Analyst: Discounts, costs may hurt soda bottlers

Analyst Alton Stump said in a note to investors that according to a survey of retailers, soft drink volumes rose between 2 percent and 3 percent year-over-year in May.

Those same survey results, however, indicated that Coca-Cola Enterprises Inc., the bottler for Coca-Cola Co., and Pepsi Bottling Group Inc., PepsiCo Inc.'s bottler, were both forced to offer heavy price discounts in convenience and gas stores to offset lighter consumer traffic.

Stump said the results were based on discussions with 80 U.S. retailers, including 40 Wal-Mart locations and 40 convenience and gas stores.

He said both Coke and Pepsi offered two 12-packs for between $5 and $5.50--an over 30 percent discount to regular prices--at more than 80 percent of the convenience and gas stores he contacted last month.

Most consumer companies have struggled to keep sales growing as shoppers cut back on discretionary purchases to pay higher gas and food prices. Some have offered promotions to entice shoppers to buy. Others have had to raise prices to offset higher ingredient costs.

Stump also said that the heavy discounts could outweigh any share gains the companies have received from Wal-Mart reducing its private-label shelf space.

Stump said Coca-Cola Enterprises will also face higher metal can costs than Pepsi Bottling Group for most of 2008.

He added that Coca Cola Enterprises only plans to implement a low single-digit rate price increase on average this year, below an expected mid-single-digit or more total cost of goods hike.

Those concerns led Stump to lower his estimates for both companies' profits for both fiscal 2008 and 2009.