Coke plans price hikes as inflation shows no signs of softening

Inflation will remain in the current range for a few more quarters because of multiple factors, and there will be price increases for select packs, Coca-Cola India and Southwest Asia president Sanket Ray told ET in an interview. “It (inflation) is a global phenomenon and we expect it to stay for a few more quarters. To manage that, we are very clear that we will be taking some more price increases for select large packs. For affordable packs, though we are holding on to prices,” Ray said.

The maker of Thums Up and Sprite soft drinks and Minute Maid juices has recently taken up price increases in the range of 3-3.5% for some of its larger packs, and further price increases will be in the same range, though it will maintain affordability to drive consumption volumes.

Ray said the company hasn’t seen significant decline in profit margins because of cost savings and logistics. “We now have 61 plant locations; as new locations come in, cost of logistics comes down because you’re closer to the marketplace,” he said. The company has stepped up local sourcing which it said is helping manage inflation.

Consumer food price inflation in India nearly doubled since March 2021, according National Statistical Office data, and raw material inflation is at a 10-year high, further fuelled by supply disruptions and the Russia-Ukraine war. This has led to higher consumer prices across almost all essential and discretionary products by up to 15%.

For the quarter ended March 31, the world’s largest beverage maker announced that its Asia-Pacific region grew 4% in unit case volumes, driven by India and the Philippines.

Ray said return of mobility, events, state elections and gatherings have led to out-of-home demand exceeding pre-Covid numbers in the past three months. Coca-Cola launched multiple small packs such as returnable glass bottles and single-serve bottles, which led to more than 500 million incremental transactions in India, up 20% over the previous year, the company said in its quarterly earnings statement.

Ray said he expects beverages to be among the top three fastest growing FMCG categories in India, given that it is a highly under penetrated category. In-home penetration for beverages is only 31-34% in India compared to most FMCG categories where penetration numbers are 70-90%.. “India has an outlet base of 11.5 million outlets and we are at 4 million outlets; so there is massive available opportunity,” he said.

On the upcoming plastic straw ban on small cartons which comes into effect July 1, Ray said the company is switching to paper or compostable straws for its juice packs. “By the third quarter, we expect local manufacturing of these straws to start; it is an added cost but we are holding on to consumer prices because we don’t know how consumers will react,” he said.

The company, which expects 10-15% growth to come from innovations, is expanding its core portfolio to include no or low-sugar variants, and will introduce new products in the year in sparkling, juices and hydration categories.

The beverage maker sees distribution, execution and building a lot more occasions to consume as critical focus areas, and is driving premiumisation to drive profitability and affordability for scale.