In a move that has caught the attention of many, President Donald Trump recently announced a 25% tariff on all steel and aluminum imports into the United States, set to take effect on March 12. This announcement raised alarms among consumers, particularly soda drinkers, who were worried about the potential increase in beverage prices. However, as the situation has unfolded, beverage companies have begun to navigate these changes in a way that has led to reassurances about pricing stability.
Coca-Cola’s CEO, James Quincey, indicated during the company’s fourth-quarter earnings call on February 11 that the beverage giant might ramp up production of alternative packaging materials, such as plastic bottles, in response to potential cost increases stemming from the tariffs. He emphasized the company’s capacity to adapt to changing production needs, stating, “If aluminum cans become more expensive, we can put more emphasis on (plastic) bottles.”
Prominent economists, including Adam S. Hersh from the Economic Policy Institute, suggest that the industry’s healthy profit margins mean that most corporations, including Coca-Cola, can absorb these cost increases without passing them onto consumers. Hersh estimates that even with the new tariff, a soda can’s production cost would only rise slightly from about 4 cents to 5 cents, resulting in a negligible impact on the overall price of a six-pack.
Data indicates that in 2023, Coca-Cola used nearly 50% plastic bottles, 25% aluminum cans, and the remainder in glass, showing that the company already has a balanced approach to packaging. Hersh notes that investor confidence remains stable, with share prices for major beverage corporations showing resilience since the announcement of the tariffs.
The decision-making and strategies regarding packaging primarily lie with bottlers, the entities that handle the bottling process for these large companies. Filippo Falorni, a beverage analyst at Citi, points out that altering production lines from cans to bottles is a straightforward process for larger companies but may pose challenges for smaller businesses. Transitioning away from aluminum cans is a significant operational shift that usually requires considerable time and resources.
While Coca-Cola has the flexibility to adjust its packaging strategy to mitigate costs due to its diversified global revenue streams, smaller companies like Keurig Dr Pepper, which is more reliant on the U.S. market, may struggle with the implications of these tariffs. Notably, energy drinks that traditionally use cans may have less flexibility, risking consumer demand if they switch packaging types.
Compounding these economic implications are the environmental concerns associated with a shift to increased plastic packaging. Judith Enck, a former regional administrator at the Environmental Protection Agency, warns that moving toward plastic is detrimental to sustainability efforts, given the vast environmental problems related to plastic production and pollution. Notably, Coca-Cola has faced criticism for its role as a significant source of plastic waste globally.
In conclusion, President Trump’s tariffs may not pose as stark a threat to consumer prices as once feared, especially for major beverage companies like Coca-Cola. Yet, the potential strategic shift toward less sustainable packaging material raises critical questions about corporate responsibility and environmental impacts moving forward. Critics argue that the current administration’s policies may inadvertently encourage such moves by removing pressures for environmentally friendly practices, potentially influencing future industry standards.