When President Donald Trump announced a 25% tariff on all steel and aluminum imports into the United States, effective March 12, the initial reaction was one of concern. For many American consumers, the immediate worry was the potential increase in the cost of everyday items, including the humble can of soda. However, as beverage companies like Coca-Cola assessed the situation, it became clear that the impact on consumer prices might not be as severe as initially feared.

Instead, the industry is navigating a complex landscape of cost management, environmental concerns, and market dynamics.

This article provides a comprehensive analysis of the impact of Trump’s tariffs on the beverage industry, exploring the strategies employed by companies to mitigate costs, the environmental implications of packaging shifts, and the broader industry landscape.

Assessing the Impact on Beverage Companies

Coca-Cola’s Response

Coca-Cola CEO James Quincey was quick to address the potential fallout from the tariffs. Speaking during the company’s fourth-quarter earnings call, Quincey suggested that Coca-Cola could pivot away from aluminum cans and increase production of other packaging materials, such as plastic bottles, to maintain affordability and meet consumer demand.

"If aluminum cans become more expensive, we can put more emphasis on (plastic) bottles," he said. This strategy leverages the flexibility of Coca-Cola’s production lines, which are designed to switch between different packaging materials with relative ease.

According to data from 2023, Coca-Cola packaged nearly 50% of its drinks in plastic bottles, 25% in aluminum cans, and the remaining 25% in glass bottles and other materials. Similarly, Keurig Dr Pepper reported that 27% of its drinks were packaged in plastic bottles, 13% in aluminum cans, and 8% in glass. This diversity in packaging options provides a buffer against significant cost increases due to tariffs.

Keurig Dr Pepper’s Strategy

Keurig Dr Pepper, another major player in the beverage industry, has also been assessing the impact of the tariffs. The company, which relies heavily on the U.S. market, is more vulnerable to domestic price fluctuations.

However, like Coca-Cola, Keurig Dr Pepper has a diverse range of packaging options, with 27% of its drinks packaged in plastic bottles, 13% in aluminum cans, and 8% in glass. This diversity allows the company to manage costs and adapt to market changes.

The Role of Profit Margins and Market Dynamics

Economic Analysis

Adam S. Hersh, a senior economist at the Economic Policy Institute, argues that the tariffs are unlikely to have a substantial impact on consumer prices. "Corporations have more than sufficient profit margins to absorb small price increases to a small input to production," he said.

In practical terms, a can costs slightly less than 4 cents to produce. A 25% tariff would raise the cost of the can to 5 cents, adding only 6 cents to the production cost of a six-pack. Given the scale of operations for companies like Coca-Cola, such a small increase is manageable.

Investor Response

Investors seem to agree, as share prices of major beverage corporations have remained relatively stable since the tariffs were announced. Most beverage companies outsource packaging to bottlers, who purchase raw aluminum and determine pricing strategies.

Coca-Cola, for instance, sells its concentrate to bottlers who then package the final product. This outsourcing model provides additional flexibility in managing costs and adapting to market changes.

The Environmental Implications of Packaging Shifts

Sustainability Concerns

While the economic impact of the tariffs may be manageable for large companies, the environmental consequences of shifting from aluminum to plastic packaging are more concerning.

Judith Enck, president of Beyond Plastics and a former regional administrator at the Environmental Protection Agency, warns that a significant move toward plastic bottles would be a major setback for sustainability efforts. "Any significant shift toward more plastic bottles is a huge environmental problem," she said.

Packaging Sustainability

Refillable glass containers are the most sustainable option for beverages, followed by aluminum cans due to their recyclability. Single-use glass bottles and plastic bottles are less sustainable, with plastic being particularly problematic due to the 16,000 chemicals used in its production.

Coca-Cola bottles are already the world’s No. 1 source of plastic pollution, and a shift away from aluminum could exacerbate this issue.

The Broader Industry Landscape

Differing Strategies

The beverage industry's response to the tariffs highlights the differing strategies employed by companies based on their market exposure and operational flexibility.

Companies like Coca-Cola, with a global presence and diverse revenue streams, can offset rising costs by leveraging earnings from international markets. In contrast, companies like Keurig Dr Pepper, which rely heavily on the U.S. market, are more vulnerable to domestic price fluctuations.

Impact on Smaller Companies

For brands that predominantly use aluminum cans, such as Monster energy drinks and White Claw seltzers, shifting to alternative packaging could hurt consumer demand. These companies may have little choice but to pass higher costs on to consumers, potentially affecting market competitiveness.

Navigating Economic and Environmental Challenges

Balancing Costs and Sustainability

The Trump administration's tariffs on aluminum imports present a multifaceted challenge for the beverage industry. While the immediate economic impact on consumer prices may be minimal, the long-term environmental consequences of shifting packaging strategies are significant.

Beverage companies must balance cost management with sustainability goals, especially in an era where environmental protection is increasingly scrutinized.

Future Prospects

The industry's response underscores the importance of flexibility and diversification in managing supply chains and production processes. As companies like Coca-Cola adapt to changing market conditions, they must also consider the broader implications of their decisions on the environment and consumer behavior.

In a world where sustainability is a growing concern, the path forward requires careful consideration of both economic and environmental factors.

Conclusion

The impact of Trump’s tariffs on the beverage industry is a complex issue that requires a nuanced understanding of economic, environmental, and market dynamics. While the immediate economic impact may be manageable for large companies, the long-term environmental consequences of shifting packaging strategies are significant.

Beverage companies must navigate these challenges by balancing cost management with sustainability goals, ensuring that their decisions benefit both their bottom line and the environment. As the industry continues to evolve, the lessons learned from this experience will be crucial in shaping future strategies and policies.