Soft Drink Prices Rise, Following Other Food and Beverage Hikes

by: Zvi Bar

The Coca-Cola Company (NYSE:KO) announced plans to increase its soft drink prices by 3% to 4% at the end of July. This is the second price increase for Coke within 2011, following a 2% increase earlier this year. The company indicated that the price increase, which will be implemented on July 31, is due to higher-than-anticipated commodity costs.

Analysts have anticipated coming beverage price increases, and several believed that some of the smaller soft-drink manufacturers, such as the Dr. Pepper Snapple Group (NYSE:DPS-OLD) were merely waiting out such price increases by the leading manufacturers. Earlier this month, Pepsico, Inc. (NYSE:PEP) stated that it would raise costs to retailers between 3%-5%, with the increases coming between July and September of this year. Now that Coke announced a similar price increase, it is expected that others will follow suit.

These cola price increases largely follow other recent and continuing food and beverage increases, most due to increasing commodity costs. J.M. Smucker (NYSE:SJM) is the maker of Folgers, Millsrone, and Café Bustelo, among other coffee brands, and holder of the license to sell Dunkin’ Donuts' packaged coffee for sale in grocery stores. The company recently annouced an 11% price increase on coffee. Smucker also raised coffee prices 10% in February and twice in 2010 for a total price increase of over 30%. Kraft Foods Inc. (KFT), maker of Maxwell House, raised its price a comparable level over the past two years.

Similarly, Hershey’s (NYSE:HSY) announced a 9.7% price increase in March on instant consumable, multi-pack, packaged candy and grocery lines to offset part of its significantly increased input costs. Hershey's noted that the increases were due to both higher material costs for candy, such as sugar and cocoa, and transportation costs due to gasoline prices. Additionally, McDonald’s (NYSE:MCD) announced increases to U.S. menu prices by 1% to help offset higher commodity costs, and the company stated it anticipates food expenses to increase more this year.

The consensus here appears to be that these stronger brands are continuing to increase prices because their costs of production and distribution have increased. It also appears that continued price adjustments may be forthcoming and that all brands will soon be forced to revise their prices accordingly higher. These price increases are likely to continue across the the food spectrum, including within generic, gourmet and restaurant prices.

Disclosure: I am long KFT.