Beverage Sales and Margins: The Role of Pricing Strategies

Current Pricing Strategies Overview

PepsiCo is expanding margins internationally by leveraging fixed costs and maintaining affordability, while also introducing new entry price points and promotional mechanics. Monster Beverage is exploring pricing opportunities but is not increasing prices on certain brands to boost consumer trial. Coca-Cola's North American price mix shows that only half is due to actual pricing.

"We look at that very carefully. Now why are our margins expanding internationally because as we gain scale and obviously, that our fixed cost leverage is much better, and that's how we're getting to more profitable businesses in international markets, especially the large markets, whilst we keep affordability at the center of our strategy because that's long-term, including other things that we do, obviously, with availability and with innovation." --- (PEP, earning call, 2024/Q1)

"And in principle, we have really worked hard at really coming to decision that a pricing opportunity is out there." --- (MNST, earning call, 2024/Q1)

"Remember that our North American business, a typically compared to the other parts of the world, we consolidate a set of vertically integrated businesses and a set of franchise kind of concentrate businesses, such that the growth of a channel or a category can produce a mix effect independent of pricing in the marketplace. As you look at the 11 points of price mix in the second quarter in North America, it's important to understand that, only half of that is actually price." --- (KO, earning call, 2024/Q2)

"Some parts of the portfolio need to be -- for particular consumers we need some new entry price points and probably some new promotional kind of mechanics that don't spec for the consumer to invest so much cash in a purchase of salty, so there's adjustments that we have to make to -- for certain consumers some parts of the portfolio." --- (PEP, earning call, 2024/Q2)

"We are not currently planning to take price on Bang, Rain and Rainstorm as we continue to push consumer trial and awareness for those brands. Our last price increase and this is a note on 16 ounce, our leading package was in September 2022 and was approximately you'll recall about 6.5%." --- (MNST, event transcript, 2024/06/13)

Impact of Inflation and Raw Material Costs

Inflation and raw material costs have significantly impacted beverage companies, with increased costs in packaging, materials, and manufacturing. While some regions, like Central and Eastern Europe, saw easing inflation pressures, others, such as Argentina, experienced high inflation affecting price mix. Overall, inflation has led to higher operating costs and affected sales volumes.

"Cost of goods sold per hectoliter improved 1.9% for the three months ended March 31, 2024 compared to prior year, including unfavorable foreign currency impacts of 0.6%, primarily due to the favorable changes in our unrealized mark-to-market derivative positions of $52.6 million, the benefits of cost savings and volume leverage, partially offset by cost inflation related to materials and manufacturing expenses and unfavorable mix driven by lower contract brewing volumes in the Americas segment." --- (TAP, sec filing, 2024/Q1)

"These impacts were partially offset by certain operating cost increases, a 17-percentage-point impact of higher commodity costs, primarily packaging materials, juices and potatoes, largely driven by transaction-related foreign exchange, a 13-percentage-point impact of unfavorable foreign exchange translation, primarily due to weakening of the Russian ruble, and higher advertising and marketing expenses." --- (PEP, sec filing, 2024/Q1)

"Inflation Inflation had an impact on our results of operations for the three-months ended March 31, 2024 primarily due to inflation related local currency price increases in certain international markets. Forward-Looking Statements" --- (MNST, sec filing, 2024/Q1)

"Please do take in mind that the price mix is heavily affected by the Argentinian high inflation and two-thirds of the price mix is actually, due to Argentina.So that leaves you about roughly 6% for normal inverted e-commerce pricing for the rest of the countries." --- (KO, earning call, 2024/Q2)

"Financial volumes slightly decreased 0.2% for the three months ended March 31, 2024, compared to prior year primarily due to lower volumes in Western Europe impacted by challenges in the U.K. off-premise, partially offset by increased volumes in Central and Eastern Europe as inflation pressures ease for this market." --- (TAP, sec filing, 2024/Q1)

Competitive Pricing and Market Dynamics

Price/mix growth and effective net pricing strategies have driven favorable sales and profit outcomes across major beverage companies, including Coca-Cola, Monster Beverage, Molson Coors, and PepsiCo, highlighting the critical role of competitive pricing in navigating market dynamics.

"Price/mix grew 6%, driven by pricing actions across most markets as well as favorable mix." --- (KO, press release, 2024/04/30)

"And we don't expect the promotional environment on our core energy brands to impact the price increase." --- (MNST, event transcript, 2024/06/13)

"Price and sales mix favorably impacted net sales for the three months ended March 31, 2024 by 4.4% primarily due to increased net pricing as well as favorable sales mix as a result of lower contract brewing volume in the the Americas segment." --- (TAP, sec filing, 2024/Q1)

"Additionally, Peru experienced low-single-digit growth. Operating profit increased 33%, primarily reflecting the effective net pricing, productivity savings, an 11-percentage-point impact of favorable foreign exchange translation and a 4-percentage-point favorable impact of lower commodity costs, largely driven by transaction-related foreign exchange." --- (PEP, sec filing, 2024/Q1)

"The increase in gross profit as a percentage of net sales for the three-months ended March 31, 2024 was primarily the result of decreased freight-in costs, the Pricing Actions and lower input costs, partially offset by geographical sales mix. Operating Expenses" --- (MNST, sec filing, 2024/Q1)

Consumer Behavior and Pricing Impact

Shifts in consumer behavior, particularly within premium segments and lower-income groups, significantly impact pricing strategies. Premium beer sales rose due to inventory adjustments, while lower-income consumers increasingly seek value, reducing away-from-home consumption. Understanding these diverse behaviors is crucial for tailoring effective pricing strategies.

"The increase in U.S. volume was impacted by the continued shifts in consumer purchasing behavior largely within the premium beer segment and the building of distributor inventory levels to support the peak summer selling season and to mitigate the impact of the Fort Worth brewery strike that commenced in mid-February 2024." --- (TAP, sec filing, 2024/Q1)

"Like the consumer is it means a lot. So underneath the consumer, there are different segments with different behaviors driven by different dynamics." --- (KO, conference, 2024/06/06)

"And if I could just sneak in from the at-home versus away-from-home consumption globally, as you see some of the weaker trends from the lower income consumer, are you seeing any acceleration in that shift, which might be helping your business on a global basis as well?" --- (PEP, earning call, 2024/Q1)

"I don't have any data that would suggest that consumers' consumption and purchasing behavior has changed more meaningfully than that brand. We're not seeing that. Thanks." --- (TAP, earning call, 2024/Q1)

"The sporting has helped, but there's been some pressure on the away from home, as I said in the West, and so the immediate consumption packs have been growing slower there. But the strong programs, but not yet enough to offset the weather in some of the countries, and the same general effect as the U.S. in terms of the lower income consumers seeking a value, and doing less away from home trips." --- (KO, earning call, 2024/Q2)

Premium vs. Budget Segment Strategies

Molson Coors Beverage Company is focusing on expanding its above premium portfolio, which has grown from 23% to 27%, and is leveraging various strategies to strengthen this segment. Meanwhile, Monster Beverage Corporation employs price promotions in its Alcohol Brands segment, indicating a different approach in pricing strategies across premium and budget segments.

"So it gives us a really good foundation. Our above premium portfolio has gone from 23% to 27% and we've got lots of arrows in our bow, which some of which we've talked about, some of which we haven't, right, to drive that above premium share of our portfolio much stronger." --- (TAP, conference, 2024/06/05)

"Promotional and other allowances for our Alcohol Brands segment primarily include price promotions where permitted." --- (MNST, sec filing, 2024/Q1)

"And then there's obviously the big structural shift in the premium light space moving from our biggest competitor to ourselves." --- (TAP, earning call, 2024/Q1)

Future Outlook and Strategy Evolution

Coca-Cola and PepsiCo are confident in their strategies to drive balanced growth and meet guidance, while Molson Coors takes a cautious approach due to market softening. PepsiCo's Greenhouse Accelerator Program further supports innovation, aligning with evolving consumer tastes and future industry trends.

"We remain focused on the execution of our all-weather strategy. Thanks to the partnership of our system and the ongoing dedication of our people, we're confident we can create value for our stakeholders and deliver on our guidance for the year." --- (KO, earning call, 2024/Q1)

"And then just a follow-up to an earlier question on CELSIUS. Maybe if you can give us an idea of how your energy drink strategy overall is evolving and what's going on with Rockstar, Starbucks, Mountain Dew in terms of the overall energy drink strategy?" --- (PEP, earning call, 2024/Q1)

"Now let's discuss our outlook. We are reiterating our 2024 guidance given that we are early in the year and in particular, our portion around the US and Canada beer industries, which we have shown -- which have shown accelerated softening in early April, we believe that this is a prudent approach to take." --- (TAP, earning call, 2024/Q1)

"And we're confident that we can drive that to get the balanced algorithm of growth, through the rest of this year, for our guidance and into the future." --- (KO, earning call, 2024/Q2)

""With access to quality mentorship, resources and a platform designed for growth, this program not only supports the expansion of these innovative ventures but also brings forth products that meet consumers' evolving tastes for unique and dynamic offerings, driving forward both their success and industry innovation as a whole."" --- (PEP, press release, 2024/07/09)

Pricing Strategies' Effect on Sales and Margins

Pricing strategies, such as Monster Beverage's efforts to improve gross margins and Coca-Cola's "2 together strategy," have demonstrated positive impacts on sales and margins, with Coca-Cola specifically noting a sales uplift where the strategy was implemented.

"Well, we did better than that and it's something we've been working on and we'll continue to work on in trying to improve gross margins." --- (MNST, earning call, 2024/Q1)

"We're pursuing the 2 together strategy. And where we've implemented that, we've demonstrated we get a sales uplift." --- (KO, conference, 2024/06/20)

Technological Innovations in Pricing

Technological innovations are significantly influencing pricing strategies in the beverage industry. Coca-Cola's pricing is notably driven by innovation, while PepsiCo emphasizes delivering value through digital and physical channels, adapting their commercial plans to meet consumer needs effectively.

"So James, on the price mix in North America, you mentioned about half of the 11.3 in my mix and the other pretty much pricing, but still quite driven by innovation." --- (KO, earning call, 2024/Q2)

"That's a consumer that we're emphasizing in our commercial programs. I think we're learning how best to keep that consumer in our categories and the frequency that we want that consumer, and we are pivoting our commercial plans, our innovation, giving that consumer the right innovation, the right value in different parts of the month through different channels, digital and physical." --- (PEP, earning call, 2024/Q1)

"Your line is open. Andrea Teixeira: Thank you, good morning. So James, on the price mix in North America, you mentioned about half of the 11.3 in my mix and the other pretty much pricing, but still quite driven by innovation." --- (KO, earning call, 2024/Q2)