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200 | <s>[INST] The IMF should work out a memorable program that [/INST] will drive structural reform, provide broad support to Minister Fernandez and move Argentina toward greater liberalization. </s> |
201 | <s>[INST] --- Mr. Edwards is a professor [/INST] of international economics at UCLA's Anderson Graduate School of Management. </s> |
202 | <s>[INST] Argentina, the country that killed hyperinflation with a currency board-style monetary policy [/INST] five years ago, is thrashing about these days searching for the right policies to re-establish growth in its battered economy without threatening stability. </s> |
203 | <s>[INST] An International Monetary Fund team has been in [/INST] Buenos Aires since last week, renegotiating its lending agreement with President Carlos Menem's government. </s> |
204 | <s>[INST] IMF authorities will probably tolerate a $5.5 billion [/INST] deficit this year -- although that's a gross overshot of the original $2.5 billion target. </s> |
205 | <s>[INST] But for 1997, they plan to be tough, insisting [/INST] that in exchange for continued lending, the federal deficit not exceed $1 billion, approximately 0.3% of GDP. </s> |
206 | <s>[INST] ___ Document 65 of 500 Cola-War Casualty: How Pepsi's Charge Into Brazil Fell Short Of Its Ambitious Goals --- Trying to [/INST] Beat Coke Quickly, It Failed to Build Brand, Had Executive Problems --- A Key Bottler Is in Trouble Author: By Robert Frank and Jonathan Friedland Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 30 Aug 1996: A1. </s> |
207 | <s>[INST] accountid=28034 Abstract: Reaching too far and [/INST] too fast in Brazil, Pepsi's South American "superbottler" is facing insolvency. </s> |
208 | <s>[INST] The bottling company, Buenos Aires Embotelladora SA, or Baesa, owes about [/INST] $560 million more than its $181 million market value and is scrambling to sell assets and retreat from markets. </s> |
209 | <s>[INST] Three of Pepsi's top international [/INST] executives have stepped down since Baesa's problems emerged. </s> |
210 | <s>[INST] But Pepsi's problems in Latin America [/INST] suggest that its biggest enemy overseas is not Coke, but itself. </s> |
211 | <s>[INST] Continuing its history of fits and starts in Brazil, Pepsi's latest, overambitious charge into [/INST] the country was focused on pumping up sales and outshining the competition rather than on building brand loyalty and long-term profitability, say analysts and industry executives. </s> |
212 | <s>[INST] In its rush, it made costly mistakes: betting on a partner with a troubled past, building a [/INST] huge manufacturing and distribution system with no assurance of strong demand and launching a slew of untested products with sales tactics that had never worked for Pepsi -- or anyone -- in Brazil. </s> |
213 | <s>[INST] But analysts say Pepsi must sink at least $200 million into Baesa to [/INST] rescue it, on top of the more than $300 million that Pepsi is estimated to have already plowed into Baesa and its markets. </s> |
214 | <s>[INST] Industry executives say Baesa's near-collapse also calls into question the more [/INST] than $1 billion Pepsi has pledged to develop the Mexican and other Latin American markets in the next three years. </s> |
215 | <s>[INST] Full text: On a steamy New Year's Eve at Rio [/INST] de Janeiro's Copacabana Beach in 1994, more than three million revelers gathered for the corporate blowout of the year. </s> |
216 | <s>[INST] PepsiCo Inc. and its signature soft drink were celebrating their comeback [/INST] in Brazil, complete with music by Rod Stewart, thousands of Pepsi flags and banners and a blimp flying overhead. </s> |
217 | <s>[INST] The goal: an "immediate assault" on Coke [/INST] in Brazil, the world's third-largest soft-drink market after the U.S. and Mexico. </s> |
218 | <s>[INST] With an arsenal of new factories, trucks and workers and a flashy new [/INST] marketing campaign, Pepsi hoped to capture more than 20% of Brazil's main urban markets and sell more than 250 million cases a year. </s> |
219 | <s>[INST] Reaching too far and too fast [/INST] in Brazil, Pepsi's South American "superbottler" is facing insolvency. </s> |
220 | <s>[INST] The bottling company, Buenos Aires Embotelladora SA, or Baesa, owes about [/INST] $560 million more than its $181 million market value and is scrambling to sell assets and retreat from markets. </s> |
221 | <s>[INST] Three of Pepsi's top international [/INST] executives have stepped down since Baesa's problems emerged. </s> |
222 | <s>[INST] The troubles come on top of Pepsi's recent problems in Venezuela, where its successful [/INST] bottling partner defected to Coca-Cola Co. And it adds to the growing consensus in the soft-drink industry that Pepsi is losing ground in the global cola wars. </s> |
223 | <s>[INST] Wall Street agrees, and Pepsi's stock has taken a pounding; in heavy trading on the [/INST] New York Stock Exchange yesterday, it closed at $28.625 a share, down $1.375 on the day and off sharply from its 52-week high of $35.875 last month. </s> |
224 | <s>[INST] But Pepsi's problems in Latin America [/INST] suggest that its biggest enemy overseas is not Coke, but itself. </s> |
225 | <s>[INST] Continuing its history of fits and starts in Brazil, Pepsi's latest, overambitious charge into [/INST] the country was focused on pumping up sales and outshining the competition rather than on building brand loyalty and long-term profitability, say analysts and industry executives. </s> |
226 | <s>[INST] In its rush, it made costly mistakes: betting on a partner with a troubled past, building a [/INST] huge manufacturing and distribution system with no assurance of strong demand and launching a slew of untested products with sales tactics that had never worked for Pepsi -- or anyone -- in Brazil. </s> |
227 | <s>[INST] "I guess we got a little ahead of our [/INST] headlights," concedes Craig Weatherup, Pepsi's new global beverage chief, in his first interview since taking office. </s> |
228 | <s>[INST] But analysts say Pepsi must sink at least $200 million into Baesa to [/INST] rescue it, on top of the more than $300 million that Pepsi is estimated to have already plowed into Baesa and its markets. </s> |
229 | <s>[INST] Industry executives say Baesa's near-collapse also calls into question the more [/INST] than $1 billion Pepsi has pledged to develop the Mexican and other Latin American markets in the next three years. </s> |
230 | <s>[INST] In the wake of Baesa's troubles, Pepsi [/INST] is reassessing its go-for-broke beverage strategy not just in Latin America but world-wide. </s> |
231 | <s>[INST] Pepsi's volume growth -- the main barometer in the [/INST] soft-drink business -- has slowed to half its 1995 pace, which, in turn, was down from 1994. </s> |
232 | <s>[INST] The company has lost its lead in Russia, Eastern Europe [/INST] and parts of Southeast Asia, and its main bottler in Mexico reported an $18 million loss last year. </s> |
233 | <s>[INST] Pepsi still generates more than 70% of its beverage profits [/INST] in the U.S.; Coca-Cola, in contrast, gets 80% from overseas and commands a 3-to-1 market share there. </s> |
234 | <s>[INST] Mr. Weatherup vows he isn't [/INST] about to tone down Pepsi's competitive zeal. </s> |
235 | <s>[INST] After all, the company has made some inroads [/INST] overseas, more than doubling international sales since 1990 despite the recent slowdown in growth. </s> |
236 | <s>[INST] Mr. Weatherup says he and Pepsi Chief [/INST] Executive Roger Enrico are "going to go at this business big time". </s> |
237 | <s>[INST] Nevertheless, Mr. Weatherup suggests that in [/INST] view of Baesa's ills, they may take more measured approach. </s> |
238 | <s>[INST] "I think we've got to focus back on [/INST] the basics," he says, "back to the basic operating skills that support the business". </s> |
239 | <s>[INST] It's a focus Pepsi has lacked [/INST] in its painful saga in Latin America and especially in Brazil. </s> |
240 | <s>[INST] Hot, expansive and full of soda-chugging teens, Brazil has emerged [/INST] over the past decade as one of the world's fastest-growing soft-drink markets, along with China, India and Southeast Asia. </s> |
241 | <s>[INST] Because Brazilians drink only an average of 264 eight-ounce servings of [/INST] soft drinks a year, far below the U.S. average of about 800, soft-drink companies see ample opportunity to raise per-capita consumption. </s> |
242 | <s>[INST] And with inflation finally in check and [/INST] an economic stabilization plan working, the demand for consumer goods is soaring. </s> |
243 | <s>[INST] Coca-Cola has weathered the ups and downs of the Brazilian economy for more [/INST] than 50 years, building a brand name, slowly winning more than 50% of the market and leaving Pepsi with a paltry 10% or less. </s> |
244 | <s>[INST] Atlanta-based Coca-Cola has spent some 10 years lashing together [/INST] its hundreds of overseas bottlers -- the mostly independent franchisees that make and sell soft drinks. </s> |
245 | <s>[INST] Coke's new breed of regional bottlers, called anchor [/INST] bottlers, have developed deep local ties, huge capital budgets and finely tuned distribution systems. </s> |
246 | <s>[INST] In Brazil, the company churned through three bottlers [/INST] in 25 years, each time with frothy sales campaigns followed by quiet retreats. </s> |
247 | <s>[INST] The brief ties with bottlers impeded [/INST] efforts to build a brand name or consumer loyalty. </s> |
248 | <s>[INST] At the Hipermercados Extra, a giant supermarket in the center [/INST] of Sao Paulo, Brazil's business capital, many shoppers' carts held bright red Coke bottles one recent afternoon. </s> |
249 | <s>[INST] Daniel Pontes Franca, chief of the store's beverage [/INST] section, says he sells 10 bottles of Coke for every bottle of Pepsi. </s> |
250 | <s>[INST] "Pepsi did well when it [/INST] was being sold very cheaply," he explains. </s> |
251 | <s>[INST] In such an environment, Pepsi's [/INST] corporate culture became more aggressive than ever. </s> |
252 | <s>[INST] At a 1987 sales rally to stoke one of its [/INST] many relaunches in Brazil, Luis Suarez, Pepsi's local operating chief, donned battle fatigues, face paint and an assault rifle. </s> |
253 | <s>[INST] He told his troops they represented the [/INST] "Blue Liberation Army" and vowed to "annihilate the red army" of Coca-Cola. </s> |
254 | <s>[INST] "Pepsi lives off risk," says [/INST] Gary Stibel, managing partner at New England Consulting Group. </s> |
255 | <s>[INST] "But they accept that when [/INST] you take risks, and move fast, you have failures". </s> |
256 | <s>[INST] The troubles began with the [/INST] hurried choice of a partner, Charles H. Beach. </s> |
257 | <s>[INST] The former manager for a North Carolina [/INST] Coca-Cola bottler left Coke and bought Pepsi's small Puerto Rico franchise in 1987. </s> |
258 | <s>[INST] The next year, he was indicted by a [/INST] federal grand jury in Virginia on charges of price-fixing during his tenure at Coke. </s> |
259 | <s>[INST] He didn't respond to [/INST] phone calls and faxed requests for comment. </s> |
260 | <s>[INST] In 1989, Pepsi awarded Mr. Beach an Argentine franchise, one of its most important outside the U.S. By the end of 1994, Pepsi [/INST] had given him the entire Southern Cone of South America, including much of Brazil and all of Chile and Uruguay -- more than doubling his territory and giving him a market of 100 million consumers, up from his 10 million in early 1993. </s> |
261 | <s>[INST] Coca-Cola, in contrast, seasons even its large bottlers [/INST] over several years, letting them add just one city or state at a time. </s> |
262 | <s>[INST] "They moved Charlie way too fast," says Carlos Laboy, an analyst [/INST] at Bear Stearns & Co. No one suggests that Mr. Beach's past legal troubles played a role in Baesa's financial woes. </s> |
263 | <s>[INST] But analysts, industry executives and consultants say Pepsi [/INST] placed unusual confidence in Mr. Beach, given those troubles and his short track record. </s> |
264 | <s>[INST] They add that he might not have raced into the perilous [/INST] Brazilian market as quickly -- or at such expense -- if he had had more experience in Latin America. </s> |
265 | <s>[INST] "Beach was a good operator," says Marla Marron, analyst at Salomon [/INST] Brothers Inc. "But he didn't have the management experience to take on the whole Southern Cone in one year". </s> |
266 | <s>[INST] Pepsi says it gave Mr. Beach the [/INST] added franchises only after he developed an "uninterrupted record of success". </s> |
267 | <s>[INST] It adds that he had solidified its leadership [/INST] in Puerto Rico and built up a 40% market share in Buenos Aires, Argentina's capital. </s> |
268 | <s>[INST] But industry executives say luck also [/INST] played a big role in Mr. Beach's early successes in Argentina. </s> |
269 | <s>[INST] They note that when he bought the [/INST] then-nearly-bankrupt Baesa at a big discount, inflation was raging at 24,000% a year. </s> |
270 | <s>[INST] Within a year, Argentinian authorities had [/INST] whipped inflation, and consumer demand -- including soda sales -- soared. </s> |
271 | <s>[INST] With three Pepsi executives on Baesa's board and executives [/INST] from its Purchase, N.Y., headquarters constantly streaming through Baesa's management ranks, Pepsi worked closely with Baesa's expansion. </s> |
272 | <s>[INST] In 1994, the companies jointly announced a $400 million [/INST] capital-spending plan to fuel their push into Brazil, although what portion was Pepsi's isn't clear. </s> |
273 | <s>[INST] Talking to analysts last year, Christopher Sinclair, Pepsi's [/INST] international chief, expressed a wish for "a Baesa in every part of the world". </s> |
274 | <s>[INST] Its expansion plan, the largest outside the U.S. in its history, called for [/INST] opening four state-of-the-art plants in Brazil, able to produce 250 million cases of soft drinks a year -- more than twice Pepsi's previous sales record. </s> |
275 | <s>[INST] The company also bought 700 new trucks, creating a go-it-alone [/INST] distribution fleet rather than piggybacking its products on beer trucks the way its rivals, including Coke, do. </s> |
276 | <s>[INST] It rolled out a raft of new products and packages, [/INST] including four new flavors of its Kas line of juice-based sodas that it had developed especially for Brazil. </s> |
277 | <s>[INST] And it launched them not only in the familiar [/INST] returnable bottles but also in cans and a variety of plastic containers -- further complicating its manufacturing. </s> |
278 | <s>[INST] Eager to please Wall Street with a series of road shows [/INST] before Baesa's 1993 public stock offering, Baesa and Pepsi pledged to have the Brazilian operations up and running within a year. </s> |
279 | <s>[INST] When analysts expressed doubts, Baesa [/INST] challenged them to visit Sao Paulo a year later. </s> |
280 | <s>[INST] Many did -- and found [/INST] a lot of Baesa's machinery still in crates. </s> |
281 | <s>[INST] "It's not easy to run this kind of hugely complicated operation [/INST] even with 50 years of experience," says Jorge Giganti, president of Spal Industria Brasileira de Bebidas SA, a competing Coke bottler. </s> |
282 | <s>[INST] Former Pepsi executives say the new bottling lines [/INST] were often shut down because of rushed installation and poor training of workers. </s> |
283 | <s>[INST] Even now, Baesa discards roughly 10 times [/INST] as many bent or punctured cans as competing bottlers do, industry executives say. </s> |
284 | <s>[INST] Pepsi has long been known for [/INST] rapid management changes overseas, but Baesa's frenzied start-up fueled even-faster churning. </s> |
285 | <s>[INST] Baesa replaced its top [/INST] manager in Brazil three times since 1994. </s> |
286 | <s>[INST] People familiar with the moves say [/INST] the managers couldn't tolerate Baesa's breakneck pace and conflicting signals. </s> |
287 | <s>[INST] One group of more than 20 executives who had been lured away from [/INST] other multinationals and moved to Sao Paulo were sacked three months after they were hired because Mr. Beach decided they were too expensive. </s> |
288 | <s>[INST] Pepsi, too, replaced a top local executive [/INST] and sent a steady stream of executives from its Purchase headquarters to trouble-shoot. </s> |
289 | <s>[INST] To enter Brazil, Baesa ramped up its debt from [/INST] $15.4 million at the end of 1993 to $374 million by the end of 1995. </s> |
290 | <s>[INST] As the Argentine economy soured in 1995 [/INST] and Baesa lost its main source of new cash, it borrowed more. </s> |
291 | <s>[INST] By June, its debt had swelled to $745.5 [/INST] million, including nearly $100 million in loans guaranteed or granted by Pepsi itself. </s> |
292 | <s>[INST] It faced a new assault on its market [/INST] from Coke, a sales slump in Argentina, logistical difficulties in Brazil and the debt-service burden. </s> |
293 | <s>[INST] Baesa's stock, which had hit a [/INST] 1994 high of $46.25 a share, began to plunge in earnest. </s> |
294 | <s>[INST] Despite all the troubles, Baesa agreed [/INST] to purchase two more bottling facilities in Brazil early this year. </s> |
295 | <s>[INST] And Pepsi's Mr. Sinclair told a gathering of [/INST] analysts, employees and suppliers that Pepsi was well on its way to becoming No. </s> |
296 | <s>[INST] 2 in the vast market, besting [/INST] the large local brewers that also sell their own soft-drink lines. </s> |
297 | <s>[INST] But on May 9, Pepsi announced that Mr. Beach [/INST] was being relieved of operational responsibility and that it would assume day-to-day control of Baesa. </s> |
298 | <s>[INST] Shortly afterward, Pepsi dispatched Mr. Suarez, who had overseen much of [/INST] the expansion and earlier problems in Brazil as head of Pepsi's Latin American operations, to deal with the mess. </s> |
299 | <s>[INST] Mr. Beach has resigned from both Baesa and Pepsi-Cola Puerto Rico Bottling Co. Since [/INST] then, Pepsi Puerto Rico, which owns 17% of Baesa, has uncovered what it calls "accounting irregularities" and its board has hired an independent counsel to investigate. </s> |
Subsets and Splits