Coca-Cola price increase?
After seeing this news, for a moment I even suspected that I was living in a dream.
After all, everyone knows that “low price” has always been the label and the deepest moat of Coca-Cola . Why did Coca-Cola want to break its own moat overnight?
The magic of this incident is no less than that of the national football team entering the World Cup, defeating Brazil and Argentina to win the Hercules Cup, and China has since become a world-class football power.
It was so magical that I couldn’t help but whip two ear scrapers to wake myself up.
The source of the news is very official, including Red Star News and many other well-known media have carried out reports such as “Coca-Cola bids farewell to the 3.5 yuan era”. However, with the spirit of seeking truth from facts, I went downstairs to visit several convenience stores.
▲ Source: Red Star Capital Bureau
Then I found out, what’s going on, the convenience stores downstairs didn’t increase the price of Coke?
Coca-Cola in the two small convenience stores is still 3.5 yuan a bottle, and the boss said that he has not received any news of the price increase. The only one with a price of 3.8 yuan per bottle is Bailichen, but the clerk also said that it was this price a long time ago.
Therefore, whether Coca-Cola has raised its price or not seems to be caught in a rashomon battle.
Of course, the above-mentioned well-known media will probably not use fake news to fool the masses, so it is more likely that the current price increase of Coca-Cola is still in some areas and has not yet been implemented nationwide.
However, when I continued to explore, I found that the Coke price increase incident seemed not so simple. Behind the price increase news, there are many truths that ordinary people have not paid attention to.
In fact, everyone was deceived.
In the interpretation of many media, the reason for Coca-Cola’s price increase has been pointed to one thing, the conflict in Sudan.
Briefly for everyone, the armed conflict broke out in Sudan, an African country, which may affect the export of its abundant gum arabic.
What does this have to do with Coke? The relationship is getting bigger.
▲ Source: Baidu Encyclopedia
Because gum arabic is the key material needed for the production of carbonated beverages, once it is in short supply, it will have an impact on the global carbonated beverage production lines, and Coca-Cola will naturally be affected.
As it happens, Sudan is the largest exporter of gum arabic, accounting for 70% of the global consumption. It can be said that it has mastered the lifeline of gum arabic in the world.
This logic seems reasonable at first glance, but there is a fatal loophole, time.
If the conflict in Sudan precedes the price increase of Coca-Cola, which is the situation created by the media, the causal relationship is obvious, and this is no problem; but if the price increase of Coke precedes the conflict in Sudan, it is a bit unreasonable. ?
That’s exactly what happened.
In April this year, the conflict in Sudan broke out, but as early as February, Coca-Cola had already announced a price increase.
▲ Source: Red Star Capital Bureau
In other words, the causal relationship in the above logic does not hold at all, and the price increase of Coke has nothing to do with the conflict in Sudan.
What’s more, even if the conflict in Sudan really affects the supply of gum arabic, do you really think that a global beverage giant like Liangle will have no raw material reserves? Is gum arabic really irreplaceable?
Believe me, you are too young.
Again, everyone was deceived.
What is the reason for the price increase of Coca-Cola?
Before exploring the reasons, it is necessary to talk about the logic that Coke has never raised prices before.
Everyone knows that, except for the rise of Coke from 3 yuan to 3.5 yuan at the end of 2021, there has been almost no price increase for Coke in the past 20 years.
At least not on the surface, even though the bottled Coke has shrunk from 600ml to 500ml, at least the price has not changed.
The core reason is that there is still money to be made.
Even if it sells for 3 yuan a bottle, Liangle can still make a lot of money, with an annual revenue of tens of billions of dollars and a net profit of nearly tens of billions of dollars.
Because of the scale effect, this is also the biggest difference between the two music giants and other beverage companies.
For example, no matter how big the performance of Wahaha and Nongfu Spring is, there is only China as the main market, and the annual revenue is already tens of billions of yuan. If you don’t believe me, you can check their financial reports.
▲ Source: Baidu Stock Exchange
But cola is different, almost all of them are sold in more than 200 countries and regions around the world, and they are extremely popular all over the world.
So if the audience is large enough, small profits but quick turnover will work.
It seems that everyone has imagined that even if everyone in the country gives you 10 cents, then you will become a billionaire. Coke and Pepsi are following this path.
Under the amazing scale effect, there is no need to worry about the establishment of fully automatic production lines and channel laying for the promotion of Coke. In the end, the cost of Coke is also compressed to the extreme.
This is why Coke can be sold cheaply, but China Coke, Arctic Ocean and other beverages cannot, because there is no scale effect, and the cost will not be too low. Setting a high price may not make you alive, but setting a low price will really kill you.
▲ Source: Arctic Ocean Beverage Official Weibo
So under this logic, as long as the two music giants still make money, and make a lot of money, then neither of them has any reason to raise prices.
So far, there are only two reasons for Coca-Cola’s price increase: one is that it earns less and needs to raise prices to boost performance; the other is that it does not earn less, but wants to earn more.
After all, who would think too little money.
All other reasons are excuses, excuses made up to raise prices.
Let’s start with the first point, is Coca-Cola earning less?
This point is easy to demonstrate, just look at the financial report.
In the past 10 years, the highest point of Coca-Cola’s revenue was 48.017 billion US dollars in 2012. Since then, it has been declining all the way until there have been twists and turns in recent years. For details, please refer to the following figure:
▲ Source: Tiger Sniff Video
The net profit has also dropped from the high point of more than 10 billion US dollars ten years ago, but it has hovered around 9 billion US dollars in the past two years. The gap is not too big, and it has even increased significantly compared with previous years.
▲ Source: Baidu Stock Exchange
In other words, compared to the high point, Coca-Cola’s revenue and performance have indeed decreased, but not too much. Last year’s revenue even returned to a high of over US$40 billion, and its net profit reached US$9.542 billion.
Remember it was mentioned above? At the end of 2021, Coca-Cola made an official price adjustment, and the classic bottled Coke rose from 3 yuan to 3.5 yuan a bottle.
Combined with the rising revenue in 2022, it seems that the effect of this price increase may be good.
Then the conclusion is also very simple. The first point of “earning less” can almost be rejected, because Coca-Cola’s revenue has increased significantly after a price increase, and its net profit is also significantly higher than in previous years. There is no obvious “earning less” less” situation.
So there is only one answer left: I don’t earn less, but I want to earn more.
Before talking about “earning more”, another question that needs to be mentioned is, who wants to earn more?
Maybe you think this question is nonsense. The price increase of Coca-Cola must be because Coca-Cola wants to earn more. Could it be Pepsi?
The answer is certainly not Pepsi, but it may not be Coca-Cola either.
Who is that? That depends on who is pricing Coca-Cola in the Chinese market? Who is selling?
Let me talk about two hot facts first. In 2016, part of the equity of the Coca-Cola China market bottling plant was sold to Swire and COFCO for 3.012 billion yuan and 2.9 billion yuan respectively.
In January this year, Coca-Cola continued to split and merge the production and operation of the still beverage business of the original Coca-Cola Bottler Production Holdings Co., Ltd. into Swire Coca-Cola Co., Ltd. and COFCO Coca-Cola Beverage Co., Ltd. through equity transfer.
▲ Source: Interface News
So far, Coca-Cola’s bottling business in the Chinese market has been held by three parties, namely Coca-Cola, Swire and COFCO, of which Coca-Cola only holds 38% of the shares, and the latter two hold 62% of the shares.
To put it simply, Coca-Cola’s bottling business decisions are no longer in the hands of Coca-Cola alone.
Coca-Cola, which got rid of the burden, is relaxed, and it is understandable that Swire and COFCO want to increase profits.
Why do you say that?
Because the profit margin of Coca-Cola’s bottling business is really too low.
In 2021, Swire Coca-Cola’s EBIT margin will be 11.2%, but Coca-Cola can reach 64.85%. There is a huge difference between the two.
Looking back at the Coca-Cola price increase news, in the Red Star News report, the focus is on Coca-Cola’s bottling business.
▲ Source: Coca-Cola China official website
So at this point, it seems clear who wants to earn more.
As for why the Internet is frantically reporting, but many offline places have not yet raised prices, perhaps it is not too late, or it may just be a soft poll conducted by the media.
But what we can know is that no matter what the reason is, the truth behind the “Coca-Cola price increase” news is not that simple.
But the last thing I want to say is that Coca-Cola is not the only one in this world. Coca-Cola will increase its price. Will Pepsi agree?
*Arrangement| Review by Hiu| Youer