---
title: "The Price Hike Drama of the Beverage King"
description: "Coca-Cola may be about to stage a \"price hike drama.\" At a Yonghui supermarket outside the East Fourth Ring Road in Beijing, a 500ml bottled Coca-Cola now sells for 3.4 yuan, up from 3 yuan earlier last year; the same size peach-flavored zero-sugar Coke is 4.7 yuan, also higher than at the end of 2021. The price increases are occurring across multiple channels, with some convenience stores and small supermarkets selling a 500ml regular Coke for around 4 yuan. On Douyin, some beverage veterans are also hyping up an imminent Coke price increase."
author: "齐敏倩"
publisher: "New Distribution"
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published: "2023-05-24"
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# The Price Hike Drama of the Beverage King

> Coca-Cola may be about to stage a "price hike drama." At a Yonghui supermarket outside the East Fourth Ring Road in Beijing, a 500ml bottled Coca-Cola now sells for 3.4 yuan, up from 3 yuan earlier last year; the same size peach-flavored zero-sugar Coke is 4.7 yuan, also higher than at the end of 2021. The price increases are occurring across multiple channels, with some convenience stores and small supermarkets selling a 500ml regular Coke for around 4 yuan. On Douyin, some beverage veterans are also hyping up an imminent Coke price increase.

**Produced by** | Huxiu Business and Consumer Group
Coca-Cola may be about to stage a "price hike drama." At a Yonghui supermarket outside the East Fourth Ring Road in Beijing, a 500ml (bottled) Coca-Cola now sells for 3.4 yuan, while earlier last year it was 3 yuan; the same size peach-flavored zero-sugar Coke is 4.7 yuan, also higher than at the end of 2021.
Coca-Cola's price increases are occurring across multiple channels. An insider revealed that prices vary slightly in convenience stores, small supermarkets, and different supermarkets, with some channels selling a 500ml regular Coke for around 4 yuan. On the Douyin platform, some beverage veterans creating content under the guise of "distributors" or "near-expiry merchants" have also started to hype up the imminent "Coke price increase" in the past week or two.
A related person told Huxiu that if Coke formally raises prices in 2023, the past two years will become the "most intensive price hike cycle for Coca-Cola in a decade": after all, in 2022, Coca-Cola officially moved from the 3 yuan era to the 3.5 yuan era. At that time, rising costs of raw materials and transportation directly drove up prices for a range of products, including Coca-Cola.
It is worth noting that "maintaining price stability" was once one of Coca-Cola's competitive advantages. "Low prices and reluctance to raise prices have always been praised by consumers and are key to suppressing competitors." This year, information from multiple channels shows that Coca-Cola, after just experiencing a price increase, seems to be planning another.
Recently, the trigger for Coca-Cola's price hike "concern" is the "shortage" of gum arabic.
Gum arabic is one of the raw materials used to produce carbonated beverages like Coca-Cola; it stabilizes carbon dioxide in the drink. According to foreign media reports, 70-80% of the world's gum arabic comes from acacia trees in Sudan. The conflict in Sudan has affected the international trade of gum arabic, causing a surge in prices for this raw material.
(Image: Acacia trees that produce gum arabic) However, a senior beverage industry practitioner told Huxiu that he believes gum arabic will not have a fundamental impact on Coca-Cola. The reason is that large companies generally have raw material reserves, and raw material costs account for a very low proportion of Coca-Cola's total costs, with a single raw material's share even lower. "A price increase in one raw material has minimal impact on its price structure." Gum arabic will not pose a threat to Coca-Cola; what can truly trouble the king of carbonated drinks is the high cost pressure under inflation and the difficulty in finding blockbuster products. Especially in China's beverage market, Coca-Cola once relied on channel and price advantages to become synonymous with soda for a long time. But in recent years, domestic beverage brands are rising, and some have even directly launched cola-flavored products, "charging into" Coca-Cola's main territory. Facing emerging new brands, Coca-Cola also began its all-category layout six or seven years ago, seeking new growth beyond carbonated drinks. However, in the view of industry insiders, compared with flexible small enterprises, Coca-Cola seems slower in creating "new blockbuster products."
**Under Pressure, Raising Prices to Boost Performance**
Product price increases are nothing new, but they attract extra attention when it comes to Coca-Cola, which rarely raises prices. Guosheng Securities data shows that from 1990 to 2019, the compound growth rate of Coca-Cola's product unit price was only 0.42%.
In 2022, due to rising costs, Coca-Cola initiated a new round of price increases. **From the results, this price increase did have a positive impact on the company's performance since last year:** In 2022, Coca-Cola achieved revenue of $43 billion, a year-on-year increase of 11%, including an 11% contribution from price increases and "product and geographic mix." In the first quarter of this year, Coca-Cola achieved revenue of $10.98 billion, a year-on-year increase of 5%. Among this, the company's price increases and "product and geographic mix" had an 11% favorable impact on revenue growth.
Despite the stimulus from price increases and other factors, Coca-Cola's revenue growth rate since 2021 has not been slow, but there are still two "hidden concerns" worth noting.
**First, the company's product sales volume growth is slowing down.** Unit case volume is an important indicator of consumer demand for Coca-Cola. In 2021 and 2022, Coca-Cola's unit case volume grew by 8% and 5% year-on-year, respectively. Overall, the growth rate is not low, but if we look at it quarterly, we will find that since Q3 2022, Coca-Cola's unit case volume growth has been slowing: in the first two quarters of 2022, it grew by 8%; in Q3, Q4 of 2022, and Q1 of 2023, the growth rates were 4%, -1%, and 3%, respectively.
By region, Europe is the most "headache" for Coca-Cola. Starting from the second half of 2022, Coca-Cola's unit case volume in Europe, the Middle East, and Africa began to decline, with Europe's unit case volume falling by 7% year-on-year in the first quarter of this year. In the fourth quarter of last year, Coca-Cola's sales volume in the Chinese market declined, causing its Asia-Pacific unit case volume to drop by 1% year-on-year. However, since this year, Coca-Cola has clearly recovered in the Chinese market.
Besides the slight slowdown in sales volume growth, another hidden concern for Coca-Cola is that the company is increasing revenue but not profit: in 2022, with an 11% increase in revenue, net profit decreased by 2.3 percentage points year-on-year. Rising production and transportation costs, **and the fact that product price increases are insufficient to offset the adverse effects of rising costs, are one of the main reasons for this situation.** In 2022, Coca-Cola's cost of goods sold reached $18 billion, a year-on-year increase of 17%. Rising costs, coupled with exchange rate factors, caused Coca-Cola's gross margin to decline by about 2 percentage points year-on-year in 2022.
The bad news is that in 2023, inflation continues, and production companies like Coca-Cola will still face significant cost pressure. In response, Coca-Cola's solution remains price increases: in February this year, Coca-Cola stated that it would further raise product prices "globally" in 2023, though the increase would be more moderate.
**Finding New Blockbusters Is Not Easy**
Cost pressure under inflation is Coca-Cola's "immediate concern." Compared to this, finding new blockbusters is a longer-term challenge for Coca-Cola.
Currently, carbonated drinks, especially the Coca-Cola brand itself, remain the foundation of the Coca-Cola Company: in 2022, carbonated drinks accounted for 69% of Coca-Cola's total sales, with the Coca-Cola brand alone accounting for 46%. Coca-Cola can be called the king of carbonated drinks. In terms of market share, in 2020, Coca-Cola held a 44% share of the global carbonated beverage market, 25 percentage points higher than Pepsi, which ranked second.
Not only does it have a high market share, but Coca-Cola's profitability is also higher than its peers. Specifically, except for a gross margin of about 58% in 2022, Coca-Cola's gross margin has remained around 60% in the past five years, about 5 percentage points higher than its peers.
**The high gross margin is due to Coca-Cola's global layout and scale advantages reducing costs, as well as its asset-light operating model.** Let's first look at how high the cost of a bottle of Coke is. Futu Securities pointed out in a research report that the production cost of a 500ml Coca-Cola is approximately 1.1 yuan: raw material cost 0.2 yuan, bottle 0.6 yuan, warehousing and logistics cost 0.3 yuan.
Not only is the production cost low, but Coca-Cola also uses an asset-light model, keeping core business in its own hands and leaving "dirty and tiring work" to partners. Coca-Cola's main products are divided into two types: concentrate and finished products. Concentrate, simply put, is that Coca-Cola sells concentrate to its partner bottlers, who then produce, bottle, and sell; finished products are sold directly by Coca-Cola. In terms of sales volume, the Coca-Cola sold in the market is mainly produced by bottlers using the company's concentrate: in 2022, 82% of Coca-Cola's unit case sales were from concentrate provided by the company.
**In other words, Coca-Cola mainly sells formulas and brands.** Coca-Cola only provides concentrate, so the cost pressure of packaging, capital for plant construction, and operational pressure are left to the bottlers. COFCO Coca-Cola and Swire Coca-Cola are the two bottlers for Coca-Cola in the Chinese market. In 2022, the former's parent company's gross margin was about 36%, 22 percentage points lower than Coca-Cola's.
With high gross margins, high market share, and a brand effect formed over more than a hundred years, it is no wonder many people jokingly call Coca-Cola a "liquid money printer."
**However, the "liquid money printer" also has its challenges: consumers have more and more choices, and Coca-Cola finds it difficult to create new blockbusters.** Taking the Chinese market as an example, carbonated drinks are Coca-Cola's "trump card." Once, relying on cost advantages, Coca-Cola suppressed domestic soda brands in terms of pricing. As the senior beverage industry practitioner said: "In the 3 yuan carbonated drink price band, no domestic brand dares to challenge Coca-Cola or Pepsi. For example, many domestic sodas have risen in the past two years, but their prices are generally higher than Coca-Cola's, partly because of higher costs and partly to avoid direct price competition with Coca-Cola."
But in recent years, the suppression of domestic soda brands by the "two Colas" is gradually being dismantled. The reason is that new consumer groups with stronger purchasing power, such as urban new middle class and Generation Z, are relatively insensitive to price. Domestic beverage brands like Genki Forest, by meeting the specific needs of these groups, can gain new users even with slightly higher prices.
From an industry perspective, although carbonated drinks, Coca-Cola's specialty, have a large market size, their growth rate in recent years has been slower than that of emerging beverages (sports and functional drinks) and non-carbonated drinks. (Note: Screenshot from Futu Securities research report)
With slowing growth in carbonated drinks and increasing consumer choices, Coca-Cola needs to break its own ceiling and find new growth. In 2016, Coca-Cola began its all-category beverage layout, subsequently frequently establishing new brands through acquisitions or internal innovation. According to its official website, Coca-Cola currently owns more than 200 brands, covering carbonated drinks, water, coffee, milk, and low-alcohol drinks.
Although Coca-Cola's category layout is comprehensive, taking the Chinese market as an example, we will find that in recent years, few new blockbuster beverages have come from Coca-Cola. The senior practitioner told Huxiu that this situation is what the industry often calls "big companies find it hard to create new blockbusters." He explained that large companies like Coca-Cola generally have longer decision-making processes, from paying attention to market demand to developing products, mass production, and listing, which may take months or even a year. But such blockbuster products might be created faster by small enterprises, "especially now that information spreads quickly on platforms like Xiaohongshu and Douyin, where a product can be pushed to popularity in one or two months or even a few days." In such cases, big companies can use their production and channel advantages to launch imitations, but the dividend of new products may pass in a few months, and imitations may not necessarily enjoy the dividend.
In terms of innovation and launching new products, Coca-Cola is "sparing no effort," but there are countless examples of failure. According to media reports, from 2018 to 2020, Coca-Cola cut 1,500 brands in three years. Currently, the king of carbonated drinks is still on the road to finding new blockbusters and new growth.


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