Embotelladora Andina S.A.

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Embotelladora Andina S.A.

Avenida Andrés Bello 2687
Las Condes, Santiago
Telephone: (56) (2) 338-0520
Fax: (56) (2) 338-0530
Web site: http://www.koandina.com

Public Company
Incorporated: 1946
Employees: 4,124
Sales: CLP 413.75 billion ($742.29 million) (2004)
Stock Exchanges: Bolsa de Comercio de Santiago New York
Ticker Symbols: ANDINA; AKO
NAIC: 312111 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing

Embotelladora Andina S.A. is the largest producer of soft drinks in Chile and the chief producer, bottler, and distributor of Coca-Cola soft drinks in Chile. It also produces and distributes these products in parts of Argentina and Brazil, where it is one of the largest soft drink producers. In addition to its Coca-Cola soft drinks business, Andina through its subsidiaries produces and distributes fruit juices, other fruit-flavored beverages, and mineral water in Chile under trademarks owned by The Coca-Cola Company. In Argentina, the company, through a subsidiary, distributes ready-to-drink juices and produces and sells mineral water. In Brazil, subsidiaries distribute beer and mineral water and also sell and distribute ready-to-drink juices and energy drinks.

Always Coca-Cola: 194685

Embotelladora Andina was founded by Carlos Vial Espantoso and other Chilean and U.S. investors in 1946 with the exclusive license to produce and distribute Coca-Cola products in Chile. Four years later, the company made a transition from the individual bottle toward the 24-bottle case, and Coca-Cola distribution was extended from the traditional sales point to a wide variety of institutions. In 1960 it opened a new Santiago plant that also served as its headquarters. During the short-lived socialist government of 197173, Andina was nationalized, but in 1975 the state's 51 percent stake was sold for perhaps only one-seventh of its market value to an investment group whose five members included Alejandro Banados and Sergio Vergara. The company added fruit juices in 1975 and mineral water in 1978.

By 1985at the tag end of a severe recession in Chilethe owners of Embotelladora Andina were in deep financial trouble. Revenue had dropped by almost half since 1980. Inversiones Andes, their group, owed $20 million, a fortune at this time, since interest rates averaged 10 to 15 percent a month for those who could obtain a loan at all. To raise money, it had in recent years sold the right to distribute Coca-Cola products in most areas outside the Santiago metropolitan region. To extricate itself from its debts, Inversiones Andes agreed to turn over its license to a new Chilean investment group, subject to approval by Coca-Cola, which set tough conditions: more capital, debt renegotiation, greater market participation, more investment in marketing, and the surrender of the franchise in Vina del MarChile's chief beach resort. In late 1985 Coca-Cola chose the new licensee itselfInversiones Freire Ltda.

This new group consisted of four men. Jaime Said Demaría, the oldest, was a member of a family of Arab origin, prominent in business. During the 1960s and 1970s he directed the largest rayon factory in Chile. His cousin José Said Saffie was the most successful member of the clan, active in banking and real estate as well as industry. José Antonio Garcés had been an executive in a Said enterprise before branching out into cosmetics and real estate. Alberto Hurtado Fuenzalida, also a seasoned executive and entrepreneur, named the group for a relative who had been president of Chile in the 1920s. They paid Inversiones Andes $5 million for its 75 percent of Andina. The other shares belonged to Vial Espantoso's heirs and to public stockholders.

Expansion into Argentina and Brazil: 19942002

Inversiones Freire had two immediate pieces of luck: First, Chile started to pull out of the recession, and second, rival beverage enterprise Compañía Cervecerias Unidas S.A. (CCU), the nation's Pepsi-Cola licensee, quarreled with PepsiCo Inc. and retired from this sector of its business for two years. In addition, the group's connections allowed it some breathing space in dealing with Embotelladora Andina's creditors. In 1989 the company had net income of CLP 1.55 billion ($5.21 million) on net sales of CLP 28.48 billion ($95.76 million).

Embotelladora Andina entered Brazil in 1994 by purchasing 61.5 percent of Rio de Janeiro Refrescos S.A., the Coca-Cola bottler in the nation's former capital, for $120 million, plus the assumption of $31 million in debts. The following year Andina raised most of the money to pay for this purchase and future acquisitions by selling more than seven million American Depositary Receipts (the equivalent of shares) on the New York Stock Exchange, thereby collecting $127.4 million. Another $20 million was raised in a Santiago stock offering. During 1995 the company began production of plastic bottles in Chileprimarily for its own usethrough a subsidiary, Envases Multipack S.A. Near the end of 1996 Rio de Janeiro Refrescos opened a $36 million plastic bottle production facility.

Also in 1995, the company, with the approval of Coca-Cola, entered Argentina by purchasing majority control of Embotelladoras del Atlántico, S.A. (Edasa), the parent company for the Coca-Cola bottlers in the Mendoza and Rosario territories, for about $45 million. It brought its stake in this enterprise to 95 percent the following year, when it also acquired the Córdoba territory and bottling plant, this time from parent Coca-Cola itself, by purchasing a 79 percent interest in Inti S.A.I.C. for $68 million. Edasa, which established its headquarters in Córdoba, also acquired full control of Complejo Industrial Pet S.A.I.C. (Cipsa), supplier of plastic bottles for the Coca-Cola system in Argentina, Paraguay, and Uruguay, for $76 million. Although Cipsa held a majority interest in a bottling plant in Buenos Aires, Embotelladora Andina was unable to obtain the franchise in Argentina's giant metropolis. Coca-Cola awarded the license instead to Mexican-based Fomento Economico Mexicano S.A. de C.V. (Femsa), its largest franchisee in Latin America.

In spite of this setback, Embotelladora Andina remained the largest of Coca-Cola's four Chilean-based franchisers and one of its anchors for doing business in South America. Coca-Cola, in 1996, purchased 49 percent of Vital S.A., Andina's fruit juice and mineral water subsidiary, and 6 percent of Andina itself. The following year it purchased 5 percent more of Andina, increasing its ownership of the company to 11 percent. Embotelladora Andina also sold its agribusiness subsidiary in 1996 and repurchased Coca-Cola's share of Vital in 1998.

Embotelladora Andina, at the end of 1996, was producing 71 percent of all carbonated soft drinks in Chile and 91 percent of all cola drinks there. In addition to its licensed Coca-Cola beverages, fruit juices and mineral water accounted for 14 percent of Andina's sales in that country. In Brazil, Rio de Janeiro Refrescos was, in addition to producing and distributing Coca-Cola products, distributing Heineken and Kaiser beer brands and a brand of mineral water. In Argentina, Edasa and Inti were only producing and distributing Coca-Cola beverages. Andina's revenues were heading toward $1 billion a year, and the company was employing 6,500 workers, compared with 350 when it was purchased in 1985.

This expansion looked better on paper than in fact. Chilean operations were highly profitable and efficient. In Brazil, however, Rio de Janeiro Refrescos had to share income with independent distributors who could not easily be eliminated (because, for example, they operated in certain neighborhoods of the city where even the police dared not enter). In addition, many local people preferred a noncola fruit drink called guaraná. Rio Refrescos was making and selling such a drink, but its brand was not as popular as those offered by rivals Companhia Cervejaria Brahma, S.A. and Companhia Antarctica Paulista Industria Brasileira de Bebidas e Conexos. In addition, powerful Brahma cut the prices of its beer and soft drinks to frustrate the newcomer. Andina's subsidiary was forced to close one of its three plants and lay off 800 employees. In Argentina, Edasa inherited short-term debts at high interest rates and operations in Mendoza and Rosario that had been losing money for three years.

Embotelladora Andina invested $1 million in 1999 in Chile to offer retailers carrying its beveragesthe small sweet shops, kiosks, and bakeries, for exampletraining in new sales and marketing techniques. Edasa opened a new Córdoba production facility in 1999 and shut down the Mendoza and Rosario plants in 2002, concentrating all drink production operations in Córdoba. The following year Edasa took over Cipet, thereby placing all business conducted in Argentina in Córdoba. Andina, in 2000, became the Coca-Cola bottler for three Brazilian territories in addition to Rio de Janeiro by purchasing them from the franchise holder for $74.5 million. But Brahma had created new problems for the Brazilian operation by becoming a distributor for rival PepsiCo. Shortly after, this competition grew even stronger when Brahma and Antarctica merged to form Companhia de Bebidas das Americas (AmBev).

Embotelladora Andina in 200304

Coca-Cola's soft drinks accounted for 86.6 percent of Embotelladora Andina's net sales in 2003. The company accounted for 66.8 percent of total soft drink sales by volume in its Chilean territory, 54 percent in its Brazilian territory, and 52.1 percent in its Argentine territory. In Chile, its soft drinks, aside from Coca-Cola products, were Quatro, NordicMist Ginger Ale and NordicMist Tónica, and Tai. In Brazil, in addition to Coca-Cola products, its soft drinks were Schweppes Club Soda, Tónica, and Citrus, and three guaraná drinks. In Argentina, aside from Coca-Cola products, the operation's soft drinks were Quatro Pomelo and Quatro Limonada, three Schweppes soft drinks, three Crush soft drinks, and Tai Lima-Limon and Naranja.

Company Perspectives:

We seek to enhance our business throughout the franchise territories by developing existing markets, penetrating other soft drink, juices and mineral water markets, forming strategic alliances with retailers to increase consumer demand for our products and increasing productivity, and by further internationalizing the operations.

Through Vital, Embotelladora Andina was producing and selling juices and mineral water under the labels Andifrut (natural fruit juices), Néctar Andina (fruit nectars), Kapo (artificially flavored fruit drinks), Hi-C (fruit refreshment with vitamins), and Vital (mineral water), all trademarks owned by Coca-Cola. In Brazil, the company was distributing beer under the Kaiser, Bavaria, Heineken, and Santa Cerva labels and mineral water under the Bonaqua and Caxambu labels. It also was selling and distributing three ready-to-drink juices named Kapo and energy drinks named Burn and Nestea. In Argentina, the company was distributing Hi-C ready-to-drink juices and producing and selling Kin carbonated soda and Kin mineral water (with and without carbonation).

Embotelladora Andina's main production facility in Chile was in Santiago, for soft drinks. The juice plant was in Renca and the mineral water plant in Rengo. There were two production facilities in Brazil, in Jacarepaguá and Vitória, both for soft drinks. In Argentina, soft drinks were being produced in Córdoba and plastic bottles in Buenos Aires.

Embotelladora Andina had sales of CLP 413.75 billion ($742.29 million) in 2004. This was a gain of only 4 percent over the 2003 total, but the company's net profit of CLP 40.16 billion pesos ($72.05 million) was a 148 percent increase over the previous year's figure. Of Andina's revenues, Chile accounted for 48 percent, Brazil for 31 percent, and Argentina for 21 percent. Of its operating profit, Chile provided 67 percent, Brazil, 20 percent, and Argentina, 13 percent.

Soft drinks accounted for 85 percent of revenue in Chile, 92 percent in Brazil, and 99 percent in Argentina. The long-term debt was CLP 280.55 billion ($503.32 million) at the end of 2004. Inversiones Freire and entities controlled by it owned about 52.6 percent of the Series A shares of common stock at the end of 2003. These shares had preferred voting rights and thereby controlled the company.

Principal Competitors

Companhia de Bebidas das Américas; Buenos Aires Embotelladora S.A.; Compania Cervecerias Unidas S.A.

Key Dates:

Embotelladora Andina is founded to produce and distribute Coca-Cola products in Chile.
The company is producing fruit juices and mineral water as well as soft drinks.
Financially troubled Embotelladora Andina is sold to a new investment group.
Andina enters Brazil by purchasing a majority share of Rio de Janeiro's Coca-Cola bottler.
The company finances this purchase by going public and selling stock shares.
Andina now also holds three important Coca-Cola franchises in Argentina.
Andina becomes the bottler for three more Coca-Cola franchised territories in Brazil.

Further Reading

Hinchberger, Bill, "Andina's Andrés Olivos," Institutional Investor, June 1995, p. 170.

Pérez Villamil, Ximena, "El cuarteto andino," Capital, July 1997, pp. 1516, 1820.

Sullivan, Tara, "En buena compania," América economía, October 8, 1998, p. 68.

Vera, Héctor, "Servicio al cliente," América economía, November 18, 1999, p. 79.

Waxler, Caroline, "Losing Fizz," Forbes, January 27, 1997, p. 120.

Robert Halasz