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TOKYO – In Japan, soft drink companies have put aside their long-held fear of losing market share, seeking to increase their prices as their labor and materials expenditures increase.
The largest Japanese distributor of Coca-Cola has recently announced its intention to raise its suggested retail price of 20 yen on large bottles, the company's first increase for 27 years. Suntory Beverage & Food rivals, Asahi Soft Drinks and Kirin Beverage seized the opening, announcing their own price hike of 20 yen in less than a month.
"We had to make the decision now, even at the cost of losing our market share," said President Tamio Yoshimatsu of Coca-Cola Bottlers Japan.
The distributor announced that the suggested retail prices of plastic bottles of Coca-Cola from 1.5 to 2 liters, the Aquarius sports drink and other brands would rise from the current range of 150 yen to 340 yen from April 1st. Cans and small plastic bottles are excluded, said the company, which is the largest of Japan's five coke bottling units.
The announcement was a surprise. Competition has been stronger than ever in the sector, where the Coca-Cola group holds a market share of nearly 30%. Second place, Suntory Beverage, is only at 4 percentage points, while Asahi Soft Drinks and Kirin Beverage have shares of about 10% each.
This contest allowed retailers to offer significant discounts on large plastic bottles of non-alcoholic beverages to attract buyers. The traditional view was that even the first player, Coca-Cola, was not able to raise his prices.
The only increases result from the rise in consumption taxes. Yet even after the tax rate went from 3% in 1997 to 5%, beverage manufacturers did not pbad on the higher costs to customers for a year. When the 2014 tax hike raised the rate to 8%, the companies formed an authorized cartel under a special legal provision aimed at raising prices in 10 yen vending machines. However, store-bought products had to absorb higher taxes.
Coca-Cola Bottlers Japan is in an injured position. Its main plant in Hiroshima was decommissioned due to the damage caused by the floods of heavy rains last July, and a new facility under construction will not be open until 2020. Meanwhile, the lucrative sales of distributors Automatically dropped, convenience stores extending their reach.
The labor shortage in Japan raises the wages of workers who stock goods and the distribution costs increase – two other factors weigh on the company's bottom line.
In an attempt to reduce its payroll, the bottling and sales unit announced plans to involve about 700 people in a voluntary retirement program. The parent company, Coca-Cola Bottlers Japan Holdings, reported a 61% decline in operating profit, which stood at 14.7 billion yen ($ 132 million) in 2018, while consolidated sales rose 11 percent to 927.3 billion yen.
The price hike may be easier to manage now that Coca-Cola Bottlers Japan covers both the Tokyo Metropolitan Area and Greater Osaka following the integration in 2017 of the two units that separately manage the eastern regions. and west of the country.
Before the merger, the unit in eastern Japan was fighting intense competition, while its western counterpart had a large market share. Despite being different units, they provided the same product. This made it difficult for the unit of western Japan to increase prices alone.
Suntory Beverage & Food, the non-alcoholic drinks unit of the distillation and brewing group Suntory Holdings, managed to increase sales for 2018, but saw a drop in its operating profit, penalized by higher costs at abroad and a decline in canned coffee sales in its vending machines in Japan.
The beverage companies are battling big retailers, including Aeon, a supermarket giant with more than 8 trillion yen in group sales. These retailers are gaining momentum in price negotiations while expanding their private label offerings. Prices for non-alcoholic beverage supplies will be determined by negotiation. But beverage companies "are forced to cut back on price increases a bit," an industry insider said.
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