Coke system's plan to move retail prices still higher next year -- with lower volume growth and steeper concentrate price increases -- seen by industry executives and analysts as "major shift." Overall approach said to reflect Coke system's desire to build brand value and category profitability. Coca-Cola Co plans to "position Coke brands as premium soft drinks commanding premium prices," says Morgan Stanley's Andrew Conway. CCE executives outline details and rationale in investor conference call Nov. 15. Analysts say CEO Henry Schimberg and COO John Alm predict 3-4% volume growth next year for North America plus higher retail pricing. CCE executives say overall prices will rise +5% with part of lift coming from cold-drink volume growth. Analysts also say CCE executives allude to "lower market support" from Coca-Cola Co and lower than anticipated capital expenditures due to slower volume growth. CCE executives say Coca-Cola Co will intensify marketing to reinforce brands' premium image, according to analysts.

Concentrate prices. Coke bottlers say overall concentrate prices in 2000 for master bottlers -- such as CCE, Swire and Coke Consolidated -- will be up about +7% vs Jan. 1999 prices, with actual increase dependent on brand mix. Several executives say +7.75%. Concentrate price increases to smaller bottlers still unclear, but likely up about +3% for most, with some in +7% range; Coke has different contracts with different bottlers.

Details. CCE's conference call follows Nov. 3 comments by Alm at Morgan Stanley NYC conference. Alm talked of higher retail pricing and said concentrate pricing will increase next year "at mid single-digit rate" (BD 11/5/99). Morgan Stanley's Conway describes overall approach as "new paradigm for the Coke system." Cautions: "It is unclear whether increased marketing can help consumers overcome their demonstrated reluctance to pay higher prices." Veteran beverage analyst Jack Maxwell says: "In my opinion, this is a sea-change for Coke. Over the past, it was more concerned with volume than price." Other analyst questions whether driving price at lower volume growth levels "could threaten long-term health of industry."

Coca-Cola Co. Comments from CCE echo words of Coca-Cola Co chief marketing officer Charlie Frenette who asserted in recent BD interview (BD 10/22/99): "We're going to move even further away from being price-driven to being value-driven, so consumers will pay more and feel good about our brands." 'Had to stop.' Senior Coke system executive says, "there will still be promotions," but every day low pricing was diluting promotions and "threatened to turn our premium (CSD brands) into a commodity. That had to stop."

Dissenting views. Some Coke bottlers are skeptical of new approach: 1) "What are they doing to the bottlers? We're scratching our heads?" 2) "There's going to be some fireworks over this." 3) "Maybe they think this will force bottlers to sell. I'm angry." 4) "If I were Pepsi, I'd take advantage of it." 5) "I'm concerned about how all this talk about prices will resonate with the consumer." 6) "I'm not outraged yet, but I'm headed there." 7) "This is very unexpected. It will make us look carefully at how we do business."

Pepsi? In conference call, Schimberg says he expects Pepsi system faces parallel issues and thinks their strategy will be similar, according to analysts. Top-10 Pepsi bottler observes: "I believe Pepsi will follow suit, but I'm not sure." After news circulates about Alm's Nov. 3 comments, other Pepsi bottler exclaims, "I've never heard anything like that." Days later, same Pepsi bottler says, "we've heard Pepsi may now be rethinking its concentrate pricing for next year."

Packaging. Making matters even more complex are next year's packaging costs. Merrill Lynch says if raw aluminum prices "were to stay at current levels," beverage companies would see aluminum costs rise next year 15-20%. Adds +20% increase in aluminum costs "would require a 1-2% increase in average pricing just to offset rise in aluminum costs." Notes prices for PET resin, linerboard and glass bottles "are also rising." Merrill says packaging represents 45-47% of cost of goods sold at big bottlers.

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