VENEZUELA: The Cola War Hits Latin America

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, Aug 19 1996 (IPS) - Coca-Cola has dug up the hatchet in Venezuela, restarting the war against Pepsi, depriving it of its longest held outpost in the developing South, in a nation where Pepsi was more a way of life than a soft drink.

Pepsi-Cola had dominated the Venezuelan market for forty years, in the hands of the Hit bottling branch of the Cisneros group, the second biggest company in the country, but on Friday the company did a ‘U’ turn, and signed a contract with Coca-Cola.

This transaction must have cost an enormous amount. Sources on Wall Street are talking of 300 million dollars, plus commitments for 200 million dollars of investments and another 100 million for the legal battles which are expected to ensue.

The Phillipines will thus be the only nation where Pepsi still predominates over Coke. In Venezuela, Pepsi and other soft drinks controlled by Cisneros control 87 percent of the soft drinks market, with Coca-Cola holding a timid 10 percent.

Venezuela’s population of 22 million inhabitants, makes a small but emblematic market, showing the success of an independent bottling and distribution concern operating under a franchise, making Pepsi an integral part of the Venezuelan way of life and speech, where the trademark is a synonym for ‘soft drink.’

An average Venezuelan will not say “would you like a soft drink?” but “would you like a Pepsi?” regardless of the brand of drink on offer, and young man who’s love is unrequited might easily remark: “She thinks she’s the last Pepsicola in the desert.”

Faced with stagnant or stable markets, like North America, this part of the tropics offers consumers who habitually drink soft drinks with their meals.

Pepsi, confident of its hold on the Venezuelan market, began to stretch out across Latin America in 1994, especially in Argentina and Brazil, taking over the Baesa bottling operation, and joining with the Gemex goup in Mexico to get a foot in the door in Yucatan.

Thus the loss of the leading bottling plant in Venezuela is a hard blow for Pepsi, after their million dollar investments to change their packaging from three colours to blue, in order to distinguish themselves more from Coca-Cola.

The news of Hit changing hands had instant effects on the New York stock exchange, with Coca-Cola shares up to 62.5 US cents – their highest level in the last year.

Meanwhile, Pepsi is reportedly in a state of shock, looking desperately for a Venezuelan partner – like the Polar beer company with its formidable fleet of delivery lorries, or its Brazilian rival Brahma – preparing itself to import soft drinks to supply the market over the next few weeks.

On another front, a legal battle is being prepared, and Keith Hughes, Pepsi public relations director in the United States, qualified the action of Coca-Cola as “an attack on Venezuelan consumer right to free choice, and a complete betrayal of the Venezuelan people.”

Pepsi will base its case in Venezuela and the United States on two criteria. Firstly, the elimination of free trade, the Venezuelan people’s right to choice, and the establishment of a monopoly, and secondly the breaching of the Pepsi-Cisneros contract, due to expire in 2003.

However, Cisneros countered that over recent years it had repeatedly asked Pepsi to pay more attention to its operations in Venezuela, and for new investments to update the technology, though the transnational had ignored their requests, confident in its hold on the market.

Hit operates 19 bottling plants – compared to Coca-Cola’s four – with a fleet of a thousand lorries, which since the weekend have been repainted in ‘enemy’ colours.

Oswaldo Cisneros, heir of the bottling plant started by Cuban immigrant Diego Cisneros in the forties, called a meeting of associates in the Caracas plant Friday.

He reported the negatives he had received from Pepsi international and the association with the former rivals in order to expand the company. He spoke of the pending legal battle and concluded, reportedly in a broken voice: “We are no longer Pepsi, we are now Coca-Cola.”

Workers of the former Pepsi interviewed on their newly painted red lorries told IPS Monday “it’s a very big change for us. We will now be selling the drink that was the enemy all our lives.”

Meanwhile, Coca-Cola made a radiant announcement. “For decades, the Venezuelan market has been a big black cloud in the sky of Coca-Cola. Today, it has cleared and the sun has started to shine again,” said Douglas Ivester, Coca-Cola world president.

Before the official announcement was made, President Rafael Caldera called the majority of his ministers together to listen to a report from Cisneros giving the reason for the change, including the offer made to Pepsi to take the four Coca-Cola plants, tasting the bitterness of defeat in place of the sweet honey of market domination.

The government reaction is still an unknown factor, and the official Superintendent’s office for Free Competition has still not taken up the case, and Pepsi announced it would be starting its first legal action this Tuesday.

Meanwhile, tins and bottles of Pepsi-Cola were snapped up in the shops of the main cities Monday, and one of the main national dailies headlined “Seek out those tins of Pepsi, they’ll soon be collectors items!”

The change will even affect the urban landscape as the lorries and billboards change colour, the sensual television advertisements disappear and people can no longer give directions to their houses working by the Pepsi-Cola signs on the corners.