Coca-Cola plans more price increases in 2023, leans on marketing to offset impact

15-Feb-2023 - Last updated on 15-Feb-2023 at 12:37 GMT

Source: Getty/pjohnson1

The Coca-Cola Co. plans to raise prices again in 2023 against some retailers’ calls to roll back increases, arguing it has “earned the right to price with the consumers” through enhanced marketing and an agile packaging approach that balances premium and small entry-level, pack-sizes for broader consumer appeal.

“We will be taking pricing in 2023,” but that will look different across regions given “there are countries where inflation is well over 50%,” in which case the company will raise prices “multiple times a year,” and countries where inflation in moderating, such as in developed markets, where the company likely will “trend more back towards standard cycles of pricing,” CEO James Quincey said yesterday during the company’s fourth quarter earnings call.

He explained that even though the inflationary environment appears to be cooling, The Coca-Cola Co. is still expecting to see elevated inflation across its operating costs.

“Based on current rates and hedge positions, we expect per-case commodity price inflation in the range of a mid-single-digit impact on comparable cost of goods sold in 2023,” added CFO John Murphy.

In the US, Quincey said he is optimistic that there will not be a “hard landing” as inflationary pressure continues to moderate and “the economy and the consumption, at least of beverages, continues to be good.”

Despite a relatively positive outlook, at least in the US, Quincey said the company will not take consumer loyalty and spend for granted – especially as it raises prices again against external pressure to hold or even lower them.

“It’s not our strategy to think of our business as commoditized where prices just flow up and down in a kind of mechanical way. We need to own our pricing by delivering for the consumers value that they appreciate through the marketing, through the innovation, through the RGM, the pricing and packaging work, through the execution such that they see value in our brands and can sustain the pricing that the input costs are driving us towards,” Quincey said.

Innovative marketing links occasions and passion to justify price increases

He explained that Coca-Cola has earned that right in part through increased marketing spend and creative campaigns that “link occasions and passion points to drive engagement.”

For example, he pointed to the company’s Coke Is Cooking campaign in Vietnam in October where it partnered with more than 700 food shops to create combo deal with Coke, their food and merchandising which resulted in more than 1 million combo transactions and a 20% uplift for participating merchants.

In Latin America, the company partnered with one of the biggest music festivals to offer consumers content through live streams and the Metaverse, which expanded the company’s reach from approximately 700,000 attendees to more than 45 million consumers across the region and driving up sales in the festival by 23% compared to the last festival, Quincey said.

In the US, Coca-Cola is leaning more on innovation to driving consumer engagement. For example, Quincey said, the company launched Minute Maid Agua Frescas in 16-ounce cans with a “disruptive end-to-end digital media marketing campaign” to create early momentum and drive scale to experiment with fountain and other platforms.

“In 2022, the product had a 60% repeat rate and won the Best New Product award from Convenience Store News,” he added.

Pricing boosts revenue, but Russia and China markets offset gains

While Coca-Cola’s strategy to raise prices and enhance marketing deviates from competitors, including PepsiCo, which has paused price increases, it appears to be working for the iconic beverage manufacturer.

In the company’s fourth quarter, organic revenue grew 15%, primarily from price increases and revenue growth management initiatives, but also the aforementioned efforts to retain and add consumers, Quincey said.

Unit cases declined 1%, however, as growth across most markets was more than offset by the suspension of business in Russia and the decline in China, added Murphy, who also noted margins fell about 90 basis points from the prior year.

Based on the company’s performance in the fourth quarter and its strategic approach for 2023, Murphey said he expects organic revenue growth of 708% in 2023, primarily led by price and mix. EPS on a comparable currency-neutral level should grow between 7% to 9%, he added.