In Mexico, Big Cola
Boldness is one attribute of Peruvian entrepreneur Carlos Añaños. In 1989, his family went broke when a guerrilla group lay siege to his hometown, Ayacucho.
Something he noticed was the total absence of soft drinks, particularly Coke, which was a consistent target of the guerrillas, leading local bottlers to abandon the market entirely.
A chemist, Añaños went to work on his own “secret formula,” formulating its main ingredients and developing syrup very similar to Coca-Cola’s. Formula in hand and taste of cola on the palate, his family mortgaged their small farmhouse for $30,000 and invested the money in used bottling equipment.
At first, they produced a 2.6 liter bottle of the new cola product, naming it Kola Real. In a town as thirsty as Ayacucho, the drink was an immediate success. The business spread to the rest of Peru — where Kola Real now has 20% of the market — then to neighboring nations Ecuador and Venezuela.
Two years ago, Añaños decided to set up shop in Mexico, investing $6 million in a brand new bottling facility in the city of Puebla, 80 miles east of Mexico City. He used his original formula, only changing the product name to Big Cola (www.bigcola.com).
Today Añaños has the big bottlers concerned since in just 24 months his company, AjeGroup, has managed to corner 5% of the Mexican soft drink market. The percentage may seem small by U.S. standards, but consider that Mexico has more than 150 bottling companies, with Coca-Cola Co. (www.cocacola.com) controlling 70% of the market with 16 different brands. PepsiCo Inc. (www.pepsico.com) has had 23% of the market, with the rest of the small bottlers sharing the remaining 7%. Mexico is one of the world’s largest consumers of soft drinks, second only to the U.S.
Roy Morris, AjeGroup’s chief financial officer, says the secret to the company’s skyrocketing success is its approach to logistics.
“Consider Big Cola a counter-brand,” he says. “We now have 28 distribution centers and our customers are small grocery stores.”
He says the company has followed basic logistics rules “with the right product at the right time in the right place at a fair price.”
“Our business model is based on economics along the value chain and we pass along cost efficiency savings to our customers, delivering a product that offers them great value,” adds Morris.
The company also differs from the big bottlers in using freelance vendors who have a chance to make a living while opening new markets for the brand.
This, however, may be the company’s Achilles heel, says Rafael Miyar, Pepsi Bottling Group’s (PBG) northeast Mexico regional manager, who feels these new cola wars will be fought on the logistics front.
“Big Cola has distribution problems galore which lead to poor service,” observes Miyar. “They are outsourcing their distribution, and that’s just where we’re gaining ground.”
But the other “front” of the cola wars is pricing. Big Cola has had a great impact on Pepsi, forcing PBG to lower its prices 15%, to no avail. Coca-Cola’s 16 bottlers, on the other hand, have opted to keep prices steady. Nine small bottling companies have now grouped to improve their distribution channels and for joint purchasing of raw materials in order to lower operational costs.
Meanwhile, investment in Big Cola has grown to $40 million, and the company’s target for 2004 is to grow another 5% — at the expense of its big competitors.
“We are succeeding without the millions Coca-Cola and Pepsi spend on advertising,” says Morris. “And we don’t have their infrastructure. What we don’t spend on advertising, we deliver in customer service and our low prices. We are growing but we still have a long way to go.” LT