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By Jonathan Clark This story was originally published in the Mexico edition of The Miami Herald on Dec. 27, 2004. OAXACA - At her variety store in the center of this southern city, shopkeeper Magda Vasconcelos keeps two coolers stocked with soft drinks. One is filled with products from the Coca-Cola company, the other with a colorful array of flavored sodas from local producer Rey Refrescos. And while the Coke drinks fetch 7 pesos per 600-milliliter bottle as compared to 5 pesos for a Rey, Vasconcelos says they still outsell their local competition. "Far and away, the customers prefer the Coke products, probably 2-to-1 or 3-to-1 over Rey," she said. "They all want Coca-Cola soft drinks and Marlboro cigarettes." Vasconcelos is not sure why her customers prefer the more expensive product of U.S. origin over a cheaper, local brand. "But if I had to guess," she said, "it's from all of the publicity and advertising they see from Coke." Like Mexico's other regional soft drinks - Jarritos in Mexico City, O-Key in Puebla and Yoli in Guerrero are just a few examples - Rey can't compete with multinational Coca-Cola in terms of advertising and promotion. Instead, it has to rely on strategies such as competitive pricing, regional recognition and widespread distribution. But according to officials at Rey, good distribution is becoming increasingly difficult as Coca-Cola and its distributors forge exclusive sales agreements that are, in Mexico, illegal. "We don't see much of that kind of thing here in the city of Oaxaca," said Rey's brand and distribution manager Mauricio Olvera. "But down in Ixtepec (in the southeastern Istmo region of the state of Oaxaca) there are a lot of under-the-table agreements being made." Olvera says that store owners won't acknowledge the deals, nor will they sign paper contracts with Coca-Cola, "because legally, they can't admit they've got an exclusive." "So they tell us, 'Oh, it's just that we only want to sell Coke,' but you can see that suddenly they've put up all kinds of promo materials, the facade of the store has been painted, and they're doing new promotions and discounts," he said. And while he has seen little of this type of activity at the corner stores of the state capital, Olvera says that the city's restaurants are a different story. "We show up (at the restaurants) and they say, 'Well, you're just a regional so you won't sell,'" he said. "But we know that probably what happened is that Coke made a deal with them." Calls requesting comment from the public relations department at FEMSA, Coca-Cola's bottler in Mexico, were not returned. Mexico has an anti-monopoly law that prohibits exclusive sales agreements with small-scale vendors, but the body responsible for monitoring such activities, the Federal Competition Commission, or CFC, has limited powers to enforce the loophole-filled legislation. Two years ago, a CFC investigation found that Coca-Cola was guilty of widespread use of exclusivity contracts in its dealings with the nation's mom-and-pop variety stores. But by filing an endless string of legal appeals, Coke and its distributors were able to block any action in the case. SOFT DRINKS CULTURE According to a 2003 market report from beverage research company Canadean, Mexico benefits from a "strong soft drinks culture." This, says Canadean, is due largely to three principal "perfect" conditions for soft-drink sellers: year-long warm weather, a young population and a healthy tourism industry. Indeed, soft-drink-filled coolers are everywhere in Mexico: in corner stores, pharmacies, restaurants and curb-side taco stands. And Coke products, especially its cola drink, enjoy an almost cult-like status around the country. According to the Canadean report, Mexico has recently overtaken the United States as the largest per capita consumer of Coca-Cola products in the world. In an effort to boost its leverage against the soft drink giant, Rey has entered into a bottling and distribution agreement with Coca-Cola's top worldwide competitor, Pepsi Co. Under the agreement, Rey bottles Pepsi soft drinks at its facilities in Oaxaca and Tuxtla Gutierrez, Chiapas. But under the peculiarities of its contract, Rey can only distribute Pepsi products in Chiapas and the Istmo region of Oaxaca. Therefore, in Oaxaca city itself, Rey finds itself in the odd position of competing against a partner company. This can create tension when Pepsi enters into its own exclusivity deals. In past summers, Rey and Pepsi products were sold side-by-side in the stands at the home games of the Oaxaca Guerreros, the local entry in the Mexican Baseball League. However, at the start of the 2004 season, Rey suddenly found itself shut out of the stadium. "Sports teams worldwide generally work with one brand of soft drink," Olvera explained. "The soft drink company pays the team for their presence in the stadium, so they want the logo on the scoreboard and on the player's uniforms to refer to the product being sold in the arena." Still, he is reluctant to blame partner Pepsi for Rey's exclusion from the Oaxaca ballpark. "It's usually the owners of the team that put the limits in the deals, not the vendors," he said. For its part, the Guerreros' front office denies any exclusivity deal with Pepsi. "What happened was that we just weren't able to come to terms on a deal with Rey for the 2004 season," said marketing director Raul Solis. "But we hope that next season we'll be able to work something out with them." FOCUS ON PRICE Coke, as well as Pepsi, spends heavily on promotion and advertising to maintain its high profile. Olvera says Rey Refrescos use this to its advantage. "Due to their publicity costs," he said, "Coke and Pepsi can't offer prices as low as we can." Rey soft drinks come in seven flavors - orange, pineapple, apple, lemon-lime, grapefruit, peach and grosella, a strawberry-like flavor. But Jorge Gomez, a local university student, says they lack the carbonation of Coke products. He says price is Rey's only advantage over its multinational competitor. "It's like we say: 'Si no me alcanza, pues me compro un Rey' ('If I don't have enough money, I buy a Rey')," he said. Fellow student Jose Luis de la Cerda said that as a Oaxacan, he doesn't feel any special loyalty to the local brand. "I like (Rey flavors) pineapple and lemon-lime," he said, "but the Coke products have a more concentrated flavor, and the bottles have a better presentation as well." Others say that drinking Coke has more prestige, and that Rey is perceived as a drink for poor people. But Olvera complains that illegal exclusivity deals make it increasingly difficult for any consumer, rich or poor, to buy Rey. "Of course the best situation is where there's a mixed variety with maximum options for the consumer," he said. "But now, suddenly, the consumer is obliged to drink something. 'Drink this because it's the only option' is the message, and that's not fair." |