1.

Major characteristics of the Brazilian soft drinks market

The Brazilian economy has been experiencing continuous growth and development since 2004, which led to an increase in employment and real wages. Economic system of Brazil is standing on a floating exchange rate, regime that is inflation targeting and compressed fiscal policy. The present GDP is $1.6 trillion and the real growth rate of GDP is 3.7%. Rate of unemployment is 9.6% and inflation is 3%.Major industries are textiles, shoes, chemicals, aircraft, steel, motor vehicles, etc. Agricultural products include coffee, wheat, rice, sugarcane etc. In Brazil, carbonated drinks are called refrigerantes (coolers). There are more than 3500 brands of soft drinks in Brazil, which is produced in more than 700 plants in 2004. From 1986 to 2003 the consumption of soft drinks lead to 11.6 billion liters with average year to year growth of 13.92%. Brazilian carbonated soft drinks market is the third largest in the world, after the United States and Mexico with consumption amounting to 14 billion liters in 2002. In the mid-1990s, after a long period of high inflation and economic stagnation, Brazil's successful economic stabilization plan, known as the Plano Real, restored the purchasing power of low-income segment of the population. This growth has allowed many Brazilians to buy consumer goods which were previously inaccessible to them, such as cookies, yogurt, snacks, cereals, and personal hygiene items. As a result, in the second half of the 1990s, large segments of the economy have undergone tremendous prosperity. Several categories of products experienced fantastic growth in sales. For example, per capita consumption soda shot up by 60% between 1994 and 1999.The main buyers in Brazil are social class C. Brazilian Social Class C group benefited most from the economic stabilization during 1990s .Brazilian Market Research Association, ABIPEME, developed social classification that was widely adopted by local researchers, marketers and advertising agencies. This scheme combines income, education and physical assets to determine the five social classes, A, B, C, D and E. Classes A and B members

have a high income, education and purchasing power, and tend to be more sophisticated consumers. Categories D and E are not involved in the purchase and cannot afford the extra cost of basic goods and services. Class C consumers have been described as typical lower middle class workers and comprise 12.6 million Brazilian households. Per capita consumption of soft drinks in Brazil is growing at an average 17.37% a year. In 2003 it was 95.3 liters and projected 104.9 litters in 2008. This shows that Brazil is growing market in term of soft drink. Coca-Cola is a leader in the Brazilian market by holding market share 50, 1% in 2003. And AmBev has a 17.2% market share in 2003 with the second position. Local soft drinks product Tubainas has a significant market share of about 32% in 2003.There are more than 700 Tubainas manufacturers in Brazil. Tubainas is low price soft drinks compared to other major brands. Main reason for this is that it produced by small manufacturers with low operational and administrative expenses. Also important factor is that manufacturers have no legal status and do not pay taxes. Most of Brazil's population lives in urban areas and because of well-developed distribution channel soft drink market is untapped. 2. SWOT analysis of the Coca-Cola Company in Brazil. Strengths 1. Fast growth internationally 2. World leading soft drink manufacturer 3. Consumer loyalty 4. Branding obvious and easily recognized 5. Market leader in Brazil soft drink market by more than 50% market share 6. Coca Cola has broad product mix in Brazil which includes soft drink, bottled water, iced tea, juice & energy drinks.

Weaknesses 1. High price of Coca Cola products compared to local manufacturers 2. Poor distribution channel 3. Lack of popularity of some Coca Colas brands 4. Result of low profile or non-existent advertising 5. Most unknown and rarely seen Opportunities 1. Many successful brands to pursue 2. Increasing popularity of soft drinks in Brazil 3. More brand recognition 4. Focus on less popular products Threats 1. Low Brand loyalty, consumers tend to purchase local low price brands 2. Many local illegal soft drink manufacturers who do not pay taxes 3. Local brand Tubainas with low price 4. Pepsis alliance with Ambve to produce and distribute Pepsi product in Brazil. 3. Pros and cons of the several strategies the Coca-Cola Company implemented in Brazil Pros: 1. For more than a century, Coca-Cola Company has reigned as the supreme soft drinks market leader. The company sells its products in more than 200 countries. Coca-Cola Company has

many offices around the world. Each local market focused on national characteristics, offer variety of national programs. Coca-Cola tried to build closer ties with Brazilian consumers to improve its image and garner goodwill. Local office of the corporation increasingly sponsored and participated in local, regional, and national events and celebrations, such as the San Juan festival Parintins, Revoluo Farroupilhas, and the most popular festival in Brazil, Carnival. 2. Coca-Cola has expanded output of its drink Guarana Kuat. In addition, they renovated the production plants and planted 200 hectares of Guarana, Amazonian fruit used to flavor Kuat. Further expansions and plantings were to follow. All this was done to counter hard-hitting competition from other brands of Guarana, such as AmBev in Antarctica. This gives an advantage to the management of Coke in cost of raw material supply and quality. 3. Coca-Cola expanded the product line through brand extension on the market by incorporating new flavors such as citrus and strawberry. This helps the Coca-Cola to increase its visibility in the market. They may be able to meet all different types of customers with different options, resulting in increased brand loyalty. 4. In order to reduce costs of some packaging, Coca-Cola will provide return glass bottles. Cons: 1. The company contributed changes in its distribution channels, such as buying back franchisee operations. Although these types of actions brought the share back to 50% historical level, headquarters of the company disliked the negative impact on profitability. 2. Coca-Cola has acquired several competitors in order to stop the growth of Tubainas, but they will not succeed because there is no entry barrier for new manufactures and producers. 3. Coca-Cola tended to compete with low cost local brands by reducing the prices which led to negative impact on profitability.

4. What should Coke do to be more successful in Brazil? 1. The company should continue to explore new areas of beverages, enhance existing products, participate in new beverage segments and effectively promote and sell products of the company; 2. Coca-Cola should improve and expand distribution channels in order to compete better with local low price brands and increase profitability by capturing hardly accessible areas. 3. The company should use an effective system of advertising through commercials, billboards, signs and providing proximity to customers). 4. Coca-Cola should enhance retail outlets to offer better terms than its competitors, because Coca-Cola products are the daily essential goods and impulsive purchases. 5. Need to create an effective pricing strategy that will ensure its undisputed leadership in the beverage market and allow it to get serious pressure on domestic producers. 5. Recommendations to global brands to help them compete successfully with B brands in emerging countries 1. Acquire or create a joint venture with a large brand B to reduce market penetration of B brands. 2. Achieve operational efficiencies of the company to compete with low price B brands 3. Implement a well-planned product, packaging and pricing strategies through wide distribution channel for dissemination to kill B brands. 4. Implement several segmentation strategies in key markets of the company with different clusters of the market divided by the intensity of competition and socio-economic level.