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Cheaper than Coke & Pepsi, Peruvian

bottler Ajegroup launches no-caffeine cola
brand, Big Cola

NEW DELHI: After Thums Up, Coke and Pepsi, a cola from Latin America may lack the
fizz and ferment. Soft-launched in December 2010 in Mumbai and Pune, Peruvian
bottler Ajegroup officially launched its flagship no-caffeine cola brand, Big Cola.
"We are in India, and here to stay," says Sorin Voinea, Director of Marketing (Asia
Pacific), Ajegroup, who announced a tie-up with Sony Pictures Hollywood movie 'The
Amazing Spider-Man.' Big Cola was launch limited editions of The Amazing Spider-Man
bottles in three flavours till August.
For a brand that calls itself Walmart of Beverages, Voinea says the focus in India would
not be to take Coke or Pepsi head-on. "We don't compete against them. We are
definitely a follower, and are thankful to them for expanding the market globally," says
42-year-old Voinea who doesn't intend to rope in cricketers or Bollywood celebrities for
endorsing brand.
"We are not a me-too brand. Other cola brands have been associated with Bollywood
and cricket. So, if we also do that, we would be losing our differentiation," adds Voinea,
who reckons football will work better for Big Cola.
So what hope does Big Cola - which is banking on its caffeine-free positioning and a
price-tag that is 20-30% cheaper than Coke and Pepsi -- have in a market in which the
global giants rein supreme?
There's room for more cola brands in the country, says Prathap Suthan, chief creative
officer of Bang in the Middle, an independent ad agency. "If the market had 20 colas,
yes, then we are talking about an overcrowded presence. But that's not the case in
India."
Not everybody thinks the same way. "It's going to be tough for them," says Santosh
Desai, MD and CEO ofFuture Brands. Beverages is a high-spend category in terms of
advertising and marketing, and only if you have deep pockets can you be in the game,
he adds.
The brand, interestingly, was born in the midst of guerilla warfare in Peru. During the
1980s, all cola brands had left Peru because of civil war, he adds. Still for a brand
coming from a country infamous for guerilla warfare, it's surprising that the company
doesn't have any guerilla marketing tactics up its sleeves.
"If we have been doing well globally and in the countries dominated by cola giants Coke
and Pepsi, it is not because of any marketing tactics but because of our offering," says
Voinea.
While Coca-Cola remains far and away the No. 1 seller in Mexico with 69% market
share, Big Cola has made its presence felt by occupying a distant No.2 position in the
pecking order.
Mexico is the world's biggest per-capita consumer of soft-drinks.
New cola brands like Sosyo ready to take on
biggies like Coke and Pepsi
NEW DELHI: If you thought cola is just Coke and Pepsi, you obviously haven't picked up
a Sosyo in Gujarat; or a born-again Campa Cola at Rajiv Chowk metro station in New Delhi; or
the colas from Latin America's Big Cola including the eponymous brand and a sub-brand Oro
that are available in markets like Maharashtra, Goa and parts of Gujarat.
Campa Cola, a local brand from the 70s, is not the only blast from the past. Also
readying for a comeback is Coca-Cola's RimZim, a popular regional masala cola brand
that Coke had acquired from Ramesh Chauhan in 1994, along with Thums Up, Gold
Spot, Limca and Citra.
The revival theme is not restricted to the cola category. Early this year, Coke brought
back Citra, the clear lime drink brand that it had junked in favour of own brand Sprite.
And last year, rival Pepsi gave a fresh lease of life to Duke's, an iconic over 100-year-
old beverage brand from Mumbai, by re-launching its lemon, raspberry and ginger ale
variants.
"It (revival of old brands) shows desperation on the part of MNC cola majors. Cola is a
dying market," says Chauhan, chairman of Parle Bisleri. The cola companies have their
reasons for leaning on these smaller brands, the biggest amongst them being the
regional nature of competition - which is often fierce. "Local is the new national for
brands," avers Smitha Sarma Ranganathan, a brand communication specialist who
teaches marketing management at IBS Bangalore.
Cut to Surat, where Hajoori & Sons has been making a flavoured fizzy beverage called
Sosyo since 1957 (the Hajooris began in beverages in 1923). "Cola MNCs tried their
best to kill Sosyo but it has survived," says Aliasgar Hajoori, a 25-yearold fourth-gen
director at the family-run firm. Hajoori claims the cider-based Sosyo runs neck and neck
with Pepsi and is ahead of Coke with a share of roughly 30% in Gujarat; he says he
now plans to take Sosyo, available primarily in the western region, national.
A Coca-Cola spokesperson did not comment on market shares in Gujarat, whilst a
spokesperson for Pepsi said: "Although there are a couple of local beverage brands in
Gujarat, their share is minuscule; we are a leading player in that market."
If regional beverage brands don't lose their allure, it may be because - as IBS-B's
Ranganathan points out — it's a basic human instinct to yearn for a happy past. "This
helps marketers in reinventing nostalgia and works excellently with local brands."
The bottlers of Campa Cola may be hoping the retro wave works in their favour.
Launched by Sardar Mohan Singh, who founded the Pure Drinks group after the exit of
Coca-Cola from India in the late 70s, Campa ruled the north India for more than two
decades. It duly faded into oblivion and into the hinterlands once Coke and Pepsi came
in with a bang after 1991. Now, it has again started to bubble, thanks to Alankar
Bottling, a Muzaffarnagar-based franchisee of Campa Cola since 1979 that produces
300 ml, 600 ml, 1 litre and 2 litre bottles of the local brand.
For good measure Campa, which has a slogan 'The Great Indian Taste,' is on
Facebook; as is Sosyo, with slogans like 'Taste with a Twist' and 'Apna desh, apna
drink' (our country, our drink). "India main chota brand bhi bikta hai (Even small brands
sell in India)," says Atul Agarwal, 50, owner of Alankar Bottling, who is quick to remind
you proudly that Campa is "an Indian brand that has survived the onslaught of Coke and
Pepsi."
Bottlers like Agarwal insist that it is the taste - Campa, he says, is not as sweet as Coke
and Pepsi - that keeps consumers loyal. Sosyo, which gets 10% of its turnover from
exports, too banks on its "Indian taste." "People want Indian taste. That's why Thums
Up outsells Coke and there's a pull for our brand," says Hajoori.
The clamour for local flavours also convinced Coca-Cola India to relaunch Rim Zim.
"Rim-Zim is being revived in keeping with a brand study by the company that indicates
that the brand has very strong recall and holds latent equity with the consumers," says a
Coca-Cola India spokesman.
The masala soda, being piloted in parts of Delhi, Punjab and Haryana, has been
reformulated to make it more contemporary, the spokesman added. Pepsi too has been
busy catering to regional tastes. 7UP masala nimbu soda — which the company claims
is the only packaged brand in this category — is being piloted in Punjab in 600ml PET
bottles; and 7UP Lemony Bite will soon be launched in the same state.
Rising health consciousness among Indians has pushed colas down the priority list,
reckons Chauhan, adding the first choice for quenching thirst today is mineral water
followed by fruit juices and aerated drinks. "They may create some buzz but the revival
won't lead them anywhere," says Bisleri brand owner. The cola majors, for their part,
would like to prove that Chauhan's scepticism is a case of sour lemons.
Aje vs. Coca-Cola: Disruptive
Business Model Innovation in the
Soda Market
When you think of starting a new business the last option is to enter into a
mature commoditized market where the margins are low and where you have to
compete with big wealthy players, right?The Aje Group has proved us all
wrong… there is a big opportunity if you look in the right place:the bottom of the
pyramid.
Let’s start in
Latin America, where Aje Group – with their flagship brand Big Cola – began
their growth journey… In Latin America, wealth is not well distributed at all. Our
country, Colombia, is the eight most unequal country in the world and is the most
unequal country in South America (according to the GINI Index). In Colombia
there is a social stratification that has 7 levels, from 0 to 6. Categories from 4 to 6
have higher purchase power and are loyal to the traditional sodas
likeCoke and Pepsi and some local brands, but the categories 1 to 3 are a
market segment in which these drinks were not an option because of the high
prices. That’s where Aje focused their business model on.
To be competitive they needed to reduce the costs as much as possible and be
sure that they are going to be able to reach places no other distributor could
reach. In order to reduce the costs they are building on the following strenghts:
 The flavor of their soda is proprietary so they do not have to pay royalties or
import the syrup.
 They heavily invest in technology reducing the production costs.
 The distribution is outsourced, reducing distribution costs. They give the
product in consignation so if the distributors do not sell the products, they do
not earn money.
The key strength is their distribution model. This distribution strategy has
paid off in Colombia: under their impulse the soda market has grown by 5%, and
Aje now controls 10% of this market in just 5 years; a unique growth by a new
company in a new market. The company is growing at an amazing rate in the
developing countries, opening operations in markets as far as Vietnam.
Because they give the product in consignation, the distributors have a huge
incentive to sell more and enter in new zones, because the more they the more
they earn. So the interests of the company and of the distributors are completely
aligned. Aje shows us how a clever change in a critical part of an industry
business model may have big rewards, and how exportable a business model
can be.

Like for every company the strategy and business model of the Aje Group has its
strong and weak points. We have covered the strong points already, now let’s
have a look at the challenges and threats associated with a company that has
less direct contact with their consumers than most of the companies in the same
industry. Their main challenges and threats are:
 Less insights in consumer behavior: because the Aje Group gives the product
in consignation, they do not have the same knowledge of consumer behavior
compared to their competitors integrated with distribution. There can be quick
changes in the consumer pattern that will be unnoticed for the Aje Group but
not for its competitors. This includes unsatisfied demand because the
distributors do not share the information.
 Being labeled as a cheap brand: Latin America is growing faster and most of
the projections say that this is going to take millions of people out of poverty.
Because of its market position as a cheap alternative, customers may decide to
switch to another brand as soon as they have a better economic position.
 Loss of product: because they give their product in consignation they can start
to lose it because the distributor does not show up anymore. This is not the
case because it is a model quite close to the micro lending system – where the
repayment rates are really high, but it is a threat.
 Lack of reliability on the distribution network: again because the Aje Group
does not control the distribution network, they cannot easily assure that the
distribution network is reliable. This situation may drive the retailers to stop
their business with the Aje Group.
The Aje Group is a highly successful global company with both innovation and
cost reduction in their DNA. They have to face huge challenges in the future, but
showed us all that they can solve them in an incredibly efficient way. We’ll keep
an eye on the next innovations of Aje!
Guest article by Daniel de La Cuesta (Daniel.delacuesta@innotekne.com) and
Camilo Serna Zamora (camilo.serna@innotekne.com).

Aje Group Could Grow To Be Global Soft Drinks Challenger
Latin America - Thu Mar 31, 2011

In an interview with The Wall Street Journal, an executive for Peruvian soft drinks
company Aje Group announced that the firm plans to issue its first bond, worth
US$200mn, to help fund expansion. The vice president for finance and administration,
Carlos Ananos, also said the group was exploring options for an initial public offering
(IPO) as it looks to expand its reach further into Asia and Latin America. The prospect of
more rapid growth for the Peruvian firm, which was founded in 1988, is not likely to be
well received in the offices of The Coca-Cola Company and PepsiCo, with the firm
currently eating up market share across Latin American and Asia thanks to a well
received strategy of undercutting the prices offered by the two soft drinks giants.
Where Will Aje Go Next?
Aje, whose brands include Kola Real and Big Cola, has found a ready market for its
low-priced products across Latin American, where a large number of people remain on
low incomes. The firm has well established positions in Peru, Venezuela, Ecuador,
Costa Rica, Mexico and Guatemala. Its rapid expansion is typified by its progress in
Mexico, which Aje entered in 2002 and has grown to control about 8% of the market,
which is one of the world's largest. In the last year, the firm entered Brazil and also
turned its attention to Asia, building plants in India, Vietnam and Indonesia. Aje is keen
to highlight the transferability of its business model to Asia, revealing that in just nine
months it gained 8% of the market and has it products on sale in 60,000 stores,
restaurants and hotels.
This attack on a number of fronts underlines the firm's ambitions but it is also going to
require significant investment, which explains the decision to enter the bond market.
Ananos also hinted at the possibility of an IPO but was cautious, saying only that Aje
would assess whether it needed to launch an IPO over the next five years. Given the
huge size of the markets that Aje has entered in the last year we would expect the firm's
strategy over the next couple of years to be one of consolidation as it looks to build
market share in what are some of the world's most exciting soft drinks markets.
How Will Coca-Cola And Pepsi Respond?
The rise of a low-cost competitor is clearly not good news for Coca-Cola and PepsiCo,
which generally do not compete with each other too aggressively on price. Aje's
popularity has the potential to put downwards pressure on both their margins and sales,
with emerging markets expected to be the key driver of growth over the long term (see
chart). Price-focused local operators are one of the chief risks that could cause earnings
growth to come in below expectations. The response to this risk has generally been to
eliminate the competition through acquisitions (usually preceded by a squeeze on
market share). For example, Coca-Cola purchased a stake in Inca Cola producer
Corporación José R. Lindley in 2000 and bought out Indian cola Thums Up in 1993.
However, the situation is turned around, with Coca-Cola and PepsiCo as the
incumbents and Aje as the aggressor, making it a very different proposition. Instead of
being squeezed in its domestic market, Aje Group is expanding into Coca-Cola and
PepsiCo strongholds. The firm's size and international presence mean that it is in a
strong position to resist any attempt to squeeze it out of the market, while being
privately held means it is not vulnerable to takeover attempts. That said, the threat of a
takeover is probably the main reason why the firm is thinking very carefully about raising
financing through an IPO, with PepsiCo and Coca-Cola's previous strategies suggesting
that they are likely to closely monitor the availability of shares in the firm. Even just
issuing bonds has the potential to loosen the iron grip that the founding family has over
Aje at present, with bondholders likely to have a say in any financial restructuring were it
ever to be required.
A New Global Soft Drinks Giant?
Aje registered revenue growth of 20% in 2010 and has set its sights on being one of the
world's 20 most recognised brands by 2020. The firm's decision to expand into some of
the fastest growing consumer markets, including India, Indonesia and Brazil, means we
see no reason for this pace of expansion to decelerate and Aje is likely to continue
outpacing the growth of its multinational rivals. While it will take significant resources to
build a truly global profile, the firm's success in Latin America and Vietnam underlies
just how strong its low-cost business model is and we therefore see potential for Aje to
grow into a significant challenger for global market share.
- See more at: http://www.businessmonitor.com/news-and-views/aje-group-could-grow-to-be-
global-soft-drinks-challenger#sthash.fzsQkOJP.dpuf
Summery
Peru-based Aje Group is a leader in low-priced Latin American soft drinks,
reaching underserved retail channels through distribution expertise. The
company has expanded from Peru across the world, with successful global
operations established in Thailand and India. The company seeks further product
diversity to maintain a positive growth trajectory despite fierce competition from
global soft drinks giants.

Euromonitor International’s Aje Group in Soft Drinks (World) Company Profile
offers detailed strategic analysis of the company’s business, examining its
performance in theSoft Drinks industry. The report examines company shares by
region and sector, product developments, market and distribution strategies,
challenges from the competition and future prospects. Use it to understand
opportunities and threats facing the business and the factors driving success.

Product coverage: Asian Speciality Drinks, Bottled Water, Carbonates,
Concentrates, Juice, RTD Coffee, RTD Tea, Sports and Energy Drinks.

Data coverage: market sizes (historic and forecasts), company shares, brand
shares and distribution data.

Why buy this report?

* Get a detailed picture of the Soft Drinks market;
* Pinpoint growth sectors and identify factors driving change;
* Understand the competitive environment, the market’s major players and
leading brands;
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Fizzy war: Big Cola set to take on
Coke, Pepsi
Barring the odd soundbyte around the official launch a few weeks ago, Spanish beverage
major Aje, the owner of Big Cola, a brand strong in Latin America, has opted to maintain a low
profile in the Indian marketplace - the fourth Asian country it has stepped into after Thailand,
Vietnam and Indonesia in the last few years.
Big Cola is ranked number two in Latin America (including markets
such as Peru, Mexico, Ecuador, Venezuela, Colombia etc) after Coca-
Cola thanks to its local flavours and discount pricing.
India, say officials at the privately-held Aje, is demographically similar
to the Latin American region with a large and growing middle class,
youth population and climatic conditions that make it imperative for
the beverage major to launch operations here.
"India is an important market for us and a country where we felt we
could make inroads into," says Sorin Voinea, director, marketing -
Asia-Pacific, Aje Group.
But the big question is: Can Big Cola really shake-up the cola market
here like it did in Latin America? Aje actually debuted in India in
December 2010 when it set-up a bottling plant outside of Mumbai, in
Patalganga, Maharashtra.
There was some testmarketing of Big Cola too in and around Mumbai,
Pune and Surat last year. But with a formal launch now, its footprint is
wider including places such as Aurangabad, Ahmedabad, Goa, Indore
and Navi Mumbai besides the cities of Mumbai, Pune and Surat.
In
all these locations, Big Cola, available in three flavours including
orange, lime and cola, retails mostly in modern trade including Big
Bazaar (from Future Group) and D'Mart besides allied malls and
hypermarkets. Price points include Rs 12 for a 300-ml PET bottle, Rs
20 for a 500-ml bottle and Rs 40 for a 1.5-litre bottle - more or less in
line with competition (read Coke and Pepsi), which are also
aggressively priced owing to the low penetration of carbonated
beverages in India.
India's per-capita consumption of carbonated beverages is just 20
bottles of 200 ml per person a year as opposed to 92 bottles of 200 ml
per person a year, which is the per-capita consumption in mature
markets such as the US.
Big Cola is also not available in returnable glass bottles, which make
up 35-40 per cent of sales for a cola company in India, and are key for
penetration into traditional trade too.
Despite this, Devendra Chawla, president, food & fast moving
consumer goods business, Future Group, says that the response to the
brand has been good at Big Bazaar.
"It is available at Big Bazaar in Mumbai and has done pretty well," he
says.
But executives at Coca-Cola say that with modern trade constituting
under 10 per cent of sales for a cola company, consumer response to
the brand at these outlets cannot be a true measure of its success.
For the cola segment as is the case with most other FMCG categories,
traditional trade is still the most critical aspect of the business. If the
code can be cracked there, then yes, you will be taken seriously," says
an official.
Voinea declines to indicate whether Big Cola will be available in mom
and pop stores - a segment that is difficult to crack owing to the
stranglehold of Coke and Pepsi in these outlets.
"A combination of factors have helped Coke and Pepsi in traditional
trade including providing refrigeration facilities to its strong brand
pull, which goads small retailers to stock their products," says Arvind
Singhal, chairman, Technopak Advisors.
Ironically, Aje has opted for an aggressive distribution strategy in its
home turf of Latin America, where it dived right into the heart of the
cola market with its proprietary cola drink, opting to position it as a
brand for the lower-income groups, who found Coke and Pepsi too
high-priced and aspirational.
Starting from Peru, Aje through Kola Real, as Big Cola is referred to in
this market, saw a ready base when Coke and Pepsi found it
increasingly difficult to distribute their products during the war
between guerrillas and government forces in the late 1980s.
Distributing Kola Real in recycled beer bottles, Aje slowly graduated
to marketing it in PET bottles that it produced in-house. Today, Aje
has nearly 30 plants across the world, all controlled by it and vertically
integrated.
This, say experts, has allowed the company, which also markets juices,
tea, water, beer as well as sports and energy drinks, to keep costs
under control as well as to be able to monitor progress and set targets,
which is not possible when you have a string of bottlers doing
production for you.
To tide over these issue, both Coke and Pepsi have a mix of franchise
bottlers and company-owned units in India to ensure that production
is not marred on account of too much dependence on the former.
According to industry estimates, Coke has 35-40 per cent of its overall
production coming from bottlers, while the balance 60-65 per cent is
managed by it at its own production facilities.
For Pepsi, nearly half its production comes from bottlers, while the
balance comes from its own in-house units.
To tide over these issue, both Coke and Pepsi have a mix of franchise
bottlers and company-owned units in India to ensure that production
is not marred on account of too much dependence on the former.
According to industry estimates, Coke has 35-40 per cent of its overall
production coming from bottlers, while the balance 60-65 per cent is
managed by it at its own production facilities.
For Pepsi, nearly half its production comes from bottlers, while the
balance comes from its own in-house units.