Coca-Cola Amatil raises prices to recoup refund costs

Sue Mitchell
October 24 2017
AFR

Coca-Cola Amatil is bracing for further weakness in soft drink and bottled water sales after saying it will raise prices by almost 15¢ next week to cover the cost of the container deposit scheme.

CCA said on Tuesday it would raise prices on all beverages captured by the CDS by 13.59¢ plus GST (1.3¢) on November 1 to fully recoup the cost of the 10¢ refund and handling, administration and compliance costs.

Under the scheme, which comes into effect in NSW on December 1, consumers will receive a 10¢ refund when they return eligible drink containers to approved collection points. The refund applies to  containers between 150 millilitres and three litres and excludes plain milk, juice and wine. 

CCA’s price rise covers the bulk of beverage containers in its portfolio and will significantly increase the price of multi-packs of bottled water and soft drinks and smaller containers such as 200ml cans of Coca-Cola and Sprite.

For example, the price of a 1.25-litre bottle of Coke at Woolworths or Coles, now around $2.85, would rise only 5.2 per cent.

But the cost of a 24-can multi-pack of Coke, currently $16, would rise by $3.57 or about 22 per cent, while a six-pack of Mt Franklin bottled water could  cost 17 per cent more.

A CCA spokesman said the price rise took into account factors including the estimated cost to suppliers, which now range from 13.5¢ a container for aluminium to 14.07¢ for glass, and forecast redemption rates. Those could change once the scheme has been up and running for a while and more data is available.

Strong incentive

“We’re not looking to make any profit here, this is entirely based on the refund amount of 10¢ and the administration and handling fees,” the spokesman said.

“We have a strong incentive to keep costs as low as possible for our customers [retailers] and consumers and that’s what  we’re doing here.” 

CCA is understood to have done internal modelling on the impact of the price rises, which could accelerate a multi-year decline in volumes for carbonated soft drinks, but has not released its forecasts.

Analysts have estimated that CCA’s Australian beverage volumes could fall as much as 4 per cent and annual earnings could decline by as much as 7 per cent as CDSs are launched in NSW, Queensland and Western Australia over the next 18 months.

Bigger impact

Rivals such as Asahi’s Pepsi/Schweppes could fare worse, as price increases will have a bigger impact on cheaper brands and private label products such as housebrand bottled water.

For example, the price of a 24-bottle multi-pack of Woolworths private label spring water, now $6, would rise by $3.57 or 59 per cent.

The CDS could also dent margins if retailers refuse to pass on all of the price rises. It is understood that Coles, which is investing heavily in price reductions to catch up with Woolworths, is particularly reluctant to pass on supplier price rises.

One source said CCA’s price rise was at the upper end of those planned by other bottlers, with some as low as 10¢ per container. 

The CCA spokesman said bottlers would not absorb the cost.

“It is not our preference to increase prices, however it is important that our customers understand these additional charges arising from the CDS are a direct consequence of NSW government policy,” the spokesman said. 

Prices will rise next week, rather than on December 1, because the scheme co-ordinator, Return and Earn, will start charging suppliers from November 1 to create liquidity for initial refunds.