Coke's Mexican Standoff Over Marketing

02 November 2005

Number one purveyor of soft drinks to the planet, the Coca-Cola Company, has angered its largest Mexican bottling partner, sparking a threat to cut marketing budgets.

Femsa is outraged at Coke's decision to increase the price of its concentrate - the main ingredient in soft drinks - by an extra $20 million (€16m; £11m) from 2007, up to $60m more by 2009.

The Atlanta, US-headquartered beverage behemoth now faces the prospect of its Mexican partner reducing marketing spend to "offset the impact to our profitability that such concentrate prices represent".

Coke's eleven other bottlers in Mexico - and those in Brazil - were notified of similar price increases in recent weeks.

In most markets the company and its bottlers contribute jointly toward local advertising, the placement of coolers and other promotions. The threatened cuts by Femsa and others may push Coke into increasing it own marketing budget in Mexico ... or risk losing market share.

Says Morgan Stanley analyst Bill Pecoriello: "It certainly looks like tensions will rise and other bottlers will be watching this carefully."

Coke ceo Neville Isdell has been trying to galvanise core brands over the last year, and the world eagerly awaits a new iconic global campaign from recently appointed independent agency Wieden + Kennedy [WAMN: 27-Oct-05]

Data sourced from Wall Street Journal Online; additional content by WARC staff