The much-touted affordability strategy that the cola majors pursued, and then soft pedalled, is now being consigned to flames. For the second time in the last one year, Pepsi and Coca-Cola are jacking up prices by 10-15%.
The price of 200ml bottle will move up from Rs 6 to Rs 7 and the price of 300ml has been pegged at Rs 9, up from Rs 8 till last week. Similarly, 2-litre PET bottle prices are being hiked from Rs 43 to Rs 45. The 500ml PET price is being raised to Rs 20. Sources say, by the summer of '06, the price of 300ml bottle may be hiked to Rs 10.
When contacted, both Pepsi and Coca-Cola India officials confirmed the hike. “The price increase is as per our plans,” said a Pepsi spokesperson. She added that to tide over increase in the price of raw materials and fuel, price review for 200ml was done in two steps. Last year, the cola majors had increased prices of 200ml and 300ml packs by Re 1. The larger PET bottles had got costlier by 10-12%.
While mounting costs did the cola majors in, sources also point at their mounting losses. Coca-Cola's bottling fraternity, for instance, logged a loss of Rs 120-130 crore from its 24 plants last year. Pepsi has been far more conservative in its spends and kept its costs low.
“On the other hand, Pepsi's decline in beverage volumes were partly offset by a double-digit growth in its snackfood and juices business,” said an industry analyst. Pepsi, however, claimed that it met its revenue growth targets.
A Coca-Cola statement posted on its website says unit case volume in India decreased 22% in the third quarter this year, compared to 36% growth in the corresponding period last year.
Interestingly, the statement attributes much of this decline to last year's price increase, so another price hike comes as a surprise. “Price increases to cover rising raw material and distribution costs and the lingering effects of the false pesticide allegations drove the declines,” the statement said while giving a pessimistic picture next year.
“The issues in India and the Philippines are being addressed; however, results from these markets are expected to remain weak for the remainder of '05 and into '06,” said the Coke statement.
But analysts say the price hike is unlikely to hit volumes as price awareness is low anyway and retailers rarely stick to the printed price. This has been seen in most packs barring the 200ml bottle where companies heavily advertised the price. No retailer sells 300ml bottle at Rs 8.
This was mainly because, the cola companies had slashed the retailer margin last year and they made consumers compensate for the same citing high electricity costs. Also, the price hike follows a shift in focus for the cola majors, which are now targeting young, upwardly-mobile affluent segment of customers.