A flood of grey market Coca-Cola products from Ireland is driving down prices in the UK and playing havoc with the promotional strategy of Coca-Cola Enterprises.
Senior soft drinks buyers and wholesalers told The Grocer that the scale of the problem is such that for some Coca-Cola brands about one third of volumes sold in the UK are from grey market sources.
Wholesalers and agents are selling products made by Coca-Cola Hellenic - which holds the Irish bottling licence - into UK retailers for a 20% to 30% discount on the prices offered by CCE - which has the GB bottling licence.
“The market is being flooded with stock coming over from Ireland - it must be hammering the sales of CCE,” said one supermarket soft drinks buyer. “It’s certainly the biggest problem they’re facing right now.”
Merger will solve Britvic problem
Coca-Cola is by no means the only big brand flooding into the UK from Ireland - but it is one of the most prevalent.
In recent years, rival soft drinks company Britvic has also faced problems with stock entering the country from its Irish business, undercutting its GB prices.
In May, the Pepsi bottler decided to merge its Irish and GB businesses. While this was obviously not done to tackle this particular issue, it is expected to stamp out the problem.
The bulk of the volumes are going into discounters, which are able to sell Coca-Cola products for considerably less than the supermarkets.
A 500ml bottle of Coca-Cola typically costs 69p-79p in the discounters, whereas at Tesco, the same bottle is currently £1.15 and at Sainsbury’s it is £1.19.
However, it is understood that some of the multiples are also buying up grey market stock from Ireland in an effort to close the pricing gap with the discounters and independents.
The rise of grey market buying is having a major impact on pricing and promotions. Although CCE has scaled back its promotional activity this year, the average price of Coca-Cola has fallen from £1.08 to £1.07 per litre [Nielsen 26 w/e 27 July 2013].
“CCE has lost control of its promotional guidelines,” claimed the buyer. “It is undermining our relationship and our efforts to grow the category. The sheer volume of grey market product is going to undermine brand value and equity.”
Wholesalers told The Grocer that the growth of the grey market had been driven by the weak economy and a succession of bad summers.
“Things certainly seem to have got worse this year,” said one UK wholesale boss. “It is interesting that it is beginning to hurt the big supermarkets as it has been a problem for our sector for years, with retailers being offered cases of product up to £3 cheaper than we can sell it for.”
He warned there was little CCE could do to stop the tide of product from other territories coming arriving on these shores.
“If CCE could have stopped it, they would have done so by now,” he said. “Every can of Coke that is sold here and is not from CCE will be costing them money as they are still paying for all of the advertising and marketing.”
CCE told The Grocer it was unable to comment on relationships with its customers.