By stocking its shelves with extra-cheap soda this Memorial Day, Wal-Mart is putting pressure on its competitors and giving the shrinking soft drink category a shot in the arm. But the prices, in some cases hitting levels not seen in five years or so, are also raising concerns that many shoppers might revert to the habit of buying Coca-Cola, Pepsi and Dr Pepper only when they are deeply discounted.
Accelerating a tactic that stretches back at least to April, Wal-Mart has dropped prices on 24-packs of soda to $5 and in some cases to $3.88 in the lead-up to the important Memorial Day long weekend, according to Connecticut-based Consumer Edge Research. Big competitors such as Target, Kroger and Safeway followed suit by cutting prices on 12-packs, although in some cases not as dramatically as Wal-Mart.
The biggest reductions have been in canned soda, where Coca-Cola and Pepsi products are selling for about 20 percent less than last year, according to Consumer Edge Research. On average, prices for brand-name soft drinks have been slashed 10-15 percent.
Wal-Mart late last year found itself falling behind grocery stores, drugstores and other mass merchandisers in carbonated soft drink sales, according to data from J.P. Morgan. The world's biggest retailer reversed that trend early this year, even before unveiling out its latest price cuts. The latest tactic seems designed to widen what Wal-Mart calls the "price gap" between itself and competitors, attracting traffic to its stores and grabbing market share in the soft drinks category.
The drinks industry is buzzing with reports of can suppliers and bottlers scrambling to meet demand as 24-packs fly off Wal-Mart shelves.
"It's driving tremendous soft-drink volume," said John Sicher, editor of trade journal Beverage Digest. "Some bottlers are having trouble meeting demand for canned soft drinks."
That contrasts with the decline of carbonated soft drinks in recent weeks. In the four weeks ending May 15, sales volume of PepsiCo's soft drinks was down 10 percent, Coca-Cola's was down 16 percent and Dr Pepper Snapple Group's was down 2.3 percent, according to Nielsen data cited by J.P. Morgan.
It's not clear that the price cuts are desirable for beverage companies in the long term. Executives at Coca-Cola, PepsiCo, Dr Pepper and at bottlers such as Coca-Cola Enterprises often say they like to keep prices "rational," moderately rising by perhaps 2-3 percentage points a year. Bill Pecoriello of Consumer Edge Research said one key issue raised by the low prices is "pantry loading," when consumers stock up on cheap soda and cut down on purchases in later periods.
"The (beverage) companies and the bottlers have worked hard to keep pricing rational," said Sicher. "There's concern that this aggressive pricing by Wal-Mart will interfere with that. It's a mixed bag for the beverage companies. They'd certainly like to see more volume, but they also have to be disciplined about pricing and margins."
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