partly selling through our soft drinks. Thank you very much for your attention.
Thank you, Wasa-san. Calin here again. Next, I would like to talk about our areas of focus and strategies. Now let me share our channel strategies, which are showing results even during this times.
First, in the supermarkets, drugstores and discounters channels, despite the intense competition, we are starting to see market share recover. This was due to the new product innovations and effective marketing efforts based on our strategy to grow where the growth is, although there may be instances where growth in volume share exceeds the growth of value share, we are focused on protecting volume share in the short term while also focusing on value in the mid- to long term. We understand the importance of mix control measures by strengthening our small PET product and deployment of premium products.
The online channel continues to record strong volume growth as we continue to capture the changing consumer spending patterns such as the expansion of label-less products. We are also working closely with our online partners to offer attractive promotions and drive loyalty by introducing a subscription model.
Next, the vending channel. And as Bjorn mentioned earlier, with the improvement of product and assortment, location improvement has led to the growth of value share for 30 consecutive months. And as Wasa-san just explained, Coke ON app has now reached over 30 million downloads and has grown into a strong digital platform. Transactions through Coke ON app are also growing as a result. While the volume growth to date, it's 1%.
During the months when the state of emergency was lifted, monthly volume recovered by double digits. We remain confident that we are building a strong foundation to capture demand where the traffic recovers.
On Slide 22, I will share our areas of focus for building a stronger foundation and firstly, agility to sales volatility. Looking back, it has been a very difficult year for forecast demand. Volatile monthly sales shipments, rainy weather in summer impacting demand, stronger-than-expected demand for our new products, changing consumer spending patterns combined led to an increase in production and transportation costs as we made best efforts to supply our products in a timely manner. We will take this opportunity to leverage these learnings and more effectively use digital technologies to improve seamless collaboration between sales and supply chain.
To optimize our supply network, the transformation in supply chain, leveraging Saitama Mega DC, it's critical. In this regard, we are moving forward with the transfer of inventory from each sales office as planned and we expect to start seeing the effects of increased efficiency around the second half of next year.
Second, it's around our new product innovation capabilities. While we were able to introduce new product innovations, stronger-than-expected sales of our new products have resulted in temporary out-of-stocks. We were able to confirm that our strategic direction in innovation was correct, and this experience has allowed us to identify areas of improvement to drive efficiency in meeting consumer needs. Going forward, we will build our capabilities to supply premium products and improve efficiency to ensure a stable supply.
The third point is on the raising commodity costs. The global rise in commodity and energy prices are having a material impact on manufacturing and logistic costs. To minimize this impact, we are leveraging our strength as a system through communication and collaboration, such as leveraging our economies of scale with centralized raw material procurement, and improving our packaging to reduce the use of raw materials such as PET. To minimize the impact, our efforts in transformation is important now more than ever. We will continue our transformation efforts and review all costs through the business.
Finally, the need for us to be the most efficient in low-cost operation. To achieve this, we are making efforts to optimize our fixed costs, and this is progressing well. We have achieved over JPY 20 billion in recurring cost savings since 2020 and our efforts will not stop here. We will continue to find ways to improve both our processes and our cost structures.
On Slide 23, I will explain our initiatives in ESG. We continue to implement various initiatives in realizing our ESG goals. In the last quarter, I introduced our initiatives towards our world without waste and how we are implementing bottle-to-bottle recycling initiatives. Today, I want to introduce our new target announced at the end of last month for the reduction of greenhouse gas emission by 2030.
This is a Japan Coca-Cola system-wide target across the entire value chain. We, as a system, aim to reduce Scope 1 and 2 emissions by 50% and Scope 3 emissions by 30% against 2015 levels. We will continue to work hard to achieve our goals and will also actively contribute to the Japanese government's greenhouse gas reduction targets as well.
You can also see our recognition around our human resources initiatives, which was recently won the Excellent HR Award, which has been hosted by the Nihon no Jinjibu, the largest HR network in Japan. I'm extremely proud of this achievement.
And we continue to support our local communities in various ways, including product donations to medical staff that is helping us fight the COVID-19 pandemic.
Please turn to Slide 24 for how we are trying to stay true to our mission, vision and value along with our initiatives in ESG. Our mission at Coca-Cola Bottlers Japan is to deliver happy moments to everyone while creating value, especially in these times of public health concerns and uncertainty, we will continue to provide the safe and stable supply of products and services in the belief that our work can help brighten the society.
From here, let me talk about 2021 full year outlook that we have announced. Please turn to Page 26. First, I would like to talk about the operating environment and the key assumptions underlying our earnings forecast. As you can see on the left-hand side, new cases of COVID-19 in Japan, it's on a declining trend and the trough fleet is slowly recovering. Our guidance assumes no additional state of emergency declarations and a gradual recovery in the market as traffic recovers. We are assuming the competitive environment to remain intense, cycling the onetime cost savings achieved last year and raising commodity costs, while we continue to fulfill our efforts in transformation.
On Page 27, it shows the new full year guidance that we have announced. Towards volume growth, we expect 1% growth in quarter 4 and 2% growth for the full year. Due to the continued competitive environment, and changing consumer purchasing behaviors impacting the mix, we estimate a minus 1.2% drop in revenues versus the previous year. Business income is expected to grow year-on-year growth for the quarter, but for the full year, we are forecasting a JPY 15.9 billion loss. The details of the drivers of the business income will be explained in the next page.
Please turn to Slide 28, which shows the drivers of the business income for 2021. Since Bjorn has already explained about the earning drivers up to quarter 3, I will focus on the quarter 4 business income drivers that you can see on the right-hand side.
In quarter 4, we are forecasting a plus 1% volume growth. And this volume growth will not be enough to offset the continued headwinds from intense competition and the impact from consumer behavior change. We are assuming the current trends of increased rebates to continue. So for DME, with quarter 4 last year, already resumed marketing spend, JPY 100 million increase is expected year-on-year. This reflects our initiatives to protect our market share and strengthening our brand. For commodities, we expect the impact to continue to put pressure mainly coming from sweeteners and metal.
For PET, we are expected to be able to keep the impact under control, but we need to monitor the trend going forward. We hold the view that the commodity price impact will also continue into next year. In others, implementation of temporary leaves, labor cost decrease through transformation and control of investment in sales equipment are contributing to earnings.
In quarter 4, we are expecting about JPY 1 billion of recurring cost savings, which have been reflected in this forecast. The drivers of the business income for the full year are included in the next page for your reference.
I would like to conclude my presentation on Page 31. With less than 2 months left in the year, we have been forced to navigate through a challenging environment throughout the year. Our employees on the front lines have had a very challenging time, but they have worked hard to do what had to be done. Although the operating environment is showing some signs of improvement, looking at the situation in the rest of the world, the COVID-19 impact still looks unpredictable.
We will need to spend time to determine whether the pace of recovery will continue. We continue to focus on what we can control. And as I have explained, our key initiatives are showing results. A great example of this can be found in vending, where we continue to grow our value for 30 consecutive months, which is a good trend. Channels that have faced challenges in the past, such as supermarket drugstores and discounters are now showing value share growth.
Our initiatives to protect our market share in the challenging market is working. In the short term, such initiatives may impact profitability, but securing market share now will be important for our future growth and believe that the benefit of this will materialize.
In addition, even during COVID-19, we have not slowed down the speed of our transformation. In fact, we are accelerating our initiatives. We continue to achieve reduction in fixed costs in all areas of commercial, supply chain and back office. And this will lead to a strong foundation for the future.
We have been faced with challenges but have implemented action plans aiming for sustainable growth and a strong foundation that enabled us to grow when the market normalizes. And as Wasa-san mentioned in his remarks, we are working together closely with Coca-Cola Japan Company to leverage our strength as a system. We will work together more than ever to ensure that the entire Coca-Cola system in Japan can operate its business at a higher level and that we, as a bottler, can grow within that system. That concludes my presentation, and thank you very much for your kind attention.
Now let me ask Gomi-san now to come back and take us through question and answers.
Thank you, Calin-San. Let me remind you 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 you ask your questions in the language you are joining, Japanese on the Japanese phone line and English on the English phone line. Please try to ask one question at a time as we are translating your questions, please state your name and company. Now I would like to begin the Q&A. Operator, please proceed with the first question.
[Operator Instructions]
[Interpreted] The question is from Credit Suisse, Ihara-san.
[Interpreted] Hello. This is Credit Suisse, Ihara speaking. Can you hear me?
We can hear you.
[Interpreted] So I have one question for you. This is about the commodity price and also the commodity prices in relation with the price increase. So looking at the beverage companies, I'm sure that next year, you are going to face a critical challenge, which is the competition and also the hike in the commodity price. And you are continuing to be on the negative side and you're not making profit. And if you go after volume, I do understand that volume is important for you. But in order for you to bring up the profit pool as the leading manufacturer, I think a price hike might be one option that you can take. So what is your view on that?
I think there was 2 questions. The first question was around the raw materials which are increasing across the industry. I will take that first question first. I will have Bjorn-san answer that.
Thank you, Ihara-san. Let me start with the commodity aspect of your question. So you have seen the impact of the rising commodity prices in our earnings, and we expect a significant impact also in our earnings for 2022, assuming that the current commodity price trend continues. For 2022, we are currently estimating about JPY 6 billion to JPY 8 billion impact from commodities. And of course, this depends on volume for next year. I'd remind you that we saw an impact of close to JPY 3 billion for this year. The second part of your question...
Ihara-san, does that answer your questions on commodities?
[Interpreted] Yes. But this year, you said it's like JPY 3 billion impact and next year is JPY 6 billion to JPY 8 billion impact. So which means that next year, it's going to go up by like JPY 3 to JPY 5 billion which means that if you combine like 2 years, it's like around JPY 10 billion. Is that correct understanding?
We are expecting about a $3 billion increase in commodities. So for next year, you mentioned about $6 billion to $8 billion. So is that additional to this year? Or is it for next year, stand-alone?
Additional.
So Ihara-san, the answer for the question is that, additional. Yes. I believe your question was around the potential about price cost. I'll have Calin-san answer that.
Thank you so much, Ihara-San for your question. And let me start trying to answer that by reminding everyone on this call that we, as a company, were the first one to implement the first price hike in almost 2 decades, not only about 2 years ago. And there was a significant price increase in the future consumption packages.
The second thing that I would like to remind to all of us here is that most of our products right now in the market are commanding a premium versus the market average. Having said that, as we speak, we are currently building our plan to say so, for 2022. And in these circumstances, for us, all options are on the table. So we are looking at all the aspects of the business, and we are keeping our options open for decisions in next year. I hope that answer the question.
[Interpreted] And sorry, one more additional question, if I may. So if your company -- is there any reason that you do not want to do the price hike?
Reason why we would not want to raise prices. I'll have Calin answer that.
Yes, let me follow up on to this. I said earlier that we are having right now in place the process for building the business plan for 2022. During this business plan process, we are exploring all the sides of our business, and we are looking at those plans through many lenses. These days, we are trying to estimate the market recovery trends, which will have an impact. We are looking at competitors' activity which will determine certain decisions, we are definitely looking to continue our fundamental transformation and how much that impact will have for the immediate future. As well, we are taking in consideration the impact of commodities cost. With all this plus many others, we are going to create a business plan, which is going to determine our direction and respectively, the results for next year. .
Next question is Saji-san from Mizuho Securities.
[Interpreted] I would like to ask about costs, and particularly the raw material part, I understood. But with regard to the cost up for the next year, I just wanted to understand a little bit further. One aspect is that just you just explained about the temporary relief, I believe that you have significantly reduced the cost on this aspect. So from quarter 3 to quarter 4, I would like to understand what will be the total cost reduction in this end. And also for next year, if you are going to normalize in the situation, what is your prospect in your human resource costs? How much will be increasing? And also for the cost for the sales, particularly rebate for the convenience stores. Probably campaign like, 1 buy get free, is pretty common in the market right now. How long will you say that this kind of campaign will continue? What's your view on this? So is most of the cost-related matters for your next year business?
So I'll break it down to 2 parts. One is about the cost related to labor. We have been implementing a lot of onetime cost savings through temporary leave. What will be the impact as we cycle that next year. Bjorn-san?
If I understand your question, first, you want to know about Q4. In Q4, we are assuming the recurring or transformation impact to continue, valued about JPY 1 billion. The other are onetime savings related to, for instance, temporary leave and other ongoing cost reductions.
For next year, I will not be giving guidance for now. You heard from Calin-san's earlier question. We are working on the 2022 plans and different scenarios based on that. So we will come back with 2022 guidance at the appropriate time. I hope that answers your question.
And going to the second part of your question, your second part of the question was the competitive environment and the rising rebate in the space. What is the outlook for next year? I would have Costin-san answer that question.
This is Costin Mandrea. Let me take this question. During the COVID times, we saw a lot of challenges in the market that put pressure on the overall beverage market and all the players. And due to this pressure since the second half of 2020, some of our competitors started to introduce in the market extreme value activities. And buy one, get one free, it is one of them.
The competition environment stayed very tough during 2021. And for CCBJI, we made a conscious decision to invest as much as necessary to protect our position in the market and to support our brands. On short term, we'll continue to invest and protect. For long term, our focus, as we always said, our focus will stay on value and nothing has changed long term. And we are doing this in order to protect the health and protect the future growth of our business and the beverage industry as a whole. I hope this answers your question.
[Interpreted] One more follow-up question. So do you think this kind of campaign will continue next year?
The follow-up was that, will it continue next year?
Thank you. What we are seeing for Q3 as we enter Q4, we see that this type of campaigns are staying there. And like I said, our position long term is value. But if on short term, we are forced to protect our shares, we will not hesitate to do this.
Planned time, but we still have a few questions in the queue, and we will continue to take more questions.
The question is from Nomura Securities, Fujiwara-san.
[Interpreted] This is Nomura Securities, Fujiwara. I have a question, and this is related to Ihara-san's question. Your company in the OTC channel, you are increasing your volume share. And due to that, the rebate is growing and the profit is damaged. And to be honest, in your commercial activities, what is your first priority? I'm wondering because the marginal profit or the revenue per case, I can't really see if you really -- if you have full control of those numbers. So I want to know what you are prioritizing in your activities.
To restate your question, it is about, what are we focusing on in our OTC strategies? And it seems to be -- And what kind of metrics are we using when we actually monitor the effectiveness of our strategies?
Thank you, Fujiwara-san. This is Costin again. So our commercial strategy stays unchanged. We are focusing on winning in the market and growing where the growth is. And short term, this year, we are investing consciously. We are investing to protect our position across the channels. And as you heard, vending is at a record high value share levels. As you heard as well in SMDD after a tough 2020 we recovered in terms of value share, and we will stay committed to winning in market and growing where the growth is, like I said. I hope this answers your question.
[Interpreted] Sorry, one additional question then. So next year, you probably are going to continue to try to win the market, which means that you need to increase volume, right? Would that be your focus or not?
To follow volume share next year.
Right. Thank you. So what we are focused, it's on value share. And as you saw in Bjorn's slides, we are growing value shares this year. And of course, in order to obtain this, we need additional transactions. We need a good mix of products of innovation versus core. And also, we need to manage very carefully the investment in the market. So the focus is on value share.
The next question is from Mitsubishi UFJ Morgan Stanley, Tsunoyama-san.
[Interpreted] This is Tsunoyama from Mitsubishi. I have 2 questions. One question might be same as the Fujiwara-san's question. You believe that you will -- your efforts will pay off to gain the share. So I suppose the volume and the price mix effect should be taking the upward trend is the sign that you assume that you have effect. So when will you expect yourself to observe this? Because in fourth quarter, I suppose your assumption is that even though the market is slightly going into the recovery, but you are still waiting to -- you are not going to be seeing this result in the near future.
Share increase, when can we see the benefits of our activities? I'll have Costin-san answer this question.
So for presentation, we share with you all the work that we are doing to gain value share in OTC, in supermarket drug and discounter. And this is a combination, like I said, of launching new products and having tactical actions. We see the results going in the right direction, and we are encouraged that this combination of launching new products and investing selectively are delivering results in line with our targets.
[Interpreted] With regard to the coffee, you mentioned that your COSTA coffee is well received. But when you look at Q3 YTD, the coffee is minus 3%. And probably, I will say that comes from the downtrend of the Georgia. So given that background, do you think there's any cannibalization that is why you're struggling in overall coffee performance? What's your view on this?
Question is related to the coffee segment. COSTA coffee seems to be doing quite well, but it seems that volume at Georgia seems to be weak. I will have Wasa-san take this question.
[Interpreted] Thank you very much for your question. Well, after we launched COSTA Coffee, we are helping this -- Georgia coffee strategy to be more specific. The main ready-to-drink as a mainstream, which is Georgia. We will set that as a core or the baseline and then to implement COSTA. But pushing them as a premium ready-to-drink coffee. But then going forward, we are thinking about more of the white space like beans and the machines included in here in this dual strategy.
So you ask whether we are assuming that there's a cannibalization because of the launch of the COSTA Coffee? To be -- when you look at the value share of the COSTA, it's about the 1%. Against that, I've been following the metrics about the cannibalization against Georgia, and we believe it's a miniscule impact. The pricing is different. Target is different. So those coffee lover in the OTC channel should be the buyer of the COSTA coffee. That's my assumption.
So this year's coffee challenges that we are facing is that Georgia brand has been challenged by a very aggressive competition from the competitors. To be more specific full renewal of the competitors portfolio also expansion of the portfolio and a number of in and out products that they have launched. So throughout the year, this channel has faced a fierce competition. That is why we lost shares in -- with Georgia brand.
In order for us to overcome and recover from this down turn trend, we are showing the Instant Win campaign with the Georgia. And also, there are a couple of campaigns to beef up the channel. On the vending, we are showing the double point campaign for the Coke ON and the lack support for the in-store execution.
So there are a couple of initiatives that we are going to take on. So for next year, Georgia program will be refurbished completely. But at this point in time, unfortunately, I can't share the details with you. So please look up for our updates on this.
The question is from Daiwa Securities, Morita-san.
[Interpreted] This is Daiwa, Morita speaking. I have one question about the business income. And it seems that you have an unclear future. I'm just wondering about the continuity of your business. I am pretty worried. And I have a question for Calin-san. So when are you going to be on the profit side for business income? What is your forecast? And what do you need to do to turn the BI to a profitable level. Do you have any measures in your mind? I would like to know. And how confident would you be? That's my question.
Question was around business continuity. How do we think about the sustainability? And when will we return to a profitable state? I will have Calin-san answer that question.
Thank you so much, Morita-san, for the question, and thank you for the interest in the business, as always. So let me try to answer a couple of -- to give you a couple of ways on how we look to the next year perspective of the year.
We are currently building our plans for 2022. And as I said, we look to this plan to many lenses, market recovery trends, competitors' activities, continuation of the transformation and other cost trends such as commodities. The operating environment expects to remain uncertain, in our opinion, expecting the market to recover, assuming the COVID condition to be -- and to don't have any more state of emergencies declared in the future.
We are not expecting a V-shaped so-called recovery, but a gradual return of traffic volumes and implicitly revenues. We are going to have some challenges going on with cycling the impact of the onetime cost savings is about JPY 15 billion to JPY 16 billion, as Bjorn was just highlighting earlier. And as well, the commodity prices raises that are expected to put pressure on earnings, that's possibly JPY 6 billion to JPY 8 billion of an impact.
So from the market strategies perspective, we are balancing a long-term approach, long-term strategies of value share focus as well with some short-term measure to protect our position as a company and to gain market share for the moment when the market will recover. While all this will happen while we are going to continue to transform fundamentally the business, and at the appropriate moment in time, we are going to come back with the guidance for the results for 2022. I hope that's answer to your question.
[Interpreted] So I'm just wondering about the business continuity. If you are not profitable, if you're in the red, it's crisis. And I don't mean like detailed numbers for next year, but I want to know if you are going to turn the business into a profitable state or not.
Was from the standpoint of business continuity, what do you think about loss-making state? And when will it return?
Thanks, Gomi-san. I'll answer this one then. So first of all, in the essence of what Calin is saying, we are entering into the planning part for 2022. But in its essence, what you also heard from Costin-san about the marketing initiatives, we strongly believe we're doing the right thing for the future of this company, even though currently, we find ourselves in a position of significant challenges. And it's important to tie this back to what we have said in our long-term strategies. We aim to create value, we aim to grow revenues and we continue to transform our company. That will always be at the essence of what we're doing.
And Morita-san and for all the audience, I just want to conclude probably the session right now, stating very clear the fact that we here at Coca-Cola Bottlers Japan, we are strongly believing in the future of this company since we have engaged on a fundamental transformation on the way how we're operating. And we believe they are -- we are on the right track for extraordinary shaped business here in Japan and whatever this will bring us in the future. There are challenging times right now. And I think strong businesses are preparing in these tough times, for the recovery and as well for the moment when the business is going to normalize. I hope that give the confidence that we are working on the right path for the future, and we are very much believing on what we are doing here.
Thank you, again, for your interest in our business. The replay webcast of this call will be available on our Investor Relations website soon after finishing the call. We invite you to reach out to our Investor Relations team with questions or feedback. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]