"Happy Water" is not happy?
In the eyes of many people, in the more than 40 years since Coca-Cola entered China, Coca-Cola has rarely increased prices, especially in the past ten years, Coca-Cola has been called a conscientious enterprise by many consumers with a consistent unit price of 3 yuan.
However, in recent years, due to inflation, rising raw material prices, and supply chain problems, Coca-Cola has also begun to face price pressure.
Last year, Coca-Cola raised its price once, and according to the financial report, the overall global pricing increase of Coca-Cola in 2022 was about 11 percentage points.
Now, not long after the last price increase, there are media reports that Coca-Cola has increased its price again.
Coca-Cola prices increase for multiple terminals
According to Red Star News, recently, Coca-Cola in many terminals has increased prices to varying degrees, and the prices of convenience stores, small supermarkets and different supermarkets have slightly different prices.
Taking the most common 500ml plastic bottle of Coca-Cola as an example, in the Chengdu city chain convenience store Jianfu, the specifications of Coca-Cola and Pepsi sold in the store are 3.8 yuan / bottle, the cashier said that the price increase will start this year. In supermarkets, the price of Coca-Cola of this specification in Hongqi chain and Yonghui supermarket is 3.5 yuan per bottle, and some cashiers said that it has also risen to 3.5 yuan this year. In the more scattered street shops and restaurants, the price of Coca-Cola ranges from 3 yuan to 4 yuan per bottle, and one restaurant owner said that the price increased to 4 yuan per bottle last year.
Image source: Daily Economic News (data map)
The price of 24 bottles of the same specification in Coca-Cola China's JD.com self-operated store is 59.9 yuan, that is, 2.5 yuan per bottle, and the Taobao platform has not searched for this specification product. According to the price comparison software, the price of Coca-Cola, the self-operated flagship store of the JD platform, rose relatively on May 19.
IN THE DISTRIBUTION CHANNEL, A BUYER IN SICHUAN SAID THAT THE PRICE OF THE COCA-COLA FACTORY INCREASED LAST MONTH, AND THE PRICE OF 24 BOTTLES of 300ML COCA-COLA ROSE BY 4 YUAN.
According to Red Star News, inquiries about Coca-Cola China, its Chinese bottlers Swire Cola and COFCO Cola about the price increase have not been answered. People close to COFCO Coke said they had not been notified of the price increase.
Although from the price of the Jingdong platform, the price of Coca-Cola in 500ml plastic bottles has not exceeded 3 yuan, but considering that an important scene of carbonated drinks is bought and drunk on the street, 3 yuan / bottle of Coca-Cola, I don't know how long it can be sold.
or due to rising raw material prices
It is worth noting that recently, the outbreak of armed conflict in the African country Sudan not only caused a humanitarian crisis, but also made global carbonated beverage manufacturers anxious, because Sudan's rich gum arabic is the key material for carbonated drinks.
Reuters reported that companies that rely on gum arabic, such as Coca-Cola and PepsiCo, have long-term reserves of gum arabic. However, the global consumption of carbonated beverages is huge, and if the war in Sudan continues to interrupt gum arabic exports, the global inventory is likely to be exhausted within 3 to 6 months, which will hit the global carbonated beverage production line.
Therefore, the recent statement on the Internet that "carbonated drinks will face a shortage crisis" has intensified.
So, will the tight supply of gum arabic affect the production and supply of carbonated beverage products commonly found on the market? According to the Southern Metropolis Daily, the reporter learned about the situation from carbonated beverage manufacturers such as Coca-Cola, PepsiCo, Nongfu Spring, and Yuanqi Forest. Coca-Cola China and PepsiCo both said that it is not convenient to respond at present, while Yuanqi Forest said that all its beverage products did not use gum arabic, so it was not affected.
Some industry insiders pointed out that although gum arabic is an important raw material for carbonated drinks, there are also alternatives to choose from, plus companies will have certain reserves, consumers do not have to worry about cola and other products will be out of stock.
In addition to the supply crisis of gum arabic, since the beginning of this year, affected by the tight balance of global supply and demand, the price of sugar, an important raw material for cola, has continued to rise.
The FAO Food Price Index averaged 127.2 points in April, up 0.8 points (0.6 percent) from the previous month and down 31.2 points (19.7 percent) compared to the same period in 2022, data released by the United Nations on 5 May. The slight recovery in the price index was mainly due to a sharp increase in sugar prices, which also rose this month, while the price index of cereals, dairy products and vegetable oils fell further.
The FAO Sugar Price Index averaged 149.4 points in April, up 22.4 points (17.6 percent) from April, the third consecutive monthly upward trend and the highest since October 2011. The increase was driven by a number of factors, including lower or lower than expected production forecasts in India, China, Thailand and the European Union due to drought weather conditions, slow harvesting progress of Brazil's sugarcane crop, and increased demand for sugarcane-to-ethanol due to higher international crude oil prices.
According to China Economic Network, Zhang Zhexi, associate researcher at the Rural Economic Research Center of the Ministry of Agriculture and Rural Affairs, said that the combination of multiple factors has promoted the rise in sugar prices. On the one hand, there is a decrease in sugar production. Internationally, factors such as the reduction of production and the delay in exports in major sugar-producing countries such as India have contributed to the high operation of international sugar prices; Domestically, sugar production has been greatly reduced due to adverse weather and other factors, and according to data from China's sugar supply and demand balance sheet in April, mainland sugar production may be reduced to 9 million tons this year. On the other hand, there is an increase in demand. Driven by factors such as the improvement of the economic situation, since the Spring Festival holiday, the domestic sugar market has been active in purchase and sales, and sugar demand has gradually recovered, showing the characteristics of the off-season. Overall, the decline in domestic sugar production and the gradual recovery of demand, coupled with the high operation of international sugar prices and the decline in future import expectations, have boosted domestic market prices due to multiple positive factors. "The current rise in sugar prices makes the price of white sugar slightly higher than the cost of domestic sugar to make sugar, which is conducive to alleviating the contradiction between high cost and low sugar price in the sugar industry." Zhang Zhexi said.
Coca-Cola increased revenue without increasing profits
Product price increases are nothing new, but they are particularly interesting in Coca-Cola, which rarely increases prices. According to data from Guosheng Securities, from 1990 to 2019, the compound growth rate of the unit price of Coca-Cola products was only 0.42%.
In 2022, Coca-Cola launched a new round of price increases due to rising costs. Judging from the results, this price increase has indeed had a positive impact on Coca-Cola's performance since last year. Coca-Cola's 2022 financial report shows that the company's revenue that year was 43.004 billion US dollars, an increase of 11%; Operating profit was $10.909 billion, up 6%, and global single-case sales increased 5%. As for the "price/portfolio growth" mentioned in the earnings report, Coca-Cola's overall global pricing increase for the full year of 2022 was about 11 percentage points.
Screenshot of Coca-Cola's Q4 2022 and full-year financial reports
According to Coca-Cola's recently released financial report for the first quarter of 2023, the company's first-quarter revenue was $10.980 billion, a year-on-year increase of 5%; Net income was US$3,113 million, up 11% year-over-year. Among them, carbonated beverages grew by 3% globally.
Although Coca-Cola's revenue growth rate since 2021 has not been slow under the stimulation of factors such as price increases, there are still two "hidden worries" worth being vigilant about.
First, the growth rate of the company's product sales is slowing.
The sales volume of a single box is an important indicator to measure consumers' demand for Coca-Cola. In 2021 and 2022, Coca-Cola single-box sales increased by 8% and 5% year-on-year, respectively, and the overall growth rate is not low, but if you look at it quarterly, you will find that since Q3 2022, the growth rate of Coca-Cola single-box sales has slowed down: the first two quarters of 2022 have increased by 8%; The growth rates in Q3, Q4 and Q1 2023 will be 4%, -1% and 3%, respectively.
Since the second half of 2022, Coca-Cola's single-box sales in the European, Middle East and African markets have begun to decline, including in the first quarter of this year, European single-box sales fell by 7% year-on-year.
In the fourth quarter of last year, Coca-Cola's sales in the mainland market declined, resulting in its single-box sales in the Asia-Pacific region falling 1% year-on-year. However, since the beginning of this year, Coca-Cola has significantly slowed down in the mainland market. Coca-Cola's first-quarter financial report showed that single-box sales in the Asia-Pacific market increased by 10% year-on-year, mainly driven by the growth of China, India and Australia.
In addition to the slight slowdown in sales growth, another concern for Coca-Cola is that the company will increase revenue without increasing profits: in 2022, with revenue growth of 11%, net profit fell by 2.3 percentage points year-on-year.
One of the main reasons for this situation is that the cost of production, transportation, etc. has risen, and the increase in product prices is not enough to offset the adverse effects of rising costs. In 2022, Coca-Cola's cost of goods sold reached $18 billion, up 17% year-over-year. The combination of multiple factors led to Coca-Cola's gross profit margin in 2022 falling by about 2 percentage points year-on-year.
The bad news is that in 2023, inflation is still continuing, and manufacturers such as Coca-Cola will still face greater cost pressure.
In this regard, Coca-Cola's solution is still to increase prices: in February, Coca-Cola said that it would further increase the price of its products "globally" in 2023, but the increase will slow down.
Source: Daily Economic News