Due to its cheap price and wide audience, cola, mustard and instant noodles are nicknamed "poor ghost three-piece suit" by netizens. There may come a time in the lives of ordinary people who appreciate the existence of "three-piece sets" – they are affordable, taste stable, and never go wrong with the eating experience, which is reassuring.
However, following the frequent announcement of price increases for mustard, entering 2024, news of price increases for instant noodles and cola has been reported one after another. At a time when prices are low in all walks of life, why do FMCG giants firmly choose to raise prices? After the price increase, will it lose the heart of the workers?
Text | Rao Tongyu Chen Jingxuan
Edit | Shinno
Operations | killer whale
2 yuan a bottle of Coke, about to disappear?
At the beginning of July, a notice of removal of goods marked with "Zhao Yiming snacks" set off the shelves, which caused waves in the industry. The notice shows that the products that have been removed from the shelves are very special - 500 ml of Coca-Cola and Sprite, and the reason for the removal is also striking - the manufacturer has asked for a price increase. Discount stores reminded franchisees and store owners that these two items would have to be removed from the shelves after the warehouse stock was sold out.
The last time the price increase of Coke was discussed, it was more than two months ago. Retailers in many regions of the country have received a letter from Swire Coca-Cola Company to inform them of price adjustments, which shows that the suggested retail prices of several products have become higher, from 2 yuan to 2.5 yuan for 300 ml of Coke, and from 3 yuan to 3.5 yuan for 500 ml of Coke.
▲ Price adjustment notice issued by Coca-Cola companies around the country. Diagram / Network
However, due to the complex supply system and long chain, the price adjustment has not been transmitted to the nerve endings of the sales network at the first time, and the retail price of Coke in many retail stores has not changed. It wasn't until this takedown notice began to circulate that the impact of the price increase was revealed.
"Related products are sold normally in all stores of Zhao Yiming snacks and have not been affected for the time being." Zhao Yiming's response to snacks came quickly, but did not point out the authenticity of the takedown notice. Lovers of "Fat House Happy Water" are still worried: 2 yuan a bottle of low-priced Coke, can't you buy it later?
For a long time, people were accustomed to a 500ml bottle of Coke selling for 3 yuan, which is the same as a 2 yuan bottle of mineral water, which is an indispensable hard currency in the freezer and shelves of supermarkets. Whether it's the convenience stores that populate the streets of the city or the unnamed grocery stores in the vast towns and villages, Coke is not absent all year round, and the prices are just as different.
Most of the time, the price will not affect the purchase, but if the price of Coke in any store exceeds 3 yuan, there is a high probability that it will also be labeled as "expensive". Therefore, when discounters open up the market and attract consumers, Coke will always become the best drainage product.
▲ Coke with a price tag of 3 yuan. Photo / Visual China
Offline, when you walk into a discount store like Zhao Yiming's snacks, you can often buy the cheapest Coke, a 500ml bottle of only 2 yuan, which is 1 yuan lower than the recommended retail price when the price has not increased. If there is a price war in the discount store industry, it will be even lower - it would rather not make any money, but also hold the consumers who want to "gather wool" tightly in their own hands.
But now the unit price of Coca-Cola has risen by 5 cents all of a sudden, and the discount store not only has no money, but may even lose money to do business.
Zhou Nan, a salesman of Swire Coca-Cola who runs in Jiangsu and Zhejiang, told Daily People that now, the opening price of a box (including 24 bottles) of 500 ml of Coca-Cola is 59 yuan, and if you encounter a discount, the lowest price is about 50 yuan. According to this calculation of the average price, even if large discount stores can get purchase discounts, the price of 2 yuan a bottle is also a loss for a bottle.
The price of Coke has risen, and the first ones who can't hold it are the owners of discount stores. Not only Zhao Yiming's snacks have moved, but Leerle, a hard discount supermarket with 4,000 stores across the country, also announced that it will adjust the price of 500ml Coke/Sprite series drinks from 2.5 yuan to 2.9 yuan. The food reference mentioned that when the news of the price increase first came out, a snack discount store even took out a loan of 2 million and hoarded about 40,000 boxes of Coke.
▲ Leerle Supermarket announced the price adjustment of Coca-Cola series products. Diagram / Network
Discount store owners are anxious to raise prices, but more smaller supermarkets and retail stores have the opposite reaction. Zhou Nan found that the store owners were still hesitant to raise prices. In Chaoyang, Beijing, the owner of a convenience store marked the price of Coke at 3.5 yuan, but in fact still sold it to customers for 3 yuan a bottle. A supermarket owner in Hebei, the salesman came to her four times, but she still insisted on not raising the price.
Persuading merchants to follow manufacturers to raise prices is one of Zhou Nan's jobs. But supermarket owners have similar concerns – what if only their own Coke has gone up in price, and customers around them have gone to other stores to buy something? The initial plan of some bosses is to at least wait until all the hoarding in their hands is consumed, and there is no way, and then the price will rise to 3.5 yuan.
In order to cope with the price increase, almost everyone in the industry is now looking for cheaper coke. In Henan, Feng Gang runs his own discount store, and in his small shop, 500 milliliters of Coke have been selling for 2.8 yuan, which is 2 cents cheaper than the market. It is also this difference of 2 cents that can make price-sensitive customers notice that it is more cost-effective to buy things in this store.
For Feng Gang, finding a Coke with a lower purchase price has always been an important thing. On the one hand, this is a test of connections, and you have to drink, eat, and have a good relationship with the cola distributors in your area; On the other hand, he also used his brains and learned to "pick up goods online", and swiped Jingdong, Pinduoduo and other major e-commerce platforms many times a day, just to find subsidized goods.
A few months ago, Feng Gang happened to brush up on a batch of 330 ml of Coke, which only sold for 36.7 yuan per box, while at the dealer, the minimum was about 40 yuan. The moment he got it, Feng Gang immediately became excited, and hurriedly found several friends, each of whom grabbed more than a dozen boxes, and finally hoarded nearly 200 boxes of Coke, and also gave it free shipping.
After getting the goods, Feng Gang quickly called his peers and sold these "picked" Cokes, "a few calls and it was empty". The most exaggerated thing is that there are even cola dealers who ask him to "buy goods in reverse", after all, this price is cheaper than the purchase price of some dealers.
In this way, Feng Gang stabilized the business of discount stores, but became the group of merchants who were least worried about the price increase of Coke. After learning that the price of Coke was adjusted, Feng Gang raised his Coke from 2.8 yuan to 3 yuan, and he still earned, and "the more the price increases, the more I earn." After eating the sweetness, he decided not to find a dealer to buy again, and if it was out of stock, "I would rather have two whole boxes online than find a dealer again."
"Poor ghost three-piece suit", collective price increase
It's not just Coke that's raising prices.
Around the same time, instant noodle leader Master Kong announced that it would raise the suggested retail price of bagged noodles to 3 yuan, while barreled noodles rose from 4.5 yuan to 5 yuan — just two years ago, the price of bagged noodles was 2.5 yuan.
And the "instant noodle pair" mustard has also been on the hot search repeatedly due to price increases. A pack of 70 grams of Wujiang mustard, which is the most common in a small supermarket, was sold for 5 cents in 2008, rose to 2 yuan in 2018, and now sells for 3 yuan. The most controversial thing is that more than two years ago, Fuling mustard raised the prices of its products across the board, with a maximum of 19%. It was also during that time that netizens who joked that they "couldn't afford to eat mustard" found that a gift box of mustard was sold at a high price of 1521.9 yuan.
▲ Mustard gift box. Picture / Screenshot
Once due to its cheap price and wide audience, cola, mustard and instant noodles were jokingly called the "poor ghost three-piece set" by netizens. There may come a time in the lives of ordinary people who appreciate the existence of "three-piece sets" – they are affordable, taste stable, and never go wrong with the eating experience, which is reassuring.
But when the price of all walks of life is low, the price of the "poor ghost three-piece suit" has increased, and many netizens who feel that they have been backstabbed sighed: I ignored you at the beginning, but now I can't afford to climb high.
Food and beverage giants have found the same reason for price increases – cost.
Coca-Cola CEO James Quincy proposed as early as 2021 that price increases should be used to deal with "the rise in the cost of commodities (sugar)". Entering 2023, the price of raw materials has risen even more, and the data shows that the domestic price of white sugar once soared to 7,094 yuan a ton, an increase of more than 20% during the year, and has reached the highest level in five years.
In his annual report, Master Kong attributed the price increase to the fluctuation of raw material prices. The prices of wheat flour and palm oil, the two major ingredients for instant noodles, were once on a roller coaster. Even if the price is reduced, under the unstable price trend of raw materials, instant noodle manufacturers hope to resist risks by increasing profits.
As for Coca-Cola's eternal rival, Pepsi, has moved inflation out. In the 2023 financial report, PepsiCo CEO Long Jiade mentioned that in order to fight inflation, PepsiCo can only think of ways to raise prices.
In fact, Coke price increases are uncommon. According to a report by Guosheng Securities, the price of Coke has not risen significantly in the more than 40 years since it returned to the Chinese market, and the compound growth rate of Coke's unit price from 1990 to 2019 was only 0.42%.
▲ In 2006, the prices of Coca-Cola 355ml cans and 500ml bottles were 1.7 yuan and 1.9 yuan respectively. Photo / Visual China
A beverage industry analyst told the Daily People that industry giants like Coca-Cola have extremely high bargaining power in the procurement of raw materials and other products, "small fluctuations in the supply chain and costs, FMCG companies are not afraid, because it is easy to find alternatives, and they will control many key raw materials and make good reserves." This is also one of the reasons why Coke has not increased its price for many years before.
But the final retail price is up to the market to decide. A PepsiCo distributor recalled that two years ago, PepsiCo tried to adjust prices, but sales in some markets plummeted, and in the end, they did not rise. Back in 2011, when Coca-Cola announced a price increase, it also caused an uproar, and the company had to cancel the price increase on the surface, and could only reduce it from 600 ml to 500 ml in a disguised way of slimming, so as to achieve the purpose of increasing profitability.
The price stability has somewhat strengthened Coke's position as the "national drink". But at the moment, price increases are imminent. A rather contrasting fact is that under the general trend of consumption downgrade, the financial reports of cola, mustard and instant noodle companies are not good - people's pockets have tightened, but they are not spending more money on the "poor three-piece suit".
Master Kong's 2023 financial report shows that instant noodles contributed 28.7 billion revenue to the company, a year-on-year decrease of 2.84%, and the decline of Uni-President Group was even greater, with instant noodles revenue of only 9.594 billion in the same year. The two giants who carved up the domestic instant noodle market sold nearly 2 billion less. Coke has a similar dilemma, in China, Coca-Cola's two major authorized agents, COFCO and Swire, the former's soda business revenue in 2023 will only increase slightly by 0.6%, and the latter will also decline by 4%.
In 2023, Coca-Cola's sales in other regions also declined. Coca-Cola CEO James Quincy analyzed that Coke consumers in the United States and Europe are turning to the company's bottled water and juice. "Across the industry, consumers are becoming more cost-conscious about the cost of purchase. They are looking for good value for money and stocking up on discounted items. ”
Not only that, but the competitors of the "poor ghost three-piece suit" are also menacing. In the matter of drinking beverages, more and more young people nowadays are looking at cheaper, large-bowl 1-liter large bottles of drinks, ridiculing that this is "poor ghost oral liquid", which is more cost-effective than cola; And when it's time to think about what to eat, the competitor of instant noodles is no longer an ordinary fast food product, but a 9.9 yuan "poor ghost package" that can be ordered everywhere for takeaway.
The cheaper the stuff, the more it sells
Zhou Nan clearly felt Coca-Cola's determination to raise prices and adjust prices.
After notifying the price increase, some merchants simply did not enter the 500 ml Coke in order to resist the impact of the price increase, and only entered the 680 ml all-you-can-drink bottle, because this Coke did not raise the price, or sold for 4 yuan, and the merchants all felt that "the price of 3.5 yuan and 4 yuan is about the same anyway", and they will not dissuade old customers because of the price increase.
However, in the first month after the price increase notice came out, Zhou Nan received new instructions. He needs to go to various stores to check the distribution and display, "each family needs to take a photo of the 500ml cola box (10 boxes are a pile)", and only those who meet the requirements can get 10 boxes of 30 yuan rebate.
After the price increase of Coke, Zhou Nan was most worried about the decline in sales.
After becoming a salesman of Swire Coca-Cola, he found that Coca-Cola was not a giant in the industry that made money lying down, as the outside world imagined, on the contrary, the company was always full of bright sales anxiety.
The value of "sales first" is reflected in many moments. For example, in Zhou Nan's area, the way to measure whether the salesman has completed the task is not the specific sales figure, but "whether there is an increase compared with the same period". In other words, even if the sales data of this month is not bad, as long as it does not exceed the results of the same period last year, you will not get 100% performance bonus. When encountering strict leaders, every Thursday settlement day, if they fail to meet the standard, they will be "crazy pushed", requiring them to find ways and channels again.
Under such a system, in order to complete the task, the salesmen can only "sell 'fleeing goods' to each other in the province". For example, Zhou Nan said that at present, the invoicing price of a box of 500 ml of Coke is 59 yuan, and the company will have some promotional policies from time to time, and the price of the dealer can finally buy Coke is around 50 yuan. However, in order to achieve sales performance, Zhou Nan will sell the goods to wholesalers in other districts and counties in the province at a price of less than 50 yuan, and this part of the goods is called "channeling".
As for the money lost in the middle, it is covered by part of the display fee issued by the company - a common subsidy in the FMCG industry to support salesmen to seize the market. Zhou Nan said that the more developed, the better the business, and the more fierce the competition, the company often issues more display fees, so there is more "discount space". According to this logic, Hangzhou's goods will always be the cheapest, and the more west of Zhejiang, the more expensive it is, so there is a default rule for salesmen to "sell 'fleeing goods' to the west".
But for all these operations, the headquarters often "turns a blind eye". After all, the price difference of a few dollars, once the freight is added, the advantage is gone, and the "channeling" will often only flow between the same provinces and cities, and will not cause contradictions between local branches. And the Coke that is sold is a real performance, which is what the headquarters cares more about.
▲ In a Jingkelong supermarket in Chaoyang, Beijing, different types of cola products are priced. Photo / Photo by Daily People
Sales anxiety comes from the lack of outstanding earning power. In 2016, The Coca-Cola Company packaged and sold its bottling business, distribution business, to partners in North America and around the world, selling only Coke puree. In China, Coca-Cola chose Swire and COFCO, priced at 3.012 billion yuan and 2.9 billion yuan respectively, forming a bottling pattern of "COFCO in the north, Taikoo in the south".
Not only that, Coca-Cola has also set up a "101 distribution system" - let the bottling plant find distributors in different regions to be responsible for the distribution in their own area, and the business promotion is still handled by the salesmen stationed in the bottling plant. In this way, the bottling plant can spend the least amount of manpower to extend the distribution tentacles to more remote areas, and the dealers play the role of "delivery people", earning the delivery fee.
It's just that in the process of the birth of a bottle of Coke, the most profitable business is obviously not bottling or distribution. Relevant reports show that a bottle of Coke with a price of 3 yuan, the cost only accounts for 0.3 yuan, after the bottling plant takes 0.45 yuan, dealers at all levels take 0.25 yuan, and retailers take 0.36 yuan, and then remove marketing and other costs, Coca-Cola, which only sells puree, can still earn a net profit of 0.5 yuan for a bottle.
▲ Picture / Visual China
However, in the FMCG industry, production and laying channels are the most laborious ones. The 0.45 yuan taken by the bottling plant also needs to bear the cost of producing cola bottles, investing in factories, recruiting workers, etc. As for the 0.25 yuan taken by the dealer, it also includes the "distribution cost" of delivery to the terminal. In other words, by divesting the bottling and distribution business, Coca-Cola was able to make money more lightly, while the bottling plants and distributors became labor-intensive manual payers, and every penny was hard-won.
The financial report also clearly shows the difference between the two. In 2021, Swire sold nearly 1.9 billion cases of Coke in China, with a revenue of HK$53.9 billion, but only made 5.7 billion, with a pre-tax profit margin of only 11.2%. In comparison, Coca-Cola's pre-tax profit margin can reach more than 60%. This also determines that bottlers and distributors must put sales first and do small profits and quick turnover, so that each party in the chain can make money.
But now, the price of Coke has risen, offline "channeling" and online "goods" are becoming more and more frequent, and the gears of making money are getting tighter and tighter. At the end of the chain, the owners of mom-and-pop stores and convenience stores are also deeply engulfed in anxiety about controlling profits.
Feng Gang, the owner of the discount supermarket, not only sells 2.8 yuan of cola, but also sells ice cream, opens a live broadcast, sells it at the lowest price, and 20 ice creams can only earn 1.5 yuan - only by keeping the price low to the extreme, people can see their stores at a glance and are willing to come to the store to buy things.
To outsiders, it seems that he can sell hundreds of orders a day, but the actual income is only a few hundred yuan. "The cheaper the stuff, the more it sells." Feng Gang said.
(Names have been changed.) ）
Resources:
[1] "Instant Noodles: You used to ignore my love, but now you can't afford to climb high!" >> Diagram room
[2] "Why can't Coca-Cola's new product be made?" Interesting report
[3] "American merchants can't raise prices! This time it's the "last line of defense" necessities Coca-Cola Wall Street See
[4] "Is the era of drink 3 yuan really over? The price increase letter has been issued for more than a month, and Coke has still not risen in many places