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 Business News | November 2005 
Big Cola, Soon Big Chela to Mix in Mexican Market
 Chris Aspin - Reuters
| | BIG COLA: "El refresco grande de M้xico" |
Huejotzingo, Mexico - A little-known soft drinks bottler that has successfully taken on giants Coca-Cola and Pepsi in Mexico, the world's highest per capita consumer of Coke, now wants to challenge the country's top beermakers.
Upstart bottler Ajegroup plans to take on No. 1 brewer Grupo Modelo, whose Corona is the leading import beer in the United States, and its rival Femsa, which makes Tecate and Dos Equis beers.
Modelo and Femsa hold a virtual duopoly in the beer sector in Mexico and so Ajegroup's plans to make Big Chela after its success in selling Big Cola means a shake up is in the cards in this sun-kissed nation of brew lovers. Chela, meaning consolation, is slang for beer.
Here in the foothills of the snow-capped Popocatepetl volcano two hours east of Mexico City, directors of Ajegroup are plotting how to make beer and expand the bottling firm that began as a small family concern in a dirt-poor region of Peru.
In 1988, the Ananos family sold its tractors and took out a $30,000 loan to set up a soft drinks factory in a region of Peru where Coca-Cola and Pepsi trucks were constantly hijacked and ransacked by Maoist Shining Path guerrillas.
From those beginnings, Ajegroup has spread swiftly across Latin America. Mexico is at the top of its list of priorities next year, with a new soft drinks plant planned in the western city of Guadalajara and the move into alcohol.
Both projects will be under way in the first half of 2006 and will add to existing local operations, a Big Cola plant here and another in the northern city of Monterrey.
"Mexico is our main market. More or less 51 percent of total group sales come from here," said Ajegroup's communications director Alfredo Paredes.
Attack The Beer Industry
Ajegroup is keeping mum on details of its beer plans, but analysts expect it to produce beer in big volume bottles or cans and at cheap prices to make quick inroads.
The move into beer, analysts say, is going to be difficult but not impossible for the makers of Big Cola.
"Modelo and Femsa are going to do everything possible to stop it," said Scotiabank Inverlat analyst Marco Reyes. "It is going to take a lot of work, but I do not doubt Ajegroup will achieve it after the success of breaking into the soft drinks market."
Neither Modelo nor Femsa was available for comment.
Ajegroup's plans to attack the beer industry in Mexico were set back earlier this month when Congress passed a law making it more expensive to start a brewery and take market share from Modelo and Femsa.
The law will tax beer in returnable bottles at a lower rate than disposable cans and bottles. The law was passed on grounds it would force brewers or importers to be more ecological. Analysts also say it puts up barriers to entrants.
New brewers will either have pay the higher tax or invest in bottle distribution and collection systems and delivery fleets alongside their other start-up costs.
Ajegroup, which is still mulling what investment route to take, is determined to go ahead with its Big Chela plans despite the new law, although Paredes admitted it has delayed some decision-making.
"We are talking about starting building work in the first half of 2006," Paredes said. Ajegroup has no plans to find a partner to launch its beer, he said.
Ajegroup's Mexican focus is not all beer.
Roberto Pereira, Ajegroup's plant manager in Mexico, said the new soft drinks plant in Guadalajara will add another 1 million liters per day to production in Mexico. Ajegroup now churns out 4 million liters of soda per day from its existing two plants.
Analysts calculate that Big Cola has grabbed a 5 percent share of the Mexican soft drinks market in just over three years, taking sales from Coca-Cola, Pepsi and smaller bottlers.
Increase Share
"The plan of the company is to reach 10 percent market share by 2009," said Paredes during a tour of the Huejotzingo plant.
Drinkers like the taste of Big Cola, which is much like Coke's.
"I went to a party and the hosts were serving up Big Cola, on its own and mixed with rum," said Rogelio Montemayor, a 34-year-old salesman in Mexico City.
"They had no complaints," he said. "It tastes good, mixes good. It is cheap. I tell everyone about it."
Typically Big Cola is sold in supermarkets in Mexico City for less per liter than Coke or Pepsi.
Its 3.3 liter bottles go for 12 pesos versus Coca-Cola's 2.5 liters for 15 pesos. Pepsi's 2.5-liter bottles sell for 10.5 pesos.
Building on a strategy analysts dub "quality with no frills," Ajegroup undercuts competitors in Mexico on price with little advertising, even leaving distribution to third parties.
Up to 300 third-party trucks per day leave its Huejotzingo plant to deliver across the country. Ajegroup owns no trucks, another strategy that keeps costs and prices low.
Ajegroup also buys unrefined brown sugar -- using 400 tons per day -- to make its own cola syrup.
And with its upcoming Guadalajara plant on line, rough calculations will soon have Ajegroup making 1.6 billion liters of soda per year in Mexico.
Across Latin America, Ajegroup sold 1.8 billion liters in 2004 and this year hopes to boost that 10 percent this year to 2 billion liters, Paredes said. |
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