The current elevated raw material prices (Coffee and Sugar) could lift the cost of goods sold (COGS) of beverage manufacturing companies.

Coupled with rising wages (due to labor shortage and an increase in the minimum wage) and freight rates, this would put downward pressure on the margin.

The sugar tax effective 1 Apr 22 in Malaysia, which imposes an excise duty of RM0.47 per 100g on pre-mixed beverages with a sugar content threshold above 33.3g per 100g further dents their margin.

However, this could be partially offset by the increase in the average selling price for its products. The prices of raw materials have doubled since 2021 and have increased even further since February 2022. However, we barely experience any price hike in our daily grocery purchases until the last few weeks.

Previously, the companies may be worried about losing market share if they increase their prices. However, everyone is raising their prices now. Inflation is bad for consumers, bad it's good for producers who have pricing power. When CPI (Consumer Price Index) is higher than PPI (Producer Price Index), companies will experience margin expansion.

Track Malaysia PPI vs CPI here.