HUEJOTZINGO, Mexico — The founders of the upstart cola maker Ajegroup know a thing or two about guerrilla marketing.
When Shining Path rebels took to hijacking Coca-Cola Co. trucks in the late 1980s during Peru's civil war, the Ananos family started peddling its own line of soft drinks in recycled beer bottles to meet local demand. Today the company controls more than one-fifth of the cola market in Peru.
Ajegroup is still taking potshots at Coke, but the battle has shifted north to Mexico, where the Peruvians are once again making gains through unorthodox methods. In a little more than three years, the company has grabbed 5% of Mexico's soft-drink trade, a market that Snapdata International estimates at $6.5 billion. And it has forced titans Coke and PepsiCo Inc. to lower prices in a country where they have long reaped some of their fattest profits.
The privately held company has done it without big-budget advertising, fancy trucks or an extensive product line. The secret: lots of cola for a little money. A 3.3-liter container of its flagship Big Cola brand sells for about $1.12 and sometimes as little as 86 cents on special.
"Half the population of Mexico is poor," said Ajegroup spokesman Alfredo Paredes. "For us, that was an opportunity."
The low-price strategy is attracting budget-conscious consumers such as Carlos Lopez. The construction worker was recently in a convenience store in Mexico City's upscale Polanco neighborhood buying a monster bottle of Big Cola to share with his buddies back at the job site.
Lopez said some of them prefer the Real Thing, and he admitted a lifelong fondness for Coke. But when it's his turn to buy a round, economics prevail.
"It's cheap," he said of Big Cola. "And it tastes good as long as it's cold."
Rivals are clearly taking note.
Coca-Cola products remain far and away the No. 1 sellers in Mexico, with a market share that tops 70%. Still, the Mexican government this year slapped 15 Coke bottlers and distributors here with a total of nearly $15 million in fines for anti-competitive practices aimed squarely at the company's pipsqueak rival. Mexico's Federal Competition Commission said the Coke dealers unfairly pressured mom-and-pop retailers not to carry Big Cola by threatening to stop Coke deliveries and yank perks such as free refrigerators from their tiny stores.
Atlanta-based Coca-Cola, which owns 40% of Mexico's largest bottler, Coca-Cola Femsa, said it would challenge the ruling and defended its business practices.
"We respect the FCC decision. However, we will take the appropriate steps to present our case in the Mexican legal system," Coca-Cola spokesman Charlie Sutlive said. "We continue to believe that our business practices comply with Mexican competition laws and that our commercial practices are fair, foster efficiency in the marketplace and promote a free, competitive environment."
The dust-up doesn't surprise industry experts, who note that Mexico is one of Coke's most treasured markets and a territory worth defending. The nation is the second-largest per-capita consumer of soft drinks in the world, behind the United States. Mexicans last year guzzled 609 8-ounce servings each, which amounted to 2.7 billion cases, according to Beverage Digest magazine.
Mexico accounts for nearly half of Coke's case volume sales in Latin America, a region that has provided the company with outsize profit for years. In 2004, Latin America accounted for 9.7% of Coca-Cola's net operating revenue but 18.7% of its operating profit.
Still, those figures have slipped since 2002, when Ajegroup entered the market with its cut-rate cola. (Besides Peru and Mexico, Ajegroup's beverages are sold in Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua and Venezuela.)
In its most recent quarterly report, Coca-Cola Femsa said volume sales of its carbonated drinks were virtually flat compared with the same three-month period in 2004. Somers, N.Y.-based Pepsi Bottling Group Inc., which owns Mexico's largest Pepsi bottler, said its third-quarter carbonated soft-drink volume was down 1% compared with the same period last year, "mostly due to competitive pressure from bargain-priced brands."
So-called B-brands have been gaining traction in Mexico, thanks in part to the rapid expansion of retailers such as Wal-Mart Stores Inc. and Waldo's Dollar Mart, which carry their own private-label sodas.
But about 80% of soft drinks are still sold through small grocery and corner stores that are fixtures throughout Mexico. Analysts credit Ajegroup's aggressive expansion in that channel for forcing Coke and Pepsi to in effect cut prices by offering larger sizes, say 2.5 liters of product for what they used to charge for 2 liters, to respond to Big Cola's super-sized servings.
"They have changed the pricing dynamics of the industry," said Joaquin Lopez-Doriga, a beverage analyst with Deutsche Bank in Mexico City. "The big bottlers got comfortable raising prices year after year."
