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[greenyes] Deposits in Mexico

A Low-Budget Cola
Shakes Up Markets
South of the Border
Peru's Kola Real Takes On Coke, Pepsi
By Cutting Frills and Targeting Bodegas

MEXICO CITY -- The Ananos family was in a tough spot. Shining Path
guerrillas had just razed their family farm in southern Peru and were slowly
strangling the nearby city of Ayacucho, where the family had retreated to
its second home.
But while the rest of Peru despaired at the Shining Path's campaign of
terror in the late 1980s, Eduardo and Mirtha Ananos spotted an opportunity.
Rebels routinely hijacked trucks bringing Coca-Cola to the city, so the
couple decided to start making cola in their backyard and sell it to locals.
Together with their five sons, they took out a mortgage on their home and
started the business with $30,000.

Today, Kola Real is emerging as an unlikely threat to both Coca-Cola Co. and
PepsiCo Inc. in a region where the two soft-drink giants enjoy some of their
fattest global profit margins. By cutting out frills and skimping in areas
such as advertising, Kola Real, officially called Industrias Ananos, offers
ultra-low prices that appeal to the region's poor majority. As a result, the
company has captured almost one-fifth of the Peruvian market and has made
inroads into Ecuador and Venezuela.

Now Kola Real (pronounced RAY-AL) is shaking things up in Mexico. Mexico is
a crown jewel in Coke's international operations and the world's
second-biggest soft-drink market after the U.S., with annual sales of
roughly $15 billion. In less than two years, the Mexican version of Kola
Real, called "Big Cola ," has captured roughly 4% of the market. Coke and
Pepsi have cut prices in response, denting their profits. At the Sam's Club
warehouse store in Mexico City's upscale Polanco neighborhood, Big Cola is
the fifth-best-selling product, narrowly trailing Coke.
Kola Real's success also illustrates how the cola wars are changing in many
markets around the globe. Coke and Pepsi once vied primarily with each
other. Today both are fending off downmarket alternatives -- either
so-called B-brands such as Kola Real or private-label drinks sold by
Wal-Mart and other big retail chains. These cheaper rivals can cut into Coke
and Pepsi's profits and make it harder for them to raise prices to offset
slowing sales. The trend goes beyond Latin America. Big retailers in
Germany, Great Britain and other European markets are selling more
private-label cola, and B-brands are aggressive in Poland and Hungary.

One big reason this is happening: the switch to plastic. In the 1990s,
plastic bottles largely replaced glass, offering a cheaper alternative that
lowered newcomers' cost of entry in the soft-drink industry. Plastic also
allowed larger bottles that could be sold cheaply in supermarkets.
Supermarkets provide an important outlet for new competitors since Coke and
Pepsi often dominate smaller stores.

Big Sizes, Low Prices

Kola Real's strategy is simple: offer big sizes at low prices. ...
Coke is Mexico's only soft-drink maker offering returnable plastic bottles,
a competitive advantage over all rivals because they cost consumers about
20% less than disposable bottles.

Peter Anderson
4513 Vernon Blvd. Suite 15
Madison, WI 53705
Ph:    (608) 231-1100
Fax:   (608) 233-0011
Cell    (608) 438-9062
email: anderson@no.address

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