Coca-Cola Confronted by Big Problem in its Second Largest Market. For Once, Political Connections Failed. Oct 1 is the Date

Coca-Cola Confronted by Big Problem in its Second Largest Market. For Once, Political Connections Failed. Oct 1 is the Date

Per-person consumption of soft drinks in Mexico is the highest in the world. But due to link of obesity to Covid deaths, sugary drinks now face their nemesis.

By Nick Corbishley, for WOLF STREET:

When billions of people are forced to hunker down at home for months on end, unable to visit their favorite restaurants, bars, nightclubs, theme parks or other leisure venues, they tend to drink fewer soft drinks, as the Coca-Cola Company can attest. In the second quarter, when roughly a third of the world population was put through some form of lockdown, the company’s global revenues slumped 28% year-over-year, to $7.2 billion. It was its largest drop in quarterly revenue in more than 30 years.

By contrast, in Mexico, Coca Cola’s second largest global market after the U.S., sales fell by only 5%. That relatively modest decline was caused by the slumping business at restaurants and at street food stalls, where Coke is the ubiquitous (and invariably cheapest) beverage of choice for washing down tacos, tortas, tamales and the like. Many construction and other manual workers — a key customer segment — have been temporarily laid off since the country’s semi-lockdown began. But apparently, many of those folks bought their coke at the store and drank it at home.

On a per-person basis, Mexico consumes more Coke than any other country in the world, and twice as much as the U.S.

Loving Coca-Cola (a Little Bit Less)

Mexico is also home to independent bottler Coca-Cola FEMSA, which bottles and distributes Coca-Cola and other soft drinks across vast swathes of Latin America, including half of Mexico (and also in the Philippines). Roughly one out of ten of all Coca-Cola products sold in the world is distributed by Coca-Cola FEMSA, making it the second largest Coca-Cola bottler in the world, after Coca-Cola Enterprises.

Business is down. In the second quarter, Coca-Cola FEMSA revenues fell 10.2%. But in Mexico, Coca Cola FEMSA’s revenues fell only 5.6%.

There’s also Arca Continental, which manufactures and distributes Coca-Cola beverages and other products in Northern and Western Mexico, Ecuador, Peru, Northern Argentina, and Southwestern United States. It is the second-largest Coca-Cola bottler in Latin America. Net sales rose 2.3%. So they’re hanging on during the pandemic in Mexico.

The New Threat on the Horizon.

But for the Coca-Cola Company, and for the bottlers, fast approaching on the horizon is a threat that could exact a significant long-term toll on sales in Mexico.

That threat is the Mexican government’s junk food label law. Passed in October 2019 and scheduled to come into effect on October 1 this year, the law requires all food packages with contents high in sugar, sodium or saturated fat to carry clear health warnings on the front.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.