PepsiCo ‘desperate’ to build Mexico cola volumes: Coca-Cola FEMSA

By Ben Bouckley

- Last updated on GMT

Related tags Coca-cola femsa Coca-cola

PepsiCo ‘desperate’ to build Mexico cola volumes: Coca-Cola FEMSA
Coca-Cola FEMSA insists that rival PepsiCo is ‘desperate’ to boost cola volume sales in parts of Mexico and has cut prices accordingly, but the former feels comfortable about pushing through price increases in most of its major markets.

On Tuesday, Coke’s largest bottler by volume, based in Mexico City, reported revenues of Ps. (peso) 36,295m (US $2.699bn) in Q2 2012, up 27.9% on Q2 2011, but net income slid 1.3% to Ps. 2,713m ($201m) in Q2, while overall volumes were fairly flat.

The income dip came despite double-digit growth in Coca-Cola FEMSA’s South American division and proceeds from the integration of three large Mexican acquisitions from 2011, but CEO Carlos Lomelin hailed positive results in the face of bad weather and ongoing currency and commodity volatility.

Mexico and Central American operating income rose 4.6% to Ps. 2,656m but excluding the integration of Grupo Tampico, Grupo CIMSA and Grupo Fomento Queretrano, fell 9.6% on Q2 2011.

Still beverage volume sales grew 6% (driven by Jugos del Valle, Fuze Tea and Estrella Azul lines) and sparkling water 1%, but FEMSA suffered an 8% decline in its regional bottled water portfolio.

Dairy diversity beyond carbonates

South America operating income rose 12.2% to Ps. 2,058m, with still beverage sales soaring 21% – driven by the launch of Jugos del Valle lines in Venezuala and continued success in Brazil – while water growth of 2% also helped offset flat sparkling beverage performance.

“Consistent with our strategic framework, we continue to pursue growth through accretive mergers and acquisitions,”​ Lomelin said, adding that FEMSA was still evaluating whether to buy a controlling stake in The Coca-Cola Company’s bottling franchise in The Philippines.

He added: “Furthermore, through Jugos del Valle – our JV for non-carbonated products with partner The Coca-Cola Company – we reinforced our portfolio with the acquisition of Santa Clara, a significant player in the milk and dairy category in Mexico.”

Discussing Coca-Cola FEMSA’s Q2 results with analysts in a Tuesday all, CFO Hector Trevino was asked how comfortable the firm felt about taking price across its regions, particularly in Brazil where a VAT increase is scheduled from October 1.

PepsiCo price aggression

Trevino said that, in eight of the nine countries where it operated, Coca-Cola FEMSA was confident it could push through slight increases based upon competitor activity, and that in Brazil everyone was increasing prices.

“In Mexico I think that we have flexibility, although I recognise that Pepsi, our main competitor is very aggressive with some specific packages in some specific regions,”​ Trevino said.

“But I would like to remind everyone that in areas of The Valley of Mexico, PepsiCo now is the third brand in colas, so they are desperate to start getting some traction in volume.”

The only country he felt cautious about pricing was Colombia. Trevino added, saying that Coca-Cola FEMSA was discussing possible price measures with The Coca-Cola Company to encourage volume growth there – to boost per capita consumption in the country to levels seen elsewhere.

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