The "happy water" that Warren Buffett's favorite drink is not happy now. Recently, a reporter from Beijing Business Daily found that the price of Coca-Cola in convenience stores, supermarkets and other terminals has risen to varying degrees, which is another overall price increase since Coca-Cola entered the era of 3.5 yuan in 2022, and the price is close to 4 yuan, an increase of 2.9%-11.4%. In addition, PepsiCo, Fanta, Sprite and other cola products have also risen in price to varying degrees. Industry analysts pointed out that under the increase in raw materials and marketing cost pressure, with the emergence of competing products, it is impacting Coca-Cola's market position, and after Coca-Cola takes the lead in price increases, other brands are likely to follow.
Terminal price increase
As a popular drink close to the people, Coca-Cola has shown signs of price increases.
Taking the most common 500 ml bottle of Coca-Cola as an example, the manufacturer's recommended retail price is 3.5 yuan / bottle, and the Beijing Business Daily reporter visited and found that located in the Qinshan Water store of Beijing Wumart Supermarket, the original Coca-Cola of this specification was priced at 3.6 yuan / bottle, up 2.9%. In the Yuquan Road supermarket hair shop just across the street, the three Coca-Cola models of this specification, Original, Zero and Jianyi, were all priced at 3.9 yuan per bottle, up 11.4%. According to the sales clerk of Wumart Supermarket, Coca-Cola has indeed increased its price this year, but promotions are being held in the store, and new members can enjoy full discounts.
In addition to Coca-Cola, the price of carbonated drinks such as Pepsi and Fanta has also risen. In the Qinshanshui store of Wumart supermarket, the price of 500 ml of original Pepsi rose to 3.6 yuan per bottle; In the Yuquan Road supermarket hair shop, the price of 500ml Fanta rose to 3.9 yuan per bottle.
The prices of carbonated drinks in different e-commerce channels are also different, taking the 500ml bottle of Sprite as an example. On the Hema App, the price of the Sprite is 3.8 yuan per bottle, up 8.6% from the recommended retail price of 3.5 yuan per bottle; On the multi-point app, the price of the same Sprite is 3.6 yuan, up 2.9% from the recommended retail price of 3.5 yuan per bottle. However, the price of buying a combination pack is relatively cheap, if you buy 6 bottles of 500ml Sprite at one time on the Hema Fresh App, the price of each group is 21 yuan, an average of 3.5 yuan / bottle, which is still the same as before. Buy 12 bottles of 500ml sugar-free zero-calorie Sprite on the Multipoint App, each group only costs 30.8 yuan, an average of about 2.6 yuan per bottle, which is 74% of the recommended retail price of 3.5 yuan.
"Coca-Cola prices in many supermarkets have been rising this year, that's for sure." A cashier at a Lawson convenience store told a reporter from Beijing Business Daily, "Our 500-milliliter bottle of Coca-Cola has been selling for 4.5 yuan, and it has not risen for a long time." ”
For the reason for the price increase, the Beijing Business Daily reporter consulted with COFCO Coca-Cola customer service, and the other party said, "The recommended retail price of 500 ml of original bottle Coca-Cola is 3.5 yuan, and the price increase may be the store's own price adjustment." 3.5 yuan is already the price after the price increase, and the specific local situation is not very well understood." The relevant person in charge of COFCO Coca-Cola's Beijing bottling plant said, "The company's factory price is set, and the price increase in the market belongs to the behavior of terminal merchants. This year, the price will increase, but it is uncertain which product will increase."
What is certain is that since returning to the Chinese market in 1979, the price of Coca-Cola's products has not increased significantly for more than 40 years. According to a report by Guosheng Securities, from 1990 to 2019, the compound growth rate of Coca-Cola's product unit price was 0.42%. It is worth noting that although the price of Coca-Cola did not increase much during this period, the capacity of a single product continued to shrink. For example, in July 2008, in the name of responding to the "Green Olympics", Coca-Cola reduced the capacity of its canned cola products from 355 ml to 330 ml, a capacity reduction of 7%; In 2011, after the packaging adjustment, the capacity of bottled cola was reduced from 600 ml to 500 ml, a 16% reduction. In other words, Coca-Cola is raising prices implicitly by reducing the amount. Coca-Cola's explanation for this is that after market research, the capacity of 330 (500) ml is more in line with consumers' drinking habits than the capacity of 355 (600) ml.
Even so, Coca-Cola decided to raise prices. On April 19, 2021, Coca-Cola CEO James Quincey reminded consumers that Coca-Cola will raise beverage prices in response to the impact of rising commodity costs, intending to adjust package sizes to truly optimize price points for consumers, "We have a good hedge in 2021, but due to the increasing economic pressure in 2022, prices must increase."
From November 1, 2021, the sales price of 500 ml Coca-Cola in China increased by 0.5 yuan to 3.5 yuan, and bid farewell to the 3.5 yuan era a year later.
chain reaction
The tide of price increases is spreading to the water industry, and leading companies are following suit.
At the end of January 2023, some dealers released news in the circle of friends, saying that according to the "Notice of China Resources Yibao on the Adjustment of Dealer Terminal Prices", from March 1, 2023, Yibao pure water will be transferred to one yuan per piece; On February 1, Nongfu Spring's "Notice of 19L Water Price Adjustment in Hangzhou Area" circulated in the industry, and from February 1, 2023, the retail price of 19L bottled water in Hangzhou Nongfu Spring will be increased from 20 yuan / barrel to 22 yuan / barrel, with a price adjustment of 10%; On February 12, JuneYao Health announced that it will adjust the ex-factory price of some products of the "Wei Power" brand, with an increase of about 3%-6%, and the new price enforcement will be implemented from March 1, 2023; Since April 1, the price of electrolyte water, the representative brand of Baominli Water, has been adjusted one after another, of which the 500ml product has risen for the first time in 23 years, with an increase of about 0.5 yuan per bottle.
The successive price increases of giants are not for nothing. JuneYao Health announced that based on the continuous rise in the cost of the main raw materials, transportation, packaging materials and auxiliary materials of the company's products, in order to better provide high-quality products and services to dealers and consumers, and promote the sustainable development of the market and industry, after careful research and decision, the company decided to adjust the ex-factory prices of some products of the company's "Weipower" brand.
At an analyst performance meeting in March 2022, Nongfu Spring executive director Zhou Zhenhua bluntly said that cost pressures have "exceeded the level that companies can unilaterally digest." He said that the cost of PET in 2022 is expected to be 30%-40% higher than last year.
In the past two years, prices have been raised quietly, and even giants like Coca-Cola are difficult to say, but this does add value to Coca-Cola's performance. According to the 2022 financial report, Coca-Cola achieved revenue of US$43.004 billion, an increase of 11%; Operating profit was $10.909 billion, up 6%, and global single-case sales increased 5%. The "price/portfolio growth" mentioned in the earnings report saw its global prices increase by 11% in 2022 and 12% in the fourth quarter.
Raw material supply concerns
The wind of price increases came suddenly, but many industry insiders said that they were not surprised.
On the one hand, according to CCTV Finance reports, the recent armed conflict in Sudan continues, making global carbonated beverage manufacturers feel anxious. Because Sudan's exports of gum arabic are a key ingredient in the production of carbonated beverages, if gum arabic exports are interrupted, the world's major carbonated beverage producers may face the danger of losing supply within a few months. The annual global production of gum arabic is about 120,000 tons, worth 1.1 billion US dollars, and Sudan's gum arabic accounts for seventy percent of global production, which is almost irreplaceable. Reuters quoted industry insiders as saying that for these carbonated beverage companies, they cannot survive without gum arabic.
However, Zhu Danpeng, an analyst in the Chinese food industry, said, "Now that large beverage brands have their global supply chains, although Sudan's gum arabic production accounts for a relatively high proportion, with the deepening of the war and the increase of uncertainties, other alternative production areas will also appear; In addition, gum arabic is not a high-tech product, nor is it irreplaceable, so the impact of the conflict in Sudan on carbonated beverages as a whole is minimal."
On the other hand, the price of sugar, which is an important raw material for cola, continues to rise, or another reason for the price increase. On 5 May 2023, FAO Food Price Index averaged 127.2 points in April, up 0.8 points (0.6 percent) from April and down 31.2 points (19.7 percent) compared to the same period in 2022. The slight recovery in the price index was mainly due to the sharp rise in sugar prices, with the FAO Sugar Price Index averaging 149.4 points in April, up 22.4 points (17.6 percent) from April, the third consecutive month of upward movement and the highest since October 2011.
Domestically, sugar prices have also rebounded. According to data released by the China Sugar Association, as of the end of April 2023, all sugar beet sugar factories have been shut down, and sugar cane sugar factories have been harvested in other provinces (regions) except for 3 in Yunnan Province. During the sugar production period, the country produced 8.96 million tons of sugar, a year-on-year decrease of 390,000 tons. The cumulative average sales price of finished white sugar of national sugar industry enterprises was 5865 yuan / ton, up 129 yuan / ton year-on-year; In April 2023, the average sales price of finished white sugar was 6383 yuan / ton.
Coke's status is challenged
As a world-renowned brand, Coca-Cola once regarded "maintaining price stability" as a brand competition weapon, which discouraged countless followers, but now it "shoots itself in the foot".
After more than 100 years of development, carbonated beverages are becoming more and more difficult to adapt to everyone's needs for a healthy lifestyle. James Quincey has said Coca-Cola wants to deal "smartly" with price increases and will seriously consider ways to use packaging specifications to optimize consumers' price points. In fact, Coca-Cola has been trying to transform, but because the sales of carbonated drinks continue to grow steadily, Coca-Cola lacks motivation.
In the global market, Coca-Cola's product sales growth 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 since the third quarter of 2022, the growth rate of Coca-Cola single-box sales has slowed down, with growth rates of 4%, -1% and 3% in the third and fourth quarters and the first quarter of 2023, respectively. Since the second half of 2022, Coca-Cola's box sales in Europe, the Middle East and Africa have begun to decline, including a 7% year-on-year decline in European box sales in the first quarter of 2023.
In the Chinese market, the entire beverage market is still in the incremental stage, and Coca-Cola has more and more competitors. On the one hand, traditional Chinese enterprises represented by Master Kong and Wahaha have been able to wrestle with Coca-Cola in the beverage market. In the absence of new explosive models, active price adjustment seems to be the best solution for Coca-Cola to continue to consolidate its "dominance".
On the other hand, Coca-Cola is also facing competition from emerging beverage giants such as Genki Forest, and the carbonated beverage market share has been further segmented. In 2020, Tang Binsen, the founder of Yuanqi Forest, who was born in a game, applied the rapid iteration strategy under Internet thinking to the beverage industry, making every appearance of new products fresh and refined. On the marketing side, Yuanqi Forest has rushed out of a new track with "0 sugar, 0 fat, 0 calories", and its "sugar-free" label has attracted many young consumers who pursue health.
Today, in the rich product matrix of Genki Forest, cola products have risen to the top of the list. In April 2023, version 2.0 of "Yuanqi Forest Cola Flavored Sparkling Water" was released in Xianning, and it is planned to be large-scale in more than 700,000 offline terminal stores in 115 cities across the country. Coupled with sugary products such as the sugary version of electrolyte water "Alien PRO", the sugary version of lemon tea "Chaoke", and the sugary version of lemon sparkling water "Wave" launched successively since 2022, Genki Forest is constantly challenging the status of a cola manufacturer.
Shen Meng, Executive Director of Chanson Capital, said, "The increase in raw materials and marketing costs has clearly affected the healthy revenue structure of Coca-Cola, and the continuous launch of competing products will impact Coca-Cola's market position. However, Coca-Cola also has the problem that its core products are unique, making it difficult for other categories to get out of its shadow. Cost pressure is a common problem for all products, so after Coca-Cola takes the lead in price increases, other brands will most likely follow."
But Zhu Danpeng also believes that "Coca-Cola, as a beverage giant, has insisted on low price and high quality for so many years, and the overall price increase is more reasonable, the terminal price is still between 3.5-4 yuan, and the entire cost control and affinity for consumers are still very good."
Regarding the price increase of its cola terminal products and other issues, the reporter of Beijing Business Daily contacted Coca-Cola China and PepsiCo China to send an interview letter to the other party, but did not receive a reply before press time.
Beijing Business Daily reporter Kong Wenxie