just On Call - Coca-Cola FEMSA warns of price jump on tax "adjustment"
Coca-Cola FEMSA released its Q1 results yesterday
A tax change on soft drinks in Brazil will force Coca-Cola FEMSA to raise prices in the country by up to 2%, according to the group's CFO.
Details on the change are limited, but in a call with analysts yesterday (30 April) after Q1 results, Héctor Treviño Gutiérrez described it as an “adjustment” that “normally happens every one or two years”. Gutiérrez said the increase will be passed on to consumers.
“Our idea is only to increase the prices,” he said. “We think that the competitors will do the same.”
Yesterday, shares in Brazil's AmBev dropped by 5% after news emerged of the tax change, which Bloomberg reported will cover beer and soda when it comes into effect on 1 June, earlier than Gutiérrez expected.
“Our expectation was that this reference price was going to be changed in July or August, so it's a little bit behind our quarter,” the CFO said. “The preliminary back-of-the-envelope analysis for this is that we will have to increase prices between 1% or 2% in Brazil.”
Gutiérrez was speaking after Coca-Cola FEMSA saw sales rise but profits fall in the Mexico-based bottler's first quarter. Performance was hampered by a 4% drop in domestic volumes. However Gutiérrez said the effect of a new sugar tax in the country was not as bad as feared. Consumers appeared to be favouring soft drinks over other commodities, also affected by tax increases, he said.
“We feel that the consumer is changing his consumer habit and prioritising soft drinks,” Gutiérrez said. “They are not spending as much on things like toilet paper and other consumer staples. We see also that snacks are suffering a little more than soft drinks.”
Mexico introduced a tax of MXN1 (US$0.08) per litre of “sugar-sweetened” beverage in January.
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