In February 2007, Coke regained control of Coca-Cola Bottlers Philippines by buying the 65 per cent stake held by San Miguel Corporation since 2001. Earlier this month, while meeting with President Gloria Macapagal-Arroyo during a visit to New York, Coke executives vowed to invest an additional US$1 billion in the Philippines to strengthen its bottling and distribution, even assisting hard-pressed mom-and-pop sellers with refrigerators.
A glance at Coca-Cola’s carbonated soft drinks adspend demonstrates the scale of the resources it is pouring into the market.
Coke tripled its carbonates adspend to Ps 2.2 billion ($45.4 million) from July 2007 to June 2008, compared to Ps 749 million from July 2006 to June 2007. It raised it another seven per cent to Ps 2.4 billion from July 2008 to June 2009, according to Nielsen.
Equally remarkable is the reaction of rival Pepsi, which slashed carbonates adspend 27 per cent from Ps 658 million in 2006/07 to Ps 479 million in 2007/08, and by a stunning 70 per cent to Ps 145 million in 2008/09.
“Pepsi is fighting what I call a smarter battle,” says Alfredo Herrera, chairman and CEO, Alternative Beverages Corporation. “Pepsi realises that Coke, at all costs, is trying to be number one with Brand Coke. If that means advertising, merchandising and pricing, don’t fight it there.”
He adds: “You have to pick and choose your battles, and go to where you have a market leader position - for example, focusing on Gatorade, which is number one in its category, or Tropicana, which is one or two.”
In the Philippines, carbonated beverages are losing their fizz. The decline began in the mid-90s, and Euromonitor data shows that as recently as 2003, carbonates commanded more than half of all soft drink volume sales (2.5 billion litres out of 4.3 billion litres), a share that by 2008 had shrunk to one-third (2.2 billion litres out of 6.2 billion litres). According to a source at Coca-Cola, the annual per capita consumption of the company’s total beverage portfolio dropped 8.5 per cent between 1998 and 2008, presumedly due to the slump in carbonates.
“Not long ago, carbonated drinks were strong in the Philippines,” says Heidi Villafana, director at Synovate Philippines. “Now there is an emerging non-carbonated segment with ready-to-drink teas, fruit juices, bottled water, even energy drinks. It is driven by health, and I think this is universal.”
But the Philippines is also a price-sensitive market, with 30 per cent of the country’s 97.9 million Filipinos living below the poverty line. Affordability drives the mass market. Next to carbonated soft drinks, the only thing cheaper is bottled water. Helped by promotions for such brands as Nature’s Spring by Philippines Spring Water Resources, bottled waters dethroned carbonates in 2006. That year 2.6 billion litres of bottled water were sold, versus 2.3 billion for carbonates, and the sales gap has since widened.
Water and carbonates make up 88 per cent of the market. But the remaining 12 per cent is where
the future lies. The third-placed juice category and fourth-placed ready-to-drink teas registered sales of 378.2 million litres and 309 million litres, respectively. One of the biggest success stories is Universal Robina’s tea, branded as 2C. Smaller categories — for example, Asian speciality drinks and functional drinks — are seeing double-digit or higher annual growth rates as well. The bottlers of Coke, Pepsi, RC Cola and Virgin Cola are scrambling to add non-carbonated beverages to their portfolios.
The zero-sugar Coke Zero has given the company a chance to respond to the health trend. “Coke Zero is the leader in this space,” says Gary de Ocampo, managing director of TNS Philippines. He points to “huge billboards, noontime programme sponsorship and TV ads” in support of the product; as Coke’s adspend has soared, this is where much of it is going.
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This article was originally published in 27 August 2009 issue of Media.
