Coca-Cola to hike soft drinks prices in Australia to counter inflationary pressures

Drinks giant Coca-Cola will raise prices for its portfolio of soft drinks this year to cope with inflationary pressures within its bottling business.

Drinks giant Coca-Cola will hike prices for its portfolio of soft drinks this year to cope with rising inflationary pressures within its bottling business, as the company also struggles with labour shortages — especially in the trucking business.

It comes as Coca-Cola Asia Pacific, the business unit that once made up Coca-Cola Amatil and was sold in a $9.8bn takeover to bottler Coca-Cola Europacific Partners in 2021, recorded a 15.5 per cent increase in sales in Australia last year.

The growth was led by a shift to premium soft drink products and boosted by trading in the suburbs, driven by the continued trend of working from home.

Sales of Coca-Cola, Fanta, Sprite and Monster Energy through the supermarkets have remained strong even as Covid-19 lockdowns and travel restrictions disappeared, with volumes once again expected to switch back to venues such as restaurants, cafes and sporting events. But the new “hybrid economy” with many Australians work from home a few days a week is serving to create new sales patterns.

And while consumers rein in spending as mortgage payments and cost of living on the rise, the soft drinks tends to stay largely immune to pullbacks and companies should continue to trade strongly.

Peter West, general manager for Coca-Cola Europacific Partners’ Australia, Pacific and Indonesia business unit, told The Australian the bottler was facing pricing pressures across a range of business inputs and would need to lift prices this year, following an earlier hike last year.

“Some moderate price changes have been planned for the year. I can’t go into details but there will be a moderate price increase, but we are also super sensitive to inflationary pressure and we see our products as representing good value and we certainly take that into account,” Mr West said.

Coca-Cola Europacific Partners implemented one price rise early in 2022, Mr West said, while many of its competitors had pushed through two price lifts in the region last year.

While steeper energy prices Have not had a huge impact on the Coca-Cola bottler, other business costs are climbing and placing pressure on its business.

“I would say in general we are finding an inflationary environment on all of our materials. We’ve not seen the bottom of anything yet so we just continue to see inflationary periods but we do have the benefit of the mix of what we’re selling.

“So we are selling more core products and the core portfolio and that’s the strength of our brands. And we are offsetting it (inflation) also through a bit of channel mix of what we’re selling, a better package mix and also brand mix and we have had share gains on our core portfolio.”

Peter West, the boss of Coca-Cola Europacific’s local bottling arm, will need to lift prices this year to counter inflationary pressures in his own business. Picture: Britta Campion

Labour shortages also are proving a headache for the bottler.

“In the short term the key challenge for us is navigating the strong demand versus the capacity that’s coming on,” Mr West said.

“We continue to see a shortage of labour in the Australian marketplace. At 3.7 per cent unemployment it’s incredibly hard to get frontline labour and then (truck) drivers continue to remain a shortage and [Australia has] approximately 50,000 shortages for drivers in the country and they’re probably the most in-demand sector that you find. And so keeping up with volume in a constrained marketplace is probably the key challenge that we’re managing.”

He said his business hadn’t seen a downturn yet as cost of living pressures squeezed household budgets.

“We have not seen a downturn across our customer base. We continue to see a strong performance and we do think the food and beverage industry is well placed so if there is a downturn our belief is there is probably a sequencing, so home improvements and electronics [first].

“Food and beverage are relatively affordable. And we don’t see an immediacy of impact. So we think potentially things like motor cars or electronics or there’s other food and beverages [hit first].

“Food and beverages, if things tighten up, they are still necessities of life. And leading brands on the whole tend to do very well in the recessionary times, because they still offer affordable luxury, depending on the brand.”

Meanwhile, among his customers Mr West said there was a “premiumisation play” in what they were buying.

“The fastest growing areas in a grocery store is our six-pack cans, our 10-packs and 12-packs, so there is a degree where I’d say people are “up trading” and they are not buying large packs to the same degree. Some of that is probably a result of us not doing the depth of discounting on our large cans that we previously did and that’s probably given a bit more oxygen for our smaller pack range.”

Mr West said he was surprised how initially strong sales through the supermarket channel generated by Covid-19 had been maintained into 2022 as lockdowns and travel restrictions ended.

“When Covid kicked in we saw our volumes move to grocery and we saw a decline in away-from-home [hospitality, venues, sporting events] sales. Then we started to open up and you are starting to see away-from-home improve. The thing that’s probably surprised us is that the grocery volumes have maintained and away-from-home has recovered.

“So grocery feels like it’s benefiting from more occasions, people working from home, a hybrid-work economy and then what we’ve seen is our away-from-home volumes improved and we’ve had a strong performance in the last quarter.

“We saw people enjoying Christmas parties again, back into pubs, back celebrating.”

While working from home was helping sales in the suburbs, taking some volumes from the city, Mr West said he was seeing a spike in sales over weekends in city locations.

“People haven’t returned [to the city] five days a week, three days a week is normal but there is night-life on a Friday and Saturday night. So people are not going into the city to work like they were, they are certainly going in there on weekends.”

Originally published as Coca-Cola to hike soft drinks prices in Australia to counter inflationary pressures