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Pricing an Issue Between Coke and Bottler

ATLANTA -- Prices on some Coca-Cola products are going up, adding a few more cents for consumers while also hinting at ongoing tensions in the Coke system, reported the Atlanta Journal-Constitution.

The two big players in the Coke world -- Coca-Cola and its largest bottler, Coca-Cola Enterprises -- are in the midst of figuring out how to resolve some key issues related to pricing. While CCE has been raising prices for months, top leaders at Coke have talked of a need for a balance between price increases and getting enough growth in sales volume.

But analyst Bill Pecoriello of Morgan Stanley reported Friday that CCE is raising prices on 20-ounce bottles sold in U.S. convenience stores by 8 percent to 15 percent, despite Coke's recent comments.

"We believe tensions are high between Coke and CCE," Pecoriello said. "The key issue of contention between the two parties is ultimately control over the business, how to split the profit pie, and what returns the bottler should earn at a time when demand for Coke's products has been weakening."

CCE spokeswoman Laura Asman confirmed that the bottler has steadily raised prices on 20-ounce bottles this year, with an average percentage boost in the mid-single digits across all U.S. selling channels.

Pecoriello's report, however, highlighted new increases just for convenience stores, not vending machines and other places 20-ounce bottles are sold.

Overall, U.S. consumers should expect bottles of Coke products in convenience stores to go from $1.09 to $1.19 or even $1.25.

The latest increases, Pecoriello said, are partly driven by CCE's higher costs for raw materials. "CCE has to find a way to take pricing somewhere," Pecoriello said. One downside is that rivals are unlikely to follow right away, and that could hurt Coke's sales.

Coca-Cola's new chairman and CEO, E. Neville Isdell, has noted a need to work out some problems with revenue management, while Don Knauss, president of Coca-Cola North America, has reemphasized the importance of growth in sales volume.

Yet Isdell, in a recent interview, also said "natural tension" is good between Coke and its bottlers. "I would be just as concerned if we had perfect harmony," he said, given the differing goals of the two sides.
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