Supplies down, prices up, sales down

Recent hurricanes and other problems have drastically cut orange juice production in Florida, which has led to rising prices in grocery stores, which has led to declining sales. None of this should be a surprise, but this AP story seems to treat it as such.

Juice makers like Atlanta-based Coca-Cola Co., which makes Minute Maid orange juice, and PepsiCo Inc. of Purchase, N.Y., the maker of Tropicana orange juice, were forced to raise prices to offset the cost of oranges - a cost that has gone up at the same time crop yields have gone down.

Journalist meets supply-and-demand, is shocked. AP goes on to tell us that "A smaller number of crops typically translate into higher raw material costs for juice makers since the cost of oranges usually rises with a smaller harvest." No kidding.

Enough snark. Apparently yield have dropped from 220 million boxes of oranges per year prior to the 2004-05 hurricanes to an anticipated 132 million boxes this year. Prices are up 20-25% percent, with sales down about 10% or so -- which translates into a bit of a revenue gain:

But Florida Department of Citrus spokesman Andrew Meadows said even though consumption might be down, revenue from orange juice as a category has gone up in March.

According to the AC Nielsen figures, revenue is up 9 percent across all brands, mainly due to the higher prices companies are charging for their products.

One guesses that Coke and Pepsi will take this lesson to heart, and that prices will not drop all the way back when production revives. It appears that the price increases are being accomplished in large part through less promotion -- not surprising, given the supply constriction -- why promote if all it will do is create an out-of-stock?

Van Brugge said PepsiCo and Coca-Cola are raising prices by increasing the list price slightly and cutting back on promotions, like in-store discounts and coupons.

Tropicana spokesman Pete Brace said the company is "making the necessary adjustments to ensure supply and meet consumer demand."