The Great National Temperance Drink

The Great National Temperance Drink

Coca-Cola Enterprises is the self-proclaimed largest bottler of "liquid, nonalcoholic refreshment" in the world. More than 350 million people live in Coke territory and since late last century most have been addicted to the sweetened water. Anyone who prefers sipping an ice-cold Coca-Cola Classic (or one of their companion sodas such as Diet Coke, Sprite, Mr. Pibb, Cherry Coke, Mello Yellow, etc.) should start deciding how much they are willing to pay for them in the grocery store following the New Year.

Coca-Cola Enterprises Inc., or CCE, is planning to progressively raise the price of their soft drinks by as much as 5% during the next year. This increase is being directly prompted by the imposition of a higher annual target growth for 2000 of 6% by the Coca-Cola Corporation of Atlanta, Georgia, which owns a 40% share in the bottler. This target volume growth is double that of last year's expectation and triple that of this year's growth.

While some people are blaming inflation and rising marginal costs (see Figure 1 below) for the price hike and Coca-Cola Co. is pressing fault on the negative impact of foreign currency, another factor may also be creating pressure for Coke to regain lost incoming revenues. This summer's contamination scares and product recalls in Belgium, France and Poland definitely hurt sales in Europe, as well as removed 17 million cases from the supply of products. Another costly segment of this issue was the compensation and distributing costs of 15 million liters worth of coupons for free Coca-Cola products the disgruntled residents of Belgium received. CCE estimated that the total loss was about $103 million, including a case volume decline of 6-7% in Europe.

The annual total revenues of CCE from sales as well as the costs associated with operation, delivery, and administrative expenditures, all in terms of millions of dollars. While this graph includes neither long-term debt nor shareholder payments, it does indicate a noticeable jump in marginal costs of production in the last few years. This is closely paralleled by an increase in revenues, indicative of previous price increases.

Regardless of the cause, let's look at the consequences of this price increase driven by Mama Coke... While a few consumers are die-hard Coke or Pepsi drinkers, some us easily become indifferent once faced with a grocer's aisle filled with refreshment possibilities.