A fizzy market

The beverage market in Colombia is going through an upheaval. Various announcements in the past few weeks illustrate the changes this industry is experiencing. In the middle of this upheaval are two of the flagship companies in the country: Bavaria and Postobón, companies whose products have been favorites of Colombians for decades.
These are some of the developments that were just announced:
* Coca-Cola has purchased the bottled water brand Brisa from SABMiller for $92 million USD; in addition, they announced their entry into the juice market with the brand Jugos del Valle.

* Another multinational, Heineken, one of the largest breweries in the world, will begin selling a malt beverage targeted towards children, which will be imported from Chile.

* Similarly, Postobón launched Windsor, a “functional” water that enters in direct competition with Dasani, the, up until now, undisputed leader of the flavored waters segment in Colombia and a brand of Coca-Cola.

What is happening with this market and what are the implications for consumers?

Bavaria and Postobón enjoy a long history of having a privileged position in the beer, soft drinks and water markets, as they were practically the only providers of those products in Colombia. This fact made them attractive for two of the largest economic groups in Colombia: Santo Domingo and Ardila Lülle.

But the world consolidation of big players in the beverage industry has changed the market outlook completely, the characteristics of the companies, and the product availability for consumers.

Bavaria was sold to South African conglomerate SABMiller and Postobón had to redefine its strategy, after overcoming a severe crisis at the end of the 90s.

Food fight

The first clear thing after these recent moves is that the fight will continue to rage between Coca-Cola and Postobón: both companies hold a very similar portfolio. “Ten years ago Postobón made a strategic goal to become the leader of non-alcoholic beverages and that meant they would have to diversify. Before we had just two categories: soft drinks and water. And today we have six: soft drinks, water, juices, hydrating drinks, tea and energy drinks. Because of the success of Postobón, it’s understandable that other companies would want to follow our model,” explains John Betancur, vice president of marketing for the company.

Whether or not it is copying Postobón’s model, Coca-Cola’s decisions show that it is indeed going down a similar path as its competitor. Besidesits best known product, Coke, the multinational today also offers juices, natural water and flavored waters to Colombian consumers.

To understand how the competition is evolving, you have to examine each market segment.

What Postobón sells the most are soft drinks (68% of their income), followed by juices (16%) and water (9%). Last year the company sold more than $720 million; almost 93% came from those three products, where the competition is getting tougher each day.

One year ago, the Peruvian group Ajegroup entered the soft drink market with their brand Big-Cola. Ajegroup also has a portfolio of waters and juices that will be launched in Colombia. While Postobón states that it has not lost market share in soft drinks, Ajegroup says that its results have exceeded expectations.

With its purchase of Brisa, Coca-Cola now takes in 40 % of all sales in water products in Colombia. It also dominates the flavored waters market with Dasani (70% of the market). Postobón has more than 30 % of all natural water sales with Cristal, and is now going on the attack in another new segment, flavored waters, with Windsor, which has vitamins and calcium.

As far as juices are concerned, Coca-Cola has its new brand Jugos del Valle. The multinational had to start from scratch as this market has traditionally been dominated by brands like Hit, from the Ardila Lülle group. It is worth mentioning that Postobón also recently bought the lines Tutti Frutti and Orense from Bavaria, and earns 60% of sales in that sector.

Evidently for Ardila Lülle life will be difficult as his company (Postobón) will face strong competitors in all their key segments.

The other case is that of Bavaria, which continues to practically maintain a monopoly on traditional beer in the country, but has had a tough experience with premium beers. Companies such as Heineken, Anheuser-Busch (Budweiser) and Mexican Modelo (Corona) have gotten in the way. All the most important international brands are available in supermarkets today; for this reason Bavaria’s premium beer Peroni must share the market with other brands

But now the competition also is opening on another front. Heineken has just become a competitor to the famous Pony Malta, which has had the monopoly on this segment. They launched their product Tucán Malta, aimed especially for children.

The Colombian market, for this type of product, is around 29 million boxes each year and Heineken aspires to capture 10 % of this offer in the next five years. It is a fairly aggressive bet.

All of these announcements have highlighted the need for adjustments to be made. Bavaria has decided to focus on beers and malts and leave the juice and water business, and Postobón is concentrating in an ample portfolio of non-alcoholic beverages. Both firms have had to reach deep into their pockets to invest and strengthen their production and sales teams.

The Ardila group has invested nearly $200 million USD each year in infrastructure and training for its beverage business. Today it is building a plant to produce all of its products in Yumbo,(near Cali in the south west of the country), with a cost of $43 million USD. In that same city, Bavaria invested almost $48 million USD in a new brewery, which should be ready this year.

In the case of Postobón, investments to strengthen its sales force and to modernize its transportation fleet meant that operational income in the first quarter of 2008 was $19 million USD), 42 % less than what was reported in the same period last year, according to Duff & Phelps.

It’s clear that Bavaria and Postobón are adjusting themselves and are putting up a fight. In two years, the outlook will most likely not be the same. Competing head to head with Coca-Cola, reknowned beer brands of the planet and a regional force such as Ajegroup, the race has gone to another level. They won’t be able to rest.