Dhe brand of Coca-Cola stands like no other for the triumph of global brands – and that cannot be stopped by the current wave of inflation. “Our system has never been stronger,” Coca-Cola CEO James Quincey triumphed in an interview with analysts.
Although the business system of his group was meant, Quincey’s statement also seems to apply to the “brand economy” system as a whole. However, there is one region of concern: Europe. In Germany in particular, conflicts with retailers are a burden for manufacturers. And the industry is also at odds with the federal government.
The different development on the global level and in Germany is striking – also with the red soda giant. While Coke and Edeka are arguing about price increases in German courts, Coca-Cola is doing well worldwide despite the price and cost increases.
The group has raised its outlook for the current year. Sales are now expected to increase by 14 to 15 percent, and currency-adjusted earnings per share by even one percentage point.
In the third quarter of 2022, Coca-Cola had sales of $11.1 billion – an increase of ten percent. At 29.5 percent, the operating margin was only half a percentage point below the previous year’s figure, and the share rose.
A few days ago, the Pampers group had already Procter & Gamble (P&G) reported stable earnings. This shows that the American consumer giants are coping well with inflation. However, this requires effort.
Coca-Cola can raise prices
Coca-Cola, for example, is increasingly offering smaller bottles in order to reach frugal customers. P&G highlights innovations like more absorbent kitchen roll. In addition, the group advertises in Germany, among other places, that its detergents and dishwashing detergents can be washed at low temperatures – and thus save money.
Coca-Cola boss Quincey does not expect quick relief: Inflation will remain high in 2023 – at least in the first half of the year, the manager predicted. The recent fall in costs gave him hope raw materials. “Our sales growth encourages us for 2023,” he said. The increase in sales shows that Coca-Cola can raise prices without scaring off too many customers.
However, this ability could soon reach its limits. While P&G continued to report stable organic growth, annual sales could fall slightly for the first time in five years due to exchange rate losses. The weakness of the euro is also contributing to this.
In the current fiscal year 2022/23, P&G CFO André Schulten expects sales to drop by 1.3 billion dollars due to these currency effects. Cost increases for raw materials, preliminary products and logistics burdened the group with a further 2.6 billion dollars.
Problems with European trade
So far, P&G has managed to largely absorb these cost increases through price increases. However, the quarterly profit has already fallen by four percent. It’s also harder Nestlé. The Swiss group has a particularly strong European business. In the USA he was able to raise his prices by 11.1 percent, but only by 7.5 percent worldwide.
Because in Europe things are not going as smoothly for the industry – not only because of the weakness of the euro. The supermarket chains in Europe and especially in Germany haggle particularly hard on prices. While the major dealers in the USA usually pass on the manufacturer’s price specifications to the customers, the European dealers traditionally insist on low purchase prices.
This is due to the stronger price war between supermarkets and discounters in Europe. In addition, despite similar inflation rates, the situation in Germany is more uncertain for consumers than in the USA. Concerns about a lack of gas in winter and sharply rising energy bills have not yet been resolved.
Nestlé Germany boss Marc Boersch therefore announced: “We turn every euro three times, in the plants, in logistics and administration as well as in advertising expenditure.” He raises prices in Germany only reluctantly.
At Coca-Cola, too, the friction with European trade means that the group is less able to retain its customers here than on other continents. Especially when it comes to water and juice, customers in the Old Continent are increasingly switching to retailers’ own brands, Quincey said. In addition, European discounters – such as Aldi and Lidl – benefited more from inflation than cheap shops in America.
food industry quarrels with Özdemir
The food industry also feels that it is being patronized by German politics. Therefore, the association of the German food industry has opened a new line of conflict. The Berliners lobbyists are withdrawing from a collaboration with the Ministry of Agriculture to develop a new nutrition strategy.
“We will refrain from cooperation with an alibi character,” said the association’s managing director, Christoph Minhoff, against the house of Minister Cem Özdemir (Greens). The representatives of the joint association of agriculture, industry, trade and gastronomy resent the fact that when the invitation to develop the strategy was issued, the results were already determined in advance. For example, working groups should come up with ideas on how future nutrition could be “plant-based”, according to the association.
“Certain sectors of the economy were not even invited because their food is apparently not supposed to play any role,” said a spokeswoman for the WELT association. In addition, the currently pressing issues would be left out: “You can see the war and crisis situation and the associated shortage of raw materials, gas bottlenecks and high food prices not excluded from such a debate.”
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