Coca-Cola faces tighter supply of sucralose from China as COVID-19 hits supply chain
This could affect production of its diet and no-sugar drinks, which include brands like Coca-Cola, Sprite, Fanta, Aquarius, and Minute Maid.
While the company did not reveal which sweeteners were affected, its 10-K annual report filing with the Securities and Exchange Commission in the US, revealed sucralose as a ‘critical raw material’ sourced from China.
The company purchases non-nutritive sweeteners, such as sucralose from suppliers in the United States and China. Other non-nutritive sweeteners used in its business include aspartame, acesulfame potassium, saccharin, cyclamate and steviol glycosides.
Coca-Cola has assured, “We have initiated contingency supply plans and do not foresee a short-term impact due to these delays. However, we may see tighter supplies of some of these ingredients in the longer term should production or export operations in China deteriorate.”
While the company expects no immediate impact on its beverage production, it described in its annual report that there may be some impact on revenues.
“We believe this disruption will negatively impact our unit case volume and financial results for the first quarter of 2020. At this time, we do not expect this disruption to have a significant impact on our full year 2020 unit case volume or financial results.”
Coca-Cola recently announced its net revenues grew 9% to reach USD37.3 billion for 2019.
In its Q4 2019 earnings call, the company’s chairman and chief executive officer, James Quincey in response to analysts’ queries on the effect of the coronavirus on its business in China, said their priority was employee safety, supporting the Chinese government in managing the crisis, and working on business recovery.
“It's way too early to tell what the impact in the short term is. And I think ultimately, in the long run, it will rebalance.
So far, the short-term effects are that the offices are closed. A good number of the factories are closed.”
He expressed that there still needs to be food and beverage available for the population. “So, we, under the auspices of the Chinese government and their kind of crisis management, are reopening some of our manufacturing facilities to make sure we continue to produce our product for the population and get it distributed in a way that's not going to be part of the spread.”
China is Coca-Cola’s third largest market in terms of unit case volume. Mexico, China, Brazil and India together account for 31% of Coca-Cola’s worldwide unit case volume.
The company expects to provide more information on the impact of COVID-19 during its next earnings call in April.
COVID-19 has since affected more than 80,000 people and killed more than 2,800 worldwide.
As the virus spreads beyond China, global stock markets plummeted for the sixth consecutive days as of February 28, according to Yahoo Finance.
The biggest hot spots outside of China now include Italy, South Korea, and Iran.