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Gale Directory of Company Histories: Ajegroup S.A. Type: Private Corporation Address: Avenida La Paz Lt.

30, Lima, 15, Peru Telephone: (51 1) 371-1812 Web: Employees: not available Sales: $800 million (2006 est.) Founded: 1988 as Industrias Aaos NAIC: 311411 Frozen Fruit, Juice, and Vegetable Processing; 312111 Soft Drink Ma nufacturers; 312112 Bottled Water Manufacturing; 312120 Breweries SIC: 2037 Frozen Fruits & Vegetables; 2086 Bottled & Canned Soft Drinks; 2082 Ma lt Beverages Ajegroup S.A., a Peruvian-based beverage company, produces, markets, and sells, through its subsidiaries, carbonated soft drinks, fruit juices, beer, and water. In only 20 years Ajegroup has made its mark, challenging the Coca-Cola Co. and PepsiCo, Inc., throughout Latin America. By offering beverages similar to but lo wer priced than those marketed by the two giants, Ajegroup, best known for its K ola Real and Big Cola soft drinks, has won the allegiance of millions of thirsty customers from Peru north to Mexico. The company has also established an Asian presence and has entered the beer business in Peru. Producing and Selling Soft Drinks Cheaply: 1988-98 Eduardo Aaos and his wife, Mirta Jer de Aaos, had fled their family farm in southern Peru by 1988, taking refuge from the Maoist group Sendero Luminoso (Shining Path ) in the nearby city of Ayacucho. The insurgents were slowly strangling the econ omy of this Andean highland community by such means as hijacking Coca-Cola truck s. Sensing an opportunity, the couple and their five sons entered the soda busin ess, borrowing $30,000 on their property. Jorge, the eldest son and an agricultu ral engineer, developed the formula for the main ingredients of the cola drink, which was sold in recycled beer bottles with the labels hand pasted. Another acc ount credits another son, Carlos, a chemist, with developing the "secret formula ." The product, Kola Real, proved a hit with the townspeople. Four of the five brothers soon decided the business could be taken elsewhere. Th ey opened a second plant in Huancayo in 1991 and a third in Bagua in 1993. Indus trias Aaos, as the business was then called, next entered northern Peru at Chiclay o, Trujillo, Tumbes, and Piura, and in 1994 opened its first plant on the Pacifi c coast, at Sullana, near the northern border, from which it exported into Ecuad or. In 1997 the company entered Lima, gaining attention by selling its soft drin ks as low as half the price of the leading brands. In Peru these were not Coke a nd Pepsi, but Coke and Inca Kola, which formed an alliance in 1999. By late 2001 Kola Real had about 10 percent of the Peruvian market for soft drinks and sales of about $30 million a year. The two big brands were facing a challenge in the form of what became known in L atin America as B-brands: soft drinks--not necessarily colas--produced and sold inexpensively by smaller companies. Their production costs were much lower becau se they did not have to pay royalties to (usually foreign based) brand owners. P utting the product in plastic rather than glass bottles also kept costs low. Whe n these receptacles became available in the 1990s they not only proved to be a l ess expensive option than glass but also could be made larger in size to achieve economy of scale. Marketing was minimal in comparison with the brand leaders. T hese savings were passed on to the consumer; in Peru, Industrias Aaos and two othe r B-brand companies were, in 2001, selling half-liter bottles of their beverages to supermarkets and convenience stores at more than 40 percent below the price of the leading brands. Starting out on a shoestring, the Aaos family members were neither inclined to spr ead their money around or go into debt. They obtained capital for expansion not from banks but from their suppliers and their own profits. In their business mod el, the key was the distribution system. Thirty-to-fifty-ton trucks owned by ind ependent contractors carried the products in cases from the bottling plant to di

stribution centers, where smaller vehicles were loaded for delivery to the compa ny's numerous points of sale. These, too, were operated by independent contracto rs who provided their own vehicles, often small pickups, and, given the realitie s of the Peruvian economy, were easy to find and easy to hire. Salesmen as well as deliverymen, they worked on commission, paid for the cases they carried, and could not return the ones that they did not sell. Plant locations were likely to be in rundown industrial parks where sites were v acant and rents were low. Advertising was so limited that for some time the mark eting personnel consisted of two sign painters putting up wall murals with the K ola Real logo. When Industrias Aaos finally began advertising on television, it hi red poorly paid freelancers who were said to have produced inferior quality comm ercials. Executives and managers, too, received salaries much below industry sta ndards. Furthermore, the company was not interested in sponsoring big attraction s such as soccer's America Cup, but rather only a few small local events. Expanding Northward: 1999-2004 Industrias Aaos made its first move outside Peru in 1999, when it spent $4 million to open in Valencia, Venezuela, with a plant capable of turning out 30 million liters a year. By 2003 this investment had reached $12 million to $15 million. T he company was distributing Kola Real and a second brand, Big Cola, in all of Ve nezuela, and had reached 12 percent market share, its original objective. ngel Aaos , the company's president, told Lucien O. Chauvin of Beverage World, "We are not interested in being market leaders. Our goal is to establish a solid share and maintain that." Ecuador was the next country to house an Aaos plant, in Michala. B y 2003, however, the company was nearing completion of a $3 million bottling pla nt in Guayaquil, the country's largest city. Kola Real and another Aaos brand, Sab or de Oro, said to look and taste somewhat like Inca Kola, had by then carved ou t an 8 percent market share. According to the company's figures in 2004, its mar ket share had reached 17 and 12 percent, respectively, in these two countries. I n Peru, where Kola Real was available in five flavors, it claimed 19 percent. The Aaos family had its eyes on a much bigger prize, Mexico, by far the largest Sp anish-American country and a market for soft drinks second only to the United St ates. Even the poorest Mexican families directed an average of 7.3 percent of th eir spending to carbonated beverages, according to a 2005 survey. Carlos and Art uro Aaos were sent in 2002 to oversee the operation, which was based in a new plan t in an industrial park outside Puebla, less than two hours by motor vehicle fro m Mexico City. They began with a single product, Big Cola in an economy sized 2. 6-liter bottle. Created by their brother ngel, a chemical engineer, Big Cola's sy rup had a less citric flavor than Kola Real and ingredients, including unrefined brown sugar, intended to make it intermediate in sweetness between Pepsi and Co ke. Once again, costs were kept low, with very few people at the no-frills corporate headquarters and not much in the way of advertising. Some 600 trucks were lease d to haul Big Cola from the Puebla-area plant to 24 distribution centers, from w hich 800 freelance sales personnel labored to distribute the product to 100,000 points of sale ranging from supermarkets to tiny country stores and tortilla sta nds. Within two years the company, by that time renamed Ajegroup (combining the prefixes of Aaos and Jer), had won about 5 percent of the Mexican soft drink market through its Ajemex subsidiary. It was offering Big Cola and First, a grapefruit flavored soda, in three sizes, including a 3.3-liter jumbo bottle. Pepsi Cola h ad been forced to cut its prices by 15 percent, and some of Coca-Cola's 16 bottl ers, which dominated the industry in Mexico, had followed suit. Coca-Cola did not take this incursion lying down. Some of its salespeople threat ened to stop deliveries to retailers who had Big Cola on their shelves. A federa l commission ruled that some of Coke's practices, such as exclusive contracts, w ere illegally designed to stem competition, and in 2005 it fined 15 Coke bottler s and distributors nearly $15 million. The Coca-Cola company then turned to indu cements, such as offering proprietors free life insurance policies, cooking oil, refrigerators, and cases of Coke if they would reject Big Cola. Most of its sal espeople were monitoring the retailers' nearly million Coke display coolers to m ake sure they did not stock rival brands.

In the midst of this heated competition, a valve in the Puebla plant failed, res ulting in the emission of dangerous quantities of carbon dioxide. Suspecting sab otage, executives of Ajemex created a "crisis manual" for supervisors and vendor s to counter unforeseen events. The firm's strategy for opening operations in a small community was to arrive unannounced and sign up retailers before the compe tition could adopt countermeasures. In stores, many times the competition no lon ger was about which brand sold more but which truck arrived first to sell. More Countries, More Products: 2005-07 In late 2005 Mexico was accounting for almost half of Ajegroup's sales. Ajemex's 3,000 delivery people were offering nine different products to 310,000 points o f sale, including Big Country, a juice line; Mega First in lemon, orange, and ap ple as well as grapefruit flavors; and Free World and Free World Light, flavored bottled water lightly carbonated and fortified with vitamins, antioxidants, and minerals. The company had five production plants covering every part of the cou ntry. Big Cola was believed to have won 10 percent of the market for carbonated beverages. Seventy percent of sales came from small stores, 20 percent from supe rmarkets, and the rest from dance halls, festivals, and large scale events. By the end of 2005 Ajegroup subsidiaries had implanted themselves throughout Cen tral America. Ajegroup had 15 plants, 98 distribution centers, and 720,000 point s of sale in Latin America. Then, in 2006, the group entered an Asian country, Thailand, where its affiliate , Ajethai, recorded sales of perhaps $50 million in its first year of producing Big Cola in Bangkok. Cambodia, Laos, and Vietnam were neighboring countries bein g explored for expansion by the parent company, as well as the area's giant, Chi na. Colombia became, in 2007, the next Latin American country to receive Ajegrou p's products. In Peru, Ajeper held about one-fifth of the soft drink market. Its Cielo brand o f bottled water, also marketed in Mexico, Venezuela, and Ecuador, accounted for 40 percent of a market which was enhanced when the government, at the beginning of 2007, dropped the 17 percent selective tax it had imposed on products in this sector. Other products included First and Sporade, a drink introduced in 2004, similar to Gatorade, but selling for only half the price. In 2007 Chip Fruit, a drink made of concentrated citrus juices that was being marketed in Ecuador, was introduced. Later in the year, Ajeper launched the parent company's first beer, named Franca, on a $35 million initial investment. The company, which unveiled roadway billboards featuring a noted Peruvian chef touting the product, was expe cting to win a 12 to 15 percent market share during 2008. In Mexico, Ajemex had been planning to introduce a beer named Big Chela since 20 05 but had been dissuaded by Mexico's Congress, which passed a law giving favora ble tax treatment to beer in returnable bottles. Companies entering the business and thus challenging the nation's two big brewers, Grupo Modelo, S.A. de C.V., and Fomento Econmico Mxico, S.A. de C.V. (Femsa), would either have to pay a highe r tax or add investment in bottle distribution, collection systems, and delivery vehicles to their start-up expenses. Ajegroup was producing beverages in 13 countries in 2007 and had 22 production p lants worldwide. Big Cola had annual production of 3.1 billion liters, of which Mexico alone accounted for 2.5 billion. Principal Subsidiaries Ajecuador (Ecuador); Ajecen (Costa Rica); Ajemaya (Guatemala); Ajemex (Mexico); Ajeper (Peru); Ajethai (Thailand); Ajeven (Venezuela). Principal Competitors Corporacin Jos R. Lindley S.A.; Fomento Econmico Mxico, S.A. de C.V.; Grupo Gemex S. A.; Peru Beverage Limited S.R.L; Pepsi Bottling Group, Inc.; Unin de Cerveceras Pe ruanas Backus y Johnston S.A.A. Further Reading Aldunate Montes, Felipe, "El fenmeno Aaos," AmricaEconoma, June 18-July 8, 2004, pp. 22-25. Aspin, Chris, "Big Cola, Soon Big Chela to Mix in Mexican Market," Banderas News , November 2005. "The Big War," Expansin, September 18, 2007.

Castillo Mireles, Ricardo, "In Mexico, Big Cola Is the Real Thing," Logistics To day, March 2004, p. 9. Celis Estrada, Dario, "Tiempo de negocios," Reforma, May 4, 2004, p. 4. Chauvin, Lucien O., "Cinderella Story in Peru," Beverage World, March 15, 2003, p. 67. ------, "Hydro Power," Beverage World, March 15, 2007, p. 4. "Cola down Mexico Way," Economist, October 13, 2003, pp. 69-70. Howard, Rebecca, and Robert Kozak, "Bubbling Economy Boosts Competition in Peru' s Beer Market," Dow Jones International News, October 24, 2007. Luhnow, David, and Chad Terhune, "A Low-Budget Cola Shakes Up Markets South of t he Border," Wall Street Journal, October 27, 2003, pp. A1, A18. "Soft Drinks and JR Lindley--Inca Cola the Rise of Non-global Brands," Latin Ame rican Economic and Business Report, March 20, 2001. Robert Halasz Big Cola marketing 2SEP Sources is about The Big Cola has strategy to aggressively push sales in Asia as its biggest sales contributor. In the past just five years, Big Cola has gained a 27% market share in cola drinks in Bangkok, and 22% for the whole country. So , the company estimates about 80% of Thai consumers drink Big Cola at least f our times a week. And , the AJE aimed to increase the sales contribution from As ia to 70% of Big Colas global sale, from 30% currently, within two years. About 7 0% of Big Colas business now comes from South America and the rest from Asia. Cur rently, AJE operates four factories for Big Cola in Asia: in Chon Buri, Ho Chi M inh City, Jakarta, and Pune, near Mumbai. In addition to Big Cola signed agreements as an official partner of four English Premier League football clubs Everton, Stoke City, West Bromwich Albion and Wig an Athletic for the coming season. The company believes the alliance will build its brand awareness in global markets, especially in Asia where the Premier Leag ue is popular. Personally, I think English Premier League football clubs is good activity becau se it is very good publicity of brand and these has interest worldwide.