Coca-Cola And Pepsi Raise Prices
Coca-Cola and PepsiCo's franchisees in Bahrain have raised prices by 50% on the back of strengthening raw material costs after, in the latter's case, holding prices steady for about 30 years. According to Gulf Daily News, the cost of a can of soda has increased from BHD0.1 to BHD0.15. BMI notes that the price hike follows a similar move in Saudi Arabia in December 2009. However, in that instance the price increase was not simultaneous.
Rising costs of key inputs like sugar and flavouring as well as higher labour expenses are thought to have driven the price spike. Bearing in mind the significant disposable income gains made by Bahrain over the past decade in particular and the fact that carbonate prices have held steady for so long, the net effect on volumes shifted is unlikely to be significant. Both are established brands and likely to benefit from the firmed up margins provided by more solid pricing.
While a 50% spike in prices may be considered steep, the price of a can of Pepsi, which has a longer operating presence in the kingdom, has not wavered for about three decades. Across many of their emerging markets, the prices of Coca-Cola and PepsiCo products have historically not increased in line with inflationary trends, which has allowed Coca-Cola in particular to build significant brand equity in some of the world's poorest countries.
In keeping with its dominant position across the Gulf Co-operation Council (GCC) region, PepsiCo, bottled by Ahmadi Industries, leads the carbonates market in Bahrain. However, competition continues to stiffen with Coca-Cola counting on Bahrain as one of its core GCC markets. However, PepsiCo's position in the Gulf region is not as dominant as it once was. Almost starting from scratch, Coca-Cola has resurfaced and revamped its image across much of the region over the past two decades largely through its benchmark distributional and branding practises.
Firmer pricing makes sense in Bahrain in view of our attractive headline industry forecast. To 2014, BMI expects soft drinks value sales in the kingdom to increase by a considerable 75.9% to BHD58.9mn (US$156.65mn). While the carbonates segment will remain an industry mainstay, higher value segments such as bottled water and functional drinks will figure increasingly prominently. Energy drink brands such as PepsiCo's Pepsi X should continue to attract investment as producers play catch up to GCC market leader Red Bull.