Coca-Cola Chief Defends Pricing Strategy
Coca-Cola has defended its strategy in the US amid questions from investors about whether it was acting as a “spoiler” in the soft drinks industry by keeping prices lowin its home market.
Muhtar Kent, chief executive of Coca-Cola , faced questions on Thursday at an investor conference, organised by Sanford Bernstein, over why the world’s largest soft drinks company by revenues was not hiking prices more aggressively in North America in the face of soaring input costs.
“As to the spoiler strategy, I don’t think we meet the criteria,” Mr Kent said. “We signalled out of the box that there would be more [price increases] and globally we have proved over periods of inflation that we are able to manage our business because of our multiple channels and packages. Every time there’s been a period of inflation we come out of it stronger.”
Analysts at the conference said that “100 percent” of the questions they receive from Coke investors are about US pricing strategy.
Mr Kent said that Coke would be likely to raise prices by an average of 3 to 4 percent during the second half of the year from a year ago, leaving prices up 2 to 3 per cent for the year. Earlier, the company said it would be likely to raise prices by 1 to 2 percent for the year.
“We are selling moments of pleasure at a sensitive time,” Mr Kent said, explaining that while US consumers remain fragile, he is thankful not to be selling real estate or refrigerators. “These price points have worked for us.”
Like many consumer packaged goods companies, Coke has been offering its products in smaller packages as a way to flatten prices. Rival PepsiCo , which also sells food and snacks, has said it faces cost inflation of 8 to 9.5 percent this yearbut that it would not pass all of that on to consumers.
In its latest quarter, Coke’s revenues rose 40 per cent to $10.5bn, with its relatively low prices keeping volumes strong.
Mr Kent said he would continue to look for “bolt-on” acquisitions but brushed off suggestions that Coke was in the market to make a bid for Red Bull or Monster, two energy drink companies that have been mentioned as potential targets. However, he acknowledged that he sees value in the category.
He also said that Coke had a “working plan” to improve its ties with local bottling partners to make its supply chain more responsive. Last year, the company purchased its biggest North American bottler for $12.3 billion, following a similar move by PepsiCo.
“There will be much better footprint of our production and logistical system,” Mr Kent said.