Coke's Price Increase Might Be Hard to Swallow

Rising prices are all around us. We have gotten so numb to the idea that when a company announces that it has decided to pass along rising costs to their customers we merely shrug and accept it. Or, do we? Many products that have increased in price (namely gasoline and food products) are essential items. While we can curtail our consumption, the need for the product remains.

In the case of a non-essential product like soft drinks (although I have a long running affair with Diet Coke so it seems more essential to me than it really is), a price increase could be the trigger to lead consumers to seek alternatives. The largest bottler of Coca-Cola in the U.S., Coca-Cola Enterprises, has indicated it intends to raise prices after Labor Day. Rather than paying a higher price for Coca-Cola products, consumers may opt to drink similar products at lower prices. Private label brands could become a more attractive option for consumers feeling the pinch of rising prices. Even worse, consumers might cut back or quit drinking carbonated beverages altogether.

I don't fault Coca-Cola for seeking to cover its costs, but Coke is accepting a risk that its sales will take a hit. A situation like this is precisely why companies need to avoid a reliance on selling price-sensitive products. If Coca-Cola can deliver innovative, unique products it would have a chance to realize higher profit margins that the commoditized standard cola product cannot deliver.

Link: New York Times - "Largest Bottler of Coke Plans to Increase Prices"