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Coca-Cola’s CEO isn’t making the same mistake as rival PepsiCo—he’s prioritizing ‘long-term security’ over spats with supermarkets

Hollie Adams/Bloomberg—Getty Images

Coca-Cola is skirting around the inflation issues tripping up its competitors by sticking by its price hikes, steering clear of PepsiCo's tactic which resulted in a public spat with French supermarket giant Carrefour.

Fizzy drink maker Pepsi is embroiled in a conflict with Carrefour, with the latter claiming it had pulled Pepsi products from shelves because of "shrinkflation"—where product quality or quantity diminishes, but the price stays the same. PepsiCo denies this, saying the vanishing items are actually the result of contract negotiations.

Pepsi's biggest rival—and the carbonated soft drink industry's market leader—Coca-Cola, seems to have maneuvered itself out of such situations by establishing long-term goals and standing by them.

The brand's CEO James Quincey said it works hard to avoid friction with suppliers, but in a global economy with varying inflation rates that can pose problems.

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"When we deal with our own suppliers we have a very long-standing approach which is to go for very long-term relationships," Quincey told CNBC at Davos. "We like, given our size, to get long-term security of supply—that's our number one problem, is getting enough—we get long-term pricing agreements and then we layer on hiding.

"We very much smooth out the cycle. We don't go up very quickly and we don't tend to crash back down, we like the idea of seeing the cycle through—it really helps us stabilize our business which is why we're not so spiky on pricing, it's a deliberate approach."

Coca-Cola prices were up 10% in Q2 2023 compared to a year prior, the Financial Times reported, though the company's latest update showed this had little effect on the bottom line.

Indeed an October release from Coca-Cola for Q3 2023 said net revenues grew 8% to $12 billion with a 2% growth in concentrate sales, a performance Quincey described as a "solid" quarter.

By contrast, PepsiCo reported a 15% rise in prices in Q2 2023 while organic volume slipped by 2.5%, but by Q3 was also beating analysts' estimates with revenue coming in at $23.45 billion instead of the $23.39 billion expected.

Quincey didn't deny that some territories were coming with their own problems, adding: "In different countries in different environments there can be more or less friction with some of our retail partners but in the end we come back to our strategy, which is to earn our right to the pricing."

He added that the company's strategy is to ensure they can grow the beverage business faster with their strategy and expertise than by individual suppliers operating alone: "That's a positive story for them," he added.

'Shrinkflation' battle

Retailers are facing pressure from cash-strapped consumers and politicians looking for a win in the cost of living crisis.

French supermarket giant Carrefour said it wanted to do something about the issue, and earlier this year claimed it was pulling PepsiCo products like Doritos, Cheetos, and 7up from its shelves in France, Italy, Spain, and Belgium, following price increases.

The group’s move was described as a “show of strength” by the chairman of Carrefour’s biggest rival, E.Leclerc, but has struggled to persuade other major retailers to follow suit.

However, although the action has been lauded by the industry, PepsiCo claims Carrefour's version of events is simply not true.

A representative for PepsiCo told the Wall Street Journal on Jan 9 that Carrefour had “regrettably mischaracterized the chain of events” when the supermarket claimed it had banned the supplier’s products in some of its stores.

“Given the lack of agreement on a new contract, we stopped supplying to Carrefour at the end of the year, something they were aware could happen. We hope we can agree on terms soon so our products can be back on their shelves for consumers to enjoy,” the spokesperson said.

Carrefour in turn disputed this account, telling the WSJ: “We, at the Carrefour Group, have taken this decision.”

Neither party responded to Fortune's request for comment at the time.

This story was originally featured on Fortune.com