Schweppes together with Coca-Cola Amatil have raised their prices between four and six percent in order to cover rising costs of production.
Schweppes has now cut back on its aggressive discount promotions, citing high input costs such as aluminium, PET and PVC plastics together with utility and distribution costs as the key drivers for the decision, The Australian Financial Review reports.
Schweppes main competitor, Coca-Cola Amatil are also reported to have increased their prices by up to six percent in anticipation that costs of production will face a 2.5 percent hike.
Citigroup analyst, Gino Rossi said that less aggressive discounting by both Coca-Cola and Schweppes will take pressure off profit margins in 2014.
CCA will be releasing its full year results within the coming week and analysts are expecting Australian beverage earnings to take a nine percent hit to $570m – a direct result of a five percent fall in volume. Group earnings are also expected to fall by 6.5 percent – a figure that is consistent with the company’s forecast.
The AFR reports that CCA was unable to raise prices last year to cover a 1.7 percent rise in costs and is also believed to have lost supermarket share due to Schweppes’ aggressive discounting campaigns.
According to Citigroup, Schweppes – which was bought by Japanese beverage giant Asahi for $1.8b in 2009 – wants to achieve a 10 percent increase in margins by 2015, a figure much higher than the 2.7 percent increase that it reported in the first half of 2013.
“Schweppes’ pricing in the second half of 2013 has been stronger, perhaps reflecting an attempt to meet this guidance,” Rossi told AFR.
“In order to achieve its targets, we expect Schweppes will have to deliver reasonable pricing growth.”