Coca Cola does not engage in price wars.
On the evening of July 23rd, the company released its Q2 2024 financial report. According to the financial report, Coca Cola's revenue for the current period was $12.363 billion, a year-on-year increase of 3%; The operating profit was 2.632 billion US dollars, a year-on-year increase of 10%.
Overall, Coca Cola's revenue growth is driven by multiple markets. Among them, in the second quarter, the revenue of EMEA (Europe, Middle East, Africa) region was 2.339 billion US dollars, a year-on-year increase of 7%; Latin American market revenue was 1.65 billion US dollars, a year-on-year increase of 20%; Revenue in the North American market was $4.812 billion, a year-on-year increase of 10%.
But the Asia Pacific market has become a revenue drag. In the current period, Coca Cola's revenue in the Asia Pacific market was 1.512 billion US dollars, a year-on-year decrease of 4%. In terms of sales, Coca Cola has achieved double-digit growth in India, and sales in Southeast Asia, Japan, and South Korea are also in the growth range. However, sales in the Chinese market are declining.
Behind it all, this company does not want to get involved in a fierce price war.
Pull out the price war
Currently, Coca Cola is withdrawing from the packaged water market.
We have lowered the priority of packaging water, which is not profitable in China. The overall sales growth in China is negative, which is entirely due to the lowered priority of water, "said James Quincey, Chairman and CEO of Coca Cola Company, during the earnings call.
The background of this viewpoint is that the packaging water market is currently engaged in a brutal price war.
In early May, Nongfu Spring launched a new product of purified water with green packaging. In June, Nongfu Spring related products began to experience a comprehensive price reduction, sparking a price war.
Specifically, during this year's 618 shopping festival, the official flagship store of Nongfu Spring even lowered the price of 12 bottles of green bottle purified water to 9.9 yuan per serving, averaging 0.82 yuan per bottle, which is lower than the retail price of bottled water from brands such as Yibao and Wahaha, which are also in the 2 yuan price range. Meanwhile, Nongfu Spring has also launched promotional activities on various platforms. In the live broadcast room of delivering water from Nongfu Spring to the home, the price of 24 bottles of 550ml green Nongfu Spring purified water is 20.9 yuan, and free delivery, with an average cost of 0.87 yuan per bottle.
According to a report by "Chinese Entrepreneur", Nongfu Spring is crazily throwing money at terminal supermarkets. A dealer revealed that the promotion for Nongfu Spring in June is that as long as you use one freezer to freeze Nongfu Spring water, you can get one box of bottled water for free. This brand also targets construction sites and encourages shop owners to open small supermarkets near them. The construction site has a high flow of people, and water consumption far exceeds beverages. Nongfu Spring will offer more favorable policies.
In addition, Wahaha has accelerated the layout of offline channels in first and second tier cities in recent months. Wahaha purified water can also be seen in many supermarkets, small shops, and catering channels in first and second tier cities in China. In early March, Jinmailang Blue Label Water was quietly launched on terminals such as Wumart Supermarket and Meituan's Xiaoxiang Supermarket. The retail price of 550ml blue label water is 0.6 yuan per bottle, and 5L bottled water is 5 yuan, both lower than brands such as Nongfu Spring, Yibao, and Wahaha.
All kinds of competition objectively push up the market. According to Nielsen data, from July 2023 to June 2024, the packaged water market reached nearly 53.716 billion yuan, a year-on-year increase of 2.7%.
But under the price war, profits may not look good.
Difficult Soda Battle
At present, Coca Cola's focus is on high gross profit margin categories such as carbonated drinks, fruit juice drinks, and tea drinks.
For example, in June, Coca Cola's beverage brands Coca Cola, Sprite, and Fanta launched a 248ml compact pocket size. For the second consecutive year, Coca Cola products have launched the "Smooth Sound Studio" creative marketing campaign, and Sprite has invited Jay Chou and Zhang Yixing to endorse them.
Zhan Kunjie emphasized that in the second quarter, Coca Cola's sales of carbonated beverages in the Chinese market achieved a slight increase.
But the entire carbonated beverage market is shrinking. Nielsen data shows that from July 2023 to June 2024, the carbonated beverage market reached nearly 55.902 billion yuan, a year-on-year decline of 6.7%. In 2022 and 2023, this market will experience year-on-year declines of 2.7% and 7.0%, respectively.
This situation is consistent with the research conducted by 21st Century Business Herald reporters. A distributor of alcoholic beverages in Shenyang has reported that the revenue of cola has decreased by nearly 20%.
In such a situation, Coca Cola is even raising its prices. In May, according to multiple media reports, Coca Cola products in Hebei, Henan, Shandong and other regions began to increase in price. Among them, 888ml Coca Cola, Sprite, and Fanta were adjusted to 5 yuan, and 2-liter PET bottle products were adjusted to 7 yuan. 21st Century Business Herald reporters have also confirmed from multiple dealers that there is indeed a price adjustment in this round, and many dealers have expressed sales pressure.
Under the existing market, Coca Cola's price increase strategy will undoubtedly increase the pressure on sales growth.
It should be noted that the entire beverage market is shrouded in a price war atmosphere. For example, a Tianjin distributor revealed that the price of popular electrolyte water is close to the profit red line. In the Tiktok live broadcast room, the unit price of 600ml pulsating electrolyte water is as low as 3.83 yuan, and the unit price of 555ml replenishing electrolyte water is 2.9 yuan.
In addition, Coca Cola, which does not engage in price wars, is also working with partners to expand its production scale.
Among them, Guangdong Taikoo Coca Cola officially launched the construction of a production base in the Greater Bay Area in Guangzhou in May. The total investment of this project is 1.25 billion yuan, covering an area of nearly 128000 square meters. It plans to build 11 new beverage production lines, a three-dimensional warehouse, and supporting facilities. After completion, it will increase production capacity by about 66% compared to the current level.
The relocation and new construction project of COFCO Coca Cola Shaanxi Company, which started in January this year, is also under construction. The planned area for the Shaanxi New Factory project is 170 acres, with a construction area of approximately 79000 square meters and a total investment of 1 billion yuan. The new factory is planned to have 8 beverage production lines and 1 syrup production line, with a maximum designed production capacity of approximately 1.1 million tons. It is expected to be put into operation in September 2025.
In a near stock market environment, as production scale expands, the contradiction between profit and revenue for Coca Cola will become increasingly fierce.