September 26, 2010 Drinking Up Profits

Volume 6 | Issue 3

Boasting instant brand recognition and a product that just won’t quit, Brazil’s Coca-Cola Guararapes has it made. And yet, the Recife-based

It’s hard to go wrong with a trademark name like Coca-Cola. “It’s such a strong global brand that it definitely gives us great access to clients and consumers,” concedes Luis Delfim, president of Coca-Cola Guararapes. “But it’s a trade-off. Along with all the benefits, there are also great responsibilities. We take great care in how we use the brand and always try to protect it.” Delfim is well aware of these and other advantages and challenges. The company over which he presides is owned by Coca-Cola International’s Bottling Investment Group (BIG) and is one of only 17 Coca-Cola bottlers in the world.

MAJOR INVESTMENTS

Headquartered in Recife, capital of Brazil’s Northeastern state of Pernambuco, the firm has actually been in the soft drink business since 1983 when it began producing and distributing products for Coca-Cola and Femsa, the Mexican-based group that is the largest beverage company in Latin America. Coca-Cola itself had been present in Brazil since 1942, but in 2001 it purchased Guararapes, which from then on became the exclusive bottler and distributor of Coca-Cola products in the states of Pernambuco and Paraíba.

Although the company became part of Coca Cola in 2001, it wasn’t until 2003 – after a two-year transition period that saw major administrative changes and massive investments in restructuring – that Coca-Cola Guararapes emerged ready to take on not just the soft drink, but the entire non-alcoholic beverage market as well.

“We invested heavily in technology, in our production capacity, and in our sales force,” recalls Claudio Pomin, the company’s director of operations. “We also invested directly into the market. Over the last four years, for example, we spent R$300 million alone on new refrigerators – 5,000 a year – at sales points throughout our area of coverage. As a result, today we have 60,000 points of sale throughout Pernambuco, Paraíba, and part of Bahia. Our distribution is very thorough.”

Also increasingly complete is the company’s rapidly expanding product portfolio that has known no bounds since Coca-Cola took over operations. At the time, aside from Coke, Guararapes was only producing two other flavors of soft drinks. Today its portfolio boasts more than 250 individual products. Aside from Coke, Fanta, and other soft drinks, it has added various lines of juices (having purchased Mais and Del Vale, two important national brands), as well as iced teas (it recently acquired one of the segment’s leaders, Leão, which has strong penetration in Rio and the South) and isotonics (including Powerade – which was a sponsor of this year’s World Cup). Also in the works are lines of flavored waters and energetics.

DRINKS WITH BENEFITS

“In terms of upcoming trends, the biggest evolution will be drinks with health or performance benefits,” predicts Pomin. “A major source of growth is going to be beverages such as green tea or isotonics – two categories that are just starting out in Brazil. Although they represent only a small portion (roughly 10 percent) of our bottom line right now, we’re investing heavily in such categories. Our goal is to have this mix account for 25 to 30 percent of our business by 2020.”

Despite the excitement surrounding new product lines, Coca-Cola Guararapes’ main focus continues to be upon the item it’s most famed for: Coca-Cola. “We believe that there’s still a lot of growth in store for soft drinks and for the Coca-Cola trademark,” says Pomin. “In fact, the trademark grows more than the company; it’s what leverages our market share the most.” Although sales of its other categories doubled last year, Coke and other soft drinks still account for 90 percent of Coca-Cola’s revenues. Moreover, there’s still a lot of potential for expansion since the annual per capita consumption of Coke in Brazil is still relatively small: 200 per resident throughout the entire country and 160 per resident in the Northeast. In other countries, the rate of consumption is up to three times as much. In Mexico, for example, whose market shares many similarities with Brazil’s, per capita consumption is 500 units.

“Compared to Brazil, Mexico has been investing in the market a lot longer. In fact, last year we went to Mexico to study their operations,” admits Ponim. “The amount of investment they’ve done in terms of refrigerators and packaging and distribution is really enormous. For instance, they have more than one refrigerator at every point of sales. As a result, they’ve acquired absolute market leadership, which is what we’re going after.”

Already Coca-Cola Guararapes is off to a great start. The company possesses eight industrial units – four distribution centers and four factories (one of which, located 50km from Recife, is considered the most modern and technologically advanced of its kind in Latin America) – whose combined annual production capacity is 650 million liters. In 2003, its share of the soft drink market was 45 percent; today it possesses close to 60 percent. Over the last six years, production volumes have doubled while revenues have almost tripled. As part of an ambitious, long-range plan for 2020, the company plans to double volumes once again while more than doubling its revenues – which this year are estimated to reach R$1 billion (roughly US$585 million).

PACKAGING AND PRICE

As part of its strategy, Coca-Cola Guararapes is focusing on two aspects that are key to success in the Northeast market: packaging and affordability. In terms of the former, the company – which in 2003 boasted only one type of can and two types of bottles – now has over 200 SKUs (stock keeping units) including some sustainable solutions that are cutting-edge in the ways they cut down on weight (and thus cost) and preserve the environment.

Among the pioneering inventions the company is introducing to the market are bottles made of “ultra glass” (25 percent lighter than traditional glass) as well as a lighter PET (in which a 2L bottle that formerly weighed 52 grams now weighs 46.7 grams). “Eliminating packaging allows us to maximize investments,” comments Ponim, adding that the company’s latest novelty is the “Plant Bottle” a new PET bottle, 30 percent of which is made from bio-degradable sugar cane resin. Already used in other countries, it will be the first of its kind in Brazil.

Adopting lighter, smaller, and cheaper, not to mention recyclable and/or returnable packaging, allows the company to offer lower prices – and greater accessibility – in a market whose population has traditionally been one of the poorest in Brazil. Indeed, the company’s main competitors (with 25 percent of the market) are various small, local manufacturers of flavored soft drinks that, despite their size, are able to compete due to low prices.

There is also the Guaraná factor. Brazil’s national soft drink, made from the Amazonian guaraná berry (traditionally used by indigenous peoples for its energetic properties), currently accounts for 30 percent of the country’s soft drink market. Although the market leader is the classic Antarctica brand (owned by AmBev), Coca-Cola has its own brand, Kuat, that it’s set to relaunch with a new national campaign, accompanied by new packaging. “We’re going to get much more aggressive with Kuat,” declares Ponim. “Focusing on young consumers, we’re going to be less discrete; for instance both ‘Kuat’ and ‘Guaraná’ will be written in large, bold letters on a green background that is synonymous with the drink in Brazil.”

REPUTATION FOR QUALITY

Aside from products and packaging – and, of course, its name – what sets Coca-Cola Guararapes apart are its vision and strategies, which are aligned with those of the Coca-Cola Company. “Where we really distinguish ourselves is with the quality of our execution,” states Ponim. The company constantly measures and evaluates its performance. Moreover, the earnings of its 500-person sales force – the company employs 3,200 people and is indirectly responsible for 21,000 jobs – are based on their performance at points of sale.

“If our volume and market share have increased it’s because of the quality of our workers and their ability to reach out to everyone from itinerary salesman hawking drinks on the beach to major supermarket chains. The completeness of our market coverage is something that few other companies have in Brazil.”

The company’s biggest challenge, according to Luis Delfim, is to “align ourselves with the desires of consumers.” For this reason, Coca-Cola is always carrying out national and regional surveys as well as visiting sales points to see what clients and consumers want. “We’re very well considered here in the region,” says Delfim, referring to the fact that the company has been named best non-alcoholic beverage supplier in Brazil in terms of customer satisfaction and one of the Top 100 companies to work for in the country. “Five years from now we want to be the most admired company in the country. It’s a reputation we intend to conquer – in terms of our employees, our clients, and our customers.”

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