COVID-19, war cause price hike for another consumer favourite

The impact of COVID-19 and the Russia-Ukraine war seems to be unending for the logistics industry. As a result, the inflationary pressure on many goods is still increasing. In a recent development, Parinya Kitjatanapan, APAC Chief Commercial Officer & Asia Bev/GMD BU GM, PepsiCo said that he could not help but increase the price of beverages in sight of the supply chain and logistical disruptions. Consequently, the price of a cold bottle of Pepsi may just increase a little more in Southeast Asia and other parts of the continent. Apart from logistics costs, the cost of raw material and packaging has also increased.

“I think with the commodity price going up, we will have to price [that in]. … There’s no question about it. We will try to minimise the impact on consumers, but I would not say we won’t be taking [a price hike]. We will watch it.”

Parinya Kitjatanapan, APAC Chief Commercial Officer & Asia Bev/GMD BU GM, PepsiCo

For PepsiCo beverages, this isn’t the first price hike in the recent months – many other food producers in the East-Asian region and elsewhere have been following the practice to cope up with the higher input costs. It can be safely presumed that the entire FMCG industry is showing an upward trend in terms of costs at both the seller as well as consumer ends.

That comes after Russia’s invasion of Ukraine roiled supplies of key agricultural commodities and disrupted broader global logistics chains that had already been hit hard by fallout from the coronavirus pandemic. The United Nations’ benchmark food price index surged 115% from March 2020, around the beginning of the pandemic, to this November.

Experts have remarked that the food and beverage industry is known for its ‘tight’ margins and due to the inflation caused by crippled supply chains after 2 major global events, PepsiCo’s price rise is ‘inevitable’. They also say that even though small price hikes are not going to impact the consumer’s will to purchase such products, a change in preference and taste might do.

PepsiCo’s sales volumes for beverages rose 9% in the Asia-Pacific region while edging up just 1% in its key North American market and even shrinking in Europe during the 3rd quarter of the year. It should be noted that due to the climatic condition of the APAC region, it is the largest market and a growth engine for PepsiCo. It is rolling out more of its global brands in Asia. For instance, it has started selling Rockstar, an energy drink it bought in 2020 for USD 3.85 billion, in Vietnam and Thailand.

Kitjatanapan said structural initiatives rolled out over the last few years have dampened the impact of inflation and logistics disruptions. Those include boosting local sourcing of ingredients such as sugar and using lighter plastic bottles. He said increased automation in plants has helped the company achieve more with less manpower.

Data firm Statista estimates the size of Asia’s soft beverage market will reach USD 257 billion in 2027 from USD 186 billion in 2022, mainly driven by non-carbonated brands, along with energy and sports drinks.

Asian consumers are also willing to “dedicate more of their increasing disposable income to beverages that will support a healthy lifestyle,” the report noted, adding that while PepsiCo and Coca-Cola are clear market leaders, local brands are gradually gaining momentum. But Kitjatanapan said competition keeps PepsiCo sharp. “Competition is intensifying every year. It helps us be aware that we need to be a lot more nimble and bring the product much faster to the market.”

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