Pepsi's Argentinian bottler bets on Pepsi challenge

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BUENOS AIRES -- The Pepsi Challenge has taken on a new meaning for the Argentinean soft-drink bottler, Buenos Aires Embotelladora S.A. (Baesa), which is relying heavily on the world-renowned campaign this summer season in South America to boost sagging sales and chip away at a $750m debt.

The largest Pepsi licensee outside the U.S. with operations in Costa Rica, Chile, Uruguay, Brazil and Argentina, Baesa's woes began in 1995 when it undertook an aggressive expansion program just before suffering a major contraction in sales, helped along by the Mexican peso crash.

Closing the 1996 fiscal year in September with an operating loss of $450m, the bottler is betting on soaring summer temperatures to help quench its creditors' thirst and finance a corporate restructuring already in the works. With sales traditionally 60% higher in December than in the low volume months of June and July, Baesa has mounted an aggressive seasonal push focusing largely on the Pepsi Challenge.

In Buenos Aires, 10 mobile units and many supermarket stalls found people chose Pepsi over rival Coca-Cola 53% of the time - a 2% increase over previous taste tests.

Young local television celebrities are now publicizing the taste test results in new TV, radio and newspaper ads, while a revamped Pepsi logo adorns point of purchase merchandise to help give the brand a more upbeat image, says Ruben Desimone, manager of publicity and promotions for Baesa's Buenos Aires's operations.

"There is no doubt this is the most important time for us - last year was a very hard year for us and this year will be key," says Desimone. "We have had to be very aggressive - putting a lot of focus on in-store promos as well as nationwide promotions."

The promotional push has already begun to pay off, say Baesa executives. Starting with PepsiCo's operational takeover of the bottler in July (PepsiCo owns a 23.7% share in Baesa), an accompanying management shuffle and an ongoing corporate restructuring, sales have increased 10%-12% in Argentina as of December, after dropping by the same amount in the first quarter of 1996. At the same, Pepsi's market share grew by 3% to 37%. Baesa executives maintain the firm is now experiencing a positive cash flow, in part due to reduced costs, while increasing Brazilian sales by 80% after a 31% drop in volume during the second trimester of 1996.

In October, Baesa was also able to reach an agreement with its creditors to hold off on payments for $520m of debt until March 31, helped by $40m worth in financing from PepsiCo. After already being forced to close a plant in Brazil, laying off 1,500 people, and looking to sell its operations in Costa Rica and Chile, Baesa may be able to cut its losses - but that may not necessarily be the case for PepsiCo in Latin America.

The region represents 40% of PepsiCo's international business, but despite a $2bn investment by Pepsi and its bottlers over the last five years, sales have dropped 6% for the cola while rival Coke continues to outsell Pepsi by 2-to-1.

Copyright January 1997, Crain Communications Inc.

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