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Marketing Lessons for Coke from Peru’s Big Cola

Marketing Lessons for Coke from Peru’s Big Cola

An emerging cola brand from Peru schools the giants on how to achieve big growth.

AJE, the Peruvian purveyor of Big Cola, with global sales of $2 billion, has achieved sales growth of an average 22 percent per year from 2000 to 2013. PepsiCo on the other hand, recently outperformed Coca-Cola’s negative 1 percent growth in net sales (and 3 percent decline in profits) by reporting a topline growth of 4 percent. AJE may be a minnow compared to the big cola companies, but it’s outperforming them.

This promising player interestingly owes its foun­da­tion to the reign of ter­ror by the guer­rilla move­ment Sendero Lumi­noso (Shin­ing Path) in the 1980s, which led the Añaños fam­ily to flee their farm. Forced to think of how to sur­vive, and see­ing the with­drawal of the soft drink giants from the mar­ket, the five sib­lings (four broth­ers and one sis­ter) started mak­ing an orange fla­vored bev­er­age they called Kola Real in 1988 in their court­yard, bot­tling it in recy­cled beer bot­tles, and sell­ing it door-to-door to neigh­bor­hood res­i­dents and mom and pop out­lets in the city of Ayacu­cho!

The prod­uct caught on, and in 1991, the Añaños sib­lings founded the AJE Group to bot­tle and expand the busi­ness, expand­ing to smaller cities like Huan­cayo, Bagua, and Sul­lana first, then pretty much through­out Peru in a step-by-step fash­ion, before finally arriv­ing in the Peru­vian cap­i­tal, Lima, in 1999.








In 2000 it began inter­na­tional expan­sion, tar­get­ing neigh­bor­ing Venezuela and Ecuador. In 2002 it entered Mex­ico, fol­lowed by the coun­tries of Cen­tral Amer­ica in 2004. Around the same time, it also started to add to its brand port­fo­lio. In 2001 it added bot­tled water under the brand name Cielo, in 2005 Pulp, a cit­rus fruit drink, and in 2006, Spo­rade, a hydrat­ing drink. That same year, it also set up its cor­po­rate head­quar­ters in Madrid, Spain. In 2010 it entered India, Viet­nam, and Indone­sia. Today, it is present through­out Latin Amer­ica and the United States. In Asia it has expanded in to Thai­land as well. And aside from Kola Real, Cielo, Pulp, and Spo­rade, it also owns Cifrut, Volt, and the Big Cola brands.

Fair prices first

From the very begin­ning, AJE focused on serv­ing less afflu­ent con­sumers, offer­ing lower prices. For exam­ple, to enter Lima in 1999, the Kola Real cam­paign posi­tioned the brand as The Fair Price Drink. And Kola Real prices are approx­i­mately 25 percent lower than that of its main MNC com­peti­tors’ offer­ings. To keep prices low, AJE needs to keep costs low. It does so by pay­ing close atten­tion to its entire value chain, strip­ping costs aggres­sively wher­ever pos­si­ble. For instance, AJE man­u­fac­tures its own bev­er­ages, unlike its MNC com­peti­tors like Coca Cola and Pep­siCo, which rely on an exten­sive net­work of inde­pen­dent bot­tlers, because this allows them to pro­duce their bev­er­ages at a lower cost.



AJE was also a first mover in to PET bot­tles (recyclable), which are ubiq­ui­tous today. Not only were these bot­tles cheaper but they were lighter and less frag­ile, mak­ing them much less expen­sive to buy, use, and dis­trib­ute. To keep costs low, AJE invests in part­ner­ing with micro-entrepreneurs who use their own transport to dis­trib­ute AJE’s brands. 92 percent of AJE’s sales are through such direct part­ner­ships, with only the remain­ing 8 percent going through whole­salers, who are more expen­sive. This dis­tri­b­u­tion model not only helps AJE keep costs low, but also enables them to pen­e­trate deep in to its mar­kets, going to remote loca­tions which remain unserved or under­served by their MNC com­peti­tors, and pen­e­trate new mar­kets rapidly.

Adaptation to other emerging markets

AJE’s suc­cess is not just due to lower costs, it also adapts to local mar­kets. For instance, in Asia, it sells a Big Cola with­out caf­feine, to adapt to local mar­ket needs. Or when, in Indone­sia, the cur­rency weak­ened, it launched a 300 ml pack priced at 2000 Rupiah to remain attrac­tive to its tar­get con­sumers. Today, four short years after enter­ing Indone­sia, AJE holds almost 40 percent of the Indone­sian car­bon­ated soft drink market of 1 bil­lion litres per annum!

AJE’s suc­cess has drawn the atten­tion of the big MNC oper­a­tors, who have tried com­pet­ing by aggres­sively offer­ing pro­mo­tional prices and increased spend­ing on adver­tis­ing. How­ever, this only works in the short term; poorer con­sumers revert back to AJE’s brands once the pro­mo­tional prices are withdrawn.

What is inter­est­ing is that the dom­i­nant MNCs in this space, Coca Cola and Pep­siCo, seem unable to deliver growth in the way AJE does or come up with a clear response to AJE’s suc­cess. What can we learn from AJE’s suc­cess story? There are lessons for both wannabe AJEs, or the so-called emerging multinational companies (EMNCs), as well as for the multinational companies (MNCs). These lessons have been detailed in our book The New Emerg­ing Mar­ket Multi­na­tion­als: Four Strate­gies for Dis­rupt­ing Mar­kets and Build­ing Brands, and here we review the key points that jump out from AJE’s story:

Lessons for EMNCs:

1.     Iden­tify a tar­get cus­tomer group that is under­served — in the case of AJE, these are con­sumers at the bot­tom of the pyra­mid, who num­ber 4 bil­lion, and those who live in less acces­si­ble locations.

2.     To avoid head-on com­pe­ti­tion, pen­e­trate deep in to emerg­ing mar­kets; tra­di­tional MNCs tar­get the afflu­ent in the metrop­o­lises and big­ger cities.

3.     Focus relent­lessly on costs, strip­ping costs from all ele­ments of the value chain.

4.     Lower costs through own­ing your own manufacturing.

5.     Lever­age the lower costs to not only price lower, but also to inno­vate and local­ize your offer­ing to meet local needs.

6.     Expand slowly but sys­tem­at­i­cally, ini­tially expand­ing the prod­uct range to increase the share of wal­let of exist­ing customers.

7.     Expand in the next stage by tar­get­ing the same tar­get seg­ment as tar­geted at home, across geographies.

Lessons for MNCs:

1.     MNCs have vastly larger bud­gets and thus far it seems that, that is what they are lever­ag­ing to try and com­pete through pro­mo­tional pricing and brand build­ing. Per­haps they are bet­ter off in shift­ing these vast bud­gets away from pro­mo­tion pric­ing, which does not work with bottom of the pyra­mid con­sumers, to brand building.

2.     The freed up dol­lars can be used to develop low cost brands, per­haps lever­ag­ing the mas­ter brand, and cre­at­ing a brand archi­tec­ture that can suc­cess­fully reach down to the bot­tom of the pyramid.

3.     Exploit the supe­rior mar­ket knowl­edge that has been accrued over the years of pres­ence in many emerg­ing mar­kets to develop local­ised offer­ings, again where pos­si­ble lever­ag­ing the brand architecture.

4.     Trans­fer knowl­edge more effec­tively across geo­gra­phies. After all, EMNCs like AJE do not have the orga­ni­sa­tion struc­tures or processes to be able to do this as effectively.

5.     Learn from the EMNCs and cut costs relent­lessly across the value chain. MNCs sim­ply do not do this well.

Sur­pris­ingly, Pep­siCo and Coca-Cola do not seem to be sen­si­tive to these learn­ings! The future of growth is in the emerg­ing mar­kets and among the bot­tom of the pyra­mid con­sumers there. Fail­ure to learn these lessons and deploy strate­gies based on them to com­pete effec­tively in these mar­kets and among bot­tom of the pyra­mid con­sumers is likely to be per­ilous for the future.

Amitava Chattopadhyay is The GlaxoSmithKline Chaired Professor in Corporate Innovation at INSEAD. He is also co-author of The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and Building Brands. You can follow him on Twitter @AmitavaChats.



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Anonymous User

05/11/2017, 11.41 pm

Aje's strategy of handling their own production and distribution likely slows their expansion oppuotunities.Can you please outline the pros and cons of Aje's company strategy

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