With the summer approaching, the prices of soft drinks are soaring. The two leading players in the soft drink industry, Coca Cola and PepsiCo, had already raised prices of their 600 ml PET bottles of sparkling beverages by seven to 14 per cent in some areas just a few days earlier. This is to partially offset the burden of increasing crude oil and raw material prices.
Summer is the season of peak sales for soft drink makers, contributing about 30-40 per cent to their annual sales. The companies said these had no choice but to pass on a reasonable part of the rising input costs to the consumers.
PepsiCo India’s spokesperson said, “The recent price increase is partially to offset the impact of inflation and increased taxation. We have increased prices of our 600 ml PET bottles from Rs 25 to Rs 29 for select sparkling brands in few geographies.” The PepsiCo sparkling beverage portfolio in India includes brands like Pepsi, 7UP, Mountain Dew and Mirinda.
Similarly, Coca Cola has also raised the prices of its 600 ml PET bottles of the Coke, Sprite and Fanta brands from Rs 27 to Rs 29 in select markets. The two US-based cola companies have long been trying to manage transportation costs as a result of the increased prices of auto fuels.
Coca Cola’s spokesperson said because of the increase in the prices of plastic polymers used to manufacture PET bottles and the rise in fuel prices, these had no option but to pass on a part of the increase to the consumers.
In an emailed response to a query, Hindustan Coca Cola Beverages wrote, “Even in the wake of commodity inflation, an increase in transportation costs and tax inflation, we have been able to provide an unmatched value proposition to consumers, since we follow the OBPPC (occasion, brand, price, pack, and channel) strategy. This model allows us to appropriately price our products based on different occasions, packs, channel etc. As a result, even when we had recently revised the prices of our sparkling brands on certain packs, in some geographies, to offset rising input costs, our offerings still continue to be some of the most reasonably priced beverage products.”
The fast-moving consumer goods industry has been grappling with rising input costs for quite a while. By increasing the prices, the beverage majors want to share the increased cost burden with the consumers, allowing these to record good margins without impacting the demand. These 600 ml bottles are non-returnable plastic bottles which are often consumed on the go or in a restaurant.
“Inflation is a challenge for the entire industry and we try not to pass on the impact to the consumer as far as possible, by leveraging our global expertise in sourcing, supply chain management and production efficiencies”, said PepsiCo India’s spokesperson. On asking whether this increase would impact consumption demand, the companies did not comment. However the companies said these were trying to woo consumers through more affordable choices and value for money to boost the demand for soft drinks.
In a similar attempt in February, Coca Cola had cut the price of the 200-ml Coke bottle to Rs 8 in a promotional offer in select markets. This was aimed at increasing consumption and thus, market share. A Hindustan Coca Cola beverages spokesperson said the company found a lot of latent potential in the packaged beverage market and as an industry, its had just started to unlock that potential. “We are now offering our entry level pack for brand Coca-Cola – the 200 ml returnable glass bottle at a special promotional price of Rs 8. The 200-ml pack being the entry point into the category, will bring in new consumers into the cola segment because of its innovative and attractive price point”, he said. The promotional offer is being rolled out in phases across select markets and a strong communication programme under the ‘open happiness’ campaign already doing the rounds.
When asked how these have been able to reduce the prices of returnable glass bottles, a Coca Cola India spokesperson said it was a promotional offer for a limited time period in select markets only. The attempt was to expand the category. The company is hopeful the volumes would make up for the loss in margins.
In 2002, Coca Cola had introduced 200 ml bottles at a price of Rs 5 (Chota Coke). This was soon followed by Pepsi, but both companies were forced to withdraw these from the market, as these had started denting their margins.
Soft drinks, an impulse-driven and highly price-sensitive category, can a change in its pricing having a clear impact on the demand.
Aerated beverages in PET bottles are popular among consumers, especially the youth, and any increase in prices could lead to a dip in consumption. However, these companies are testing the waters in few areas at new price points. The impact is still a matter to wait and watch for the industry.
