Financial bubbles have burst all throughout the financial industry. The two that come to mind first and foremost when I think of financial bubbles bursting are the tech bubble of the 1990’s (when IT and the World Wide Web were all the rage for scheming and dreaming on Wall Street) and the housing bubble, which is part of why we’re in this current financial mess that we’re in.
But has anyone noticed the Soft Drink bubble?
It seems like just 2 years ago, you could get two 12 packs of Coca-Cola products or Pepsi Cola products for five dollars (at least on sale). Now? At times, a single 12 pack of Coke or Pepsi alone could cost five dollars. Give or take.
Beverage Spectrum reported in April 2008 that the culprit was the rising cost of corn:
Millers derive high fructose corn syrup, the number two ingredient for most soft drinks, and ethanol, the number two ingredient for gasoline, from the same yellow kernels. The cost of those kernels jumped in the last few months after congressional efforts for energy independence collided with the fallout from a volatile stock market.
Beverage manufacturers have seen those costs passed on to them. Food Business News reported in early April that HFCS cost an average of 18.65 cents per pound, up from an average of 15.7 cents at the same time last year. Thatâ€™s a 19 percent increase thatâ€™s causing financial pain for beverage companies. And that pain will likely travel down the supply chain into the cooler case.
But with the falling prices of gasoline (and the decreasing amount of driving by Americans) there is no fall in soft drink prices… Or Corn futures for that matter.
Another quirk is… well, no one is talking about it. Costs were up all over last summer, but how they’ve failed to fall back down is bothersome. What ever happened to the old addage “fast nickel as to a slow dime” when it comes to selling a product? It creates demand, it stimulates production and it stimulates the rest of the economy – laborers, producers, consumers, etc.
For the record, you can get cheaper packages of Pepsi — though you will only get eight cans as to 12. But Marketwatch’s Matt O’Hern pointed out the glaringly obvious last October:
Pepsi claims higher prices for energy and food combined to raise expenses by 11%/ They’re betting the 8-pack will appear as a better value to consumers. Who does Pepsi think they’re fooling?
The 8-pack might be easier to carry around, but that’s where the “value” ends for me. I’m used to paying about $3.50 to $4.50 for a 12-pack, $10 for three 12-packs during specials. I just paid $3.50 for the new 8-pack at Publix, which shows that Pepsi is out of touch with the average shopper.
Even his cited numbers that he is used to are high, as they’ve become a recent feature of the increase to soda (pop, softdrinks, whatever you want to call it). But that’s a bit besides the point, the fact is that the “fast nickel to a slow dime” is being applied here — with less value for the “lower” cost.
So when is this Corn-inspired Soft Drink bubble going to burst? And how painful will the fall-out be for that?