The price of the ＂Coke duo＂ has risen, and the soda market is surging

Image source: Visual China

Zhang Jinglun, Blue Whale financial reporter

Recently, Coca-Cola has issued price adjustment notices in Hebei, Henan, Shandong and other regions, following a clear price increase for a number of sodas under Pepsi Beverages.

At the same time as the price increase of "Liangle", domestic soda has increased the penetration of end point catering channels, and a new round of competition in the soda industry has kicked off.

In April, Hubei Swire Coca-Cola, Jiangxi Swire Coca-Cola, and Zhengzhou Swire Coca-Cola successively issued notifications of some product adjustments, saying that the supply price of some products was adjusted from late April, and the recommended retail price was adjusted from 3 yuan/bottle to 3.5 yuan/bottle, with a price increase of 16%.

In May, Pepsi Cola also announced an increase in the recommended retail price of its various soda products. In addition to the 550ml main product, the recommended retail price was adjusted to 3.5 yuan, and the recommended retail price of 900ml Pepsi, Qixi, and Meininda series products was adjusted to 5 yuan/bottle.

At the same time, Coca-Cola in Hebei, Henan, Shandong, Jiangxi, Jilin, Chongqing and other regions or outright or implicit price increases, but the end point price adjustment products and ranges vary.

Blue Whale financial reporters visited and found that the price of two 500ml plastic bottles of Coke in many supermarkets in Beijing has been consistent with the price adjustment notice, and the price of convenience stores such as convenience bees is slightly higher. The price of 500ml Coca-Cola is 4.2 yuan/bottle.

Blue Whale financial reporters contacted Pepsi and Coca-Cola about the price increase, but did not receive a reply as of the date of publication.

Why are drinks getting more expensive?

In fact, this round of beverage price increases has already emerged from the first half of last year. In February 2023, Nongfu Spring announced that it would adjust the price of 19L bottled water in Hangzhou by 2 yuan. Yakult also announced that the unit price of original flavor products would increase from 11.7 yuan to 12.8 yuan. In March 2023, the ex-factory price of some products of the "Flavor Power" brand would be adjusted by 3% -6%. From November 2023, the price of Master Kong beverages will increase in an all-round way – the retail price of packages in Master Kong tea and juice series products will be adjusted from 3 yuan/bottle to 3.5 yuan/bottle, and the retail price of 1L bottles will be adjusted from 4 yuan/bottle to 5 yuan/bottle.

Blue Whale financial reporters visited and found that the selection of beverages under 3 yuan is increasingly rare. Most standard packaged juice drinks, tea drinks, soda, etc. are priced at more than 3 yuan, and high-end drinks are more expensive. In convenience stores, drinks under 5 yuan have become difficult to find.

The owner of a convenience store in Chaoyang District, Beijing revealed that the unified estimate will also increase prices in the future, and it has been notified that it will be next month.

Behind the frequent price increases of beverage brands is the cost crisis.

A bottle of beverage involves raw materials in multiple fields, usually including cane sugar, PET resin and cartons. According to the Minsheng Securities Research Report, sugar accounts for 31% of the cost composition of the soft drink industry, preform PET accounts for 19%, and cartons account for 18%.

Industry analysts believe that as the cost of raw materials, packaging, and transportation increases, beverage producers are facing higher cost pressures.

For sugary beverages, the fluctuation of white sugar prices determines the price of beverages. According to data from the Food and Agriculture Organization of the United Nations, due to the El Ni?o phenomenon, the output of sugar-producing countries India and Thailand has declined. On September 6, 2023, the price of white sugar was 7,390 yuan/ton, a record high in nearly 13 years.

The price of PET (a polymer polyester material), the main raw material for beverage packaging bottles, is also rising. Nongfu Spring mentioned in the 2022 annual report that the price of crude oil has risen, and the price of raw materials such as PET, a downstream product of crude oil, has risen significantly, increasing the cost pressure on drinking water and beverage companies that use PET and other materials as the main raw materials for product packaging.

In addition, the high cost of marketing activities, or also an important reason for the price increase of beverages. Take Dongpeng Special Drink as an example, the sales cost reached 1.956 billion yuan in 2023, an increase of 34.94% year-on-year, and the funds used for advertising alone cost 860 million.

Continuing to hold high advertising and marketing, there are also Dayao Beverages. Recently, Dayao Beverages has been advertising "Big Soda, Drink Dayao" in the Beijing subway at Xizhimen Station, Wangfujing Station, Guomao Station, Chaoyangmen Station, Xidan Station, Qingnian Road Station, Hujialou Station and other Beijing subway stations.

The relevant person in charge of the Dayao brand said: "The 2024 Dayao brand advertisement has landed at more than 80 stations and 270 points in the Beijing subway, and the exposure number is estimated to be 1.60 billion." Although such large-scale advertising actions are currently concentrated in Beijing, it cannot be ruled out that in the future, when conditions are ripe, similar advertising actions will be carried out in Shanghai, Guangzhou, Shenzhen and other cities and regions step by step.

Domestic soda develops catering channels

When it comes to the dominance of carbonated beverages, only "two music" can compete in the entire market. Foreign brands "dominate" in the retail channel, while domestic sodas such as Bingfeng, Arctic Ocean, and Dayao choose to "find another way" – start again in the catering channel.

Born in Inner Mongolia, Dayao soda has gone national with its strong presence in the catering channel.

Luo Yun, executive director and executive deputy general manager of Dayao Beverage, said in an interview that the soda giants are not interested in catering channels, which gives Dayao the opportunity. At present, Dayao has nearly one million end points in catering channels, all of which are run out of the marketing team. In contrast, other circulation channels are not so difficult to do.

According to the data disclosed by the big kiln, more than 85% of the sales of the big kiln currently come from the catering channel, and 78.4% of consumers choose to buy the big kiln from the catering shop. It can be seen that the big kiln is highly dependent on the channel of the middle and low-end catering market.

When Blue Whale financial reporters visited, they found that while the price of "Liangle" rose, many domestic soda brands reduced prices in catering channels.

The owner of an iron pot stew restaurant told Blue Whale Financial Reporter that consumers will bring a bottle of Coke or a large kiln when purchasing soda, and the sales volume is basically the same. The large kiln in our store has a coupon on Meituan, and the group buying price of 520ml is 3.9 yuan/bottle. Large-capacity packaging looks more cost-effective.

Blue whale financial reporter to check the big kiln Taobao flagship store found that a box of 12 bottles of 520ml big kiln orange Nuo price of 59.9 yuan, equivalent to 4.99 yuan/bottle, higher than the restaurant group buying price. And in some supermarkets in Beijing, 520ml glass bottle big kiln price of 5.9 yuan/bottle.

An industry insider told Blue Whale Financial Reporter, "The catering channel is still the one that performs better at present, thanks to the considerable profit margin it gives the catering end point. People who run takeout, Didi drivers and other people will order the big kiln when they eat, and the big kiln can be sold in the suburbs, but the urban area is short of heat. Compared with the professionalism and standardization of the supermarket channel, the catering channel is more loose, and the boss basically takes profit as the reason."

In addition to the large kiln, the prices of Arctic Ocean and Bingfeng in the catering channels have also been reduced.

Blue whale financial reporters visited and found that in a Shaanxi restaurant in Chaoyang District, the group buying price of 330 ml Bingfeng soda is as low as 2 yuan. In a hot pot restaurant in Dongcheng District, the price of 248 ml glass bottles in Arctic Ocean is 3.2 yuan/bottle, which is 60% lower than the recommended retail price.

It is worth mentioning that in March this year, Bingfeng issued the latest notice for distributors at all levels in Xi’an. According to the notice, in response to the relevant calls of the brand to profit consumption and boost consumer confidence, Bingfeng recommends that all food and beverage retail stores at the end point implement the latest price system of 2 yuan per bottle for Bingfeng 200ml glass bottle products (including orange-flavored soda, apple-flavored soda, sour plum soup, and sugar-free orange-flavored soda).

Industry analysts point out that the deep cultivation of domestic soda brands in the catering channel reflects their strategic adjustment in the competition with foreign brands, that is, to take advantage of price space and localization advantages. However, in order to achieve a significant increase in market share as a whole, domestic soda brands still need to overcome multiple challenges such as branding, product innovation, and cost control. It is difficult to maintain price advantage and emotional marketing alone.

Will domestic soda prices follow suit?

In fact, since May last year, Coca-Cola has been quietly raising prices in many places, and the standard size of soda has been raised from the original 3.5 yuan/bottle to 3.8 yuan/bottle.

But the price increase did not have any impact on its sales, and its revenue and profit both increased. According to the 2023 performance report released by COFCO Coca-Cola’s parent company, COFCO Foods, sales revenue reached 21.446 billion yuan during the reporting period, an increase of 2.3% year-on-year. Adjusted EBIT (EBIT) and EBITDA (Earnings Before Interest) increased by 10.7% and 13.3% year-on-year respectively; profit reached 1.386 billion yuan during the period, an increase of 14.47% year-on-year, and profit grew faster than revenue.

The owner of a convenience store in Beijing’s Chaoyang district also said that the price increase had little impact on the sales of "Liangle". "After so many years of cultivation, consumers still can’t live without Coke for a while, which is a bit addictive."

So will domestic soda follow the pace of price increases?

Xiao Zhuqing, an expert in the fast-moving consumer goods industry, believes: "The cost increase is more lethal for small and medium-sized enterprises, because these enterprises do not have the procurement scale and supply chain advantages. For big brands, part of this pressure will be passed on to suppliers. But if the cost pressure continues to increase, Coca-Cola’s price increase will also drive up the price of the whole industry."

"At present, major companies are carrying the pressure, because the price increase will bring a series of consequences such as the reduction of channel profits, so the channel will represent other brands that do not increase prices. If only Coca-Cola increases prices, it will bring opportunities to competitors, so companies will be very cautious about price increases," Xiao Zhuqing said.

Original title: "The price of" Coke "has risen, and the soda market is surging."

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