Financial Daily from THE HINDU group of publications
Wednesday, Jul 21, 2004
Marketing - Strategy
Colas may become dearer Coke, Pepsi likely to revise pricing strategy
Sindhu J. Bhattacharya
New Delhi , July 20
COLAS may become expensive once again. Two years after Coca-Cola and Pepsi slashed prices to drive up volumes, the two companies are contemplating an about turn, which could mean an increase of up to Rs 2 per bottle of cola. Both companies are believed to be reviewing their pricing strategy.
In the near future, a 300 ml soft drink bottle could well cost Rs 8 with the 200 ml pack size priced at Rs 7, said sources, but the prices are unlikely to go to the Rs 10 level of two years ago.
What went wrong? Most consumers are happy with the 200 ml pack size of cola at present since it is more affordable and packs as much cola as most people want to consume in one go. And consumer satisfaction is evident from the fact that the soft drink industry has been registering over 20 per cent volume growth across the first six months of this year.
However, this is where the good news ends. While volumes are easy to come by, value growth has been severely hit by this pricing strategy and the negative impact is being felt not just by the two cola companies but also by bottlers and even retailers.
"The soft drink industry has been growing at high double digit growth rates but the value growth has been hit... the five rupee price point is unsustainable in the long run, given the present taxation structure. Pepsi will be reviewing this strategy over the coming months," a Pepsi spokesperson told Business Line.
He attributed this difficulty to drive the lower price points to the Government's inability to slash the eight per cent special excise duty soft drinks attract. He said together with the 16 per cent excise and an average 14 per cent sales tax, the economics of lower price points were getting skewed.
And while an email to the Coca-Cola India Vice-President, Mr Sunil Gupta, remained unanswered till late in the evening, industry sources confirmed that Coke bottlers had expressed doubts about viability of the lower price point strategy during the global chief's recent visit to India. Retailers have followed suit even as they dish out the 300 ml pack size for nothing less than Rs 8 in and around Delhi.
Mr Gupta had earlier said Coca-Cola has slashed dealer margins per crate this summer. Market sources said margins per crate for soft drinks in general have been slashed from Rs 24 (comprising 24 bottles of 300 ml each) to Rs 20. On the 200 ml pack size, margins are down to Rs 16 per crate from Rs 18 earlier.
Will this review of pricing mean the demise of the 200 ml pack size? It is too early to make such predictions. But the `chota' Pepsi is likely to become dearer in the coming months.
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