Coca-Cola’s Price Increase Encourages Beverage Company Shareholders
February 11, 2015 – Coca-Cola Co raised the overall prices it charges its retail customers in North America 4 percent in the latest quarter, the company said yesterday, a signal to industry watchers that soft-drink rival PepsiCo probably raised prices too.
Analysts said the increase PepsiCo would likely report on Wednesday would probably not be as steep, since Coke had several promotions in the year-earlier period.
If other beverage companies like Dr Pepper Snapple Group Inc and Monster Beverage Corp also report increases, soda company investors will view it as a good start to the year.
“The more reinforcement that you get of a constructive pricing environment, the better it is for its prospects for 2015,” said UBS analyst Stephen Powers.
He added that the 4 percent increase “certainly exceeded our expectations…I would be very impressed if they could sustain that run rate.”
Analysts said they do not expect Coke to be as aggressive with prices in North America in 2015 as commodity costs come down.
“Competitors could take advantage of those and play the price game and hence, gain market share,” said Jack Russo, an analyst at Edward Jones, in an email.
The increase does not mean Coke hiked the prices on all the products it sells. Beverage companies can raise prices through the mix of products and packaging they offer. Coke and PepsiCo have said that smaller portion sizes, which enable them to charge higher prices per fluid ounce, have been popular with U.S. consumers. The company said on its earnings conference call that mini-can sales rose 15 percent in the quarter.
Investors care about Coke’s prices because sales volumes have been sluggish. Raising prices is one way a company can try to boost profitability and offset currency impacts in overseas markets.
For Coke, North American profitability is important to watch since the company is in the process of selling off its bottling operations in the region, and boosting profit margins would help tempt would-be franchisees.
Coke said commodities were unlikely to have much of an effect on pricing. On the company’s earnings conference call, Irial Finan, president of bottling investments, said Coke had found a balance between prices and volume growth in North America.
“Our plan is to deliver again next year in the same way,” he said.