Coca-Cola’s Marketing Challenges in Brazil: The Tubaínas War Introduction
For about a decade, the Coca-Cola Company’s Brazilian subsidiary tried to stop the growth of tubaínas (too-bah-ee’-nas). The word tubaínas designates numerous brands of fairly inexpensive, carbonated, and rather sweet beverages sold throughout Brazil. For more than half a century, hundreds of micro, and a few medium-size, manufacturers produced and distributed the so-called tubaínas on a local or regional basis. Brazil was Coca-Cola’s third largest operation and, after Mexico, the company’s second largest international market. Until the mid-1990s, tubaínas’ combined market share did not pose a threat to Coca-Cola. However, in the next decade, due to important environmental changes, tubaínas’ sales steadily grew in Brazil, making inroads into Coca-Cola’s business and jeopardizing the company’s profitability. Rather than the cola war (the name given to Coke versus Pepsi competition in many countries), the real issue for the Brazilian subsidiary of the Coca-Cola Company has been the tubaínas war. Over the years, Coca-Cola attempted different strategies to undercut tubaínas’ growth. Pepsi-Cola, CocaCola’s notorious contender, ranked fourth among the best-selling soda brands in Brazil. However, Pepsi also gained market share, thanks to its partnership with Brazilian beverage manufacturer AmBev and the successful launch of Pepsi Twist in 2003.
Mr. Brian Smith, a University of Chicago graduate and a close colleague of Coca Cola’s world vicepresident Brian Dyson, arrived in Brazil in August 2002 to assume the presidency of the Brazilian subsidiary of the Coca-Cola Company. Mr. Smith was the third president of Coca-Cola in Brazil since 1997 (that is, in just a six-year period).1 Coca-Cola expected Mr. Smith to lead the Brazilian subsidiary to the position of largest overseas operation, surpassing Mexico.2 To fulfill this goal, Mr. Smith’s assignment was to improve the subsidiary’s profitability and regain Coca-Cola’s market share. Although challenging, Coke’s performance could be improved, as Brazil’s socioeconomic conditions were similar to Mexico’s and the country’s population was nearly 80% larger than that of Mexico (see Appendix 1). In spite of Brazil being a large market and Coca-Cola’s third largest operation, average consumption of Coke in the country was relatively low. Brazilians consumed only 144 bottles, each 237 ml (8 ounces), per person annually. In the USA, the largest of Coca-Cola’s markets, per capita soda consump1
“Rumo ao Passado: Coca-Cola Apela Para Garrafas de Vidro,” Revista Exame, Setembro 04, 2003, http:// oeconomista.com/wm/wmview.php?ArtID=544, viewed on October 15, 2003.
Copyright © 2004 Thunderbird, The Garvin School of International Management. All rights reserved. This case was prepared by David Gertner, Pace University; Rosane Gertner, Pace University; and Dennis Guthery, Thunderbird, for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.
tion was 462 bottles annually. In Mexico, the company’s number two market, per capita consumption was 402 bottles annually. In terms of profitability, the Brazilian market position was even more critical. Mexico was Coca-Cola’s second market, both in sales and profitability. Brazil was Coca-Cola’s third market in sales and ranked a worrisome 20th position in profitability.3,4 This disappointing rank might have been due to the local subsidiary’s decision to keep lowering Coca-Cola’s prices in Brazil to prevent tubaínas’ growth. Since the 1950s, Coca-Cola’s price in Brazil had dropped nearly 30%.5 For many years, competition from tubaínas frustrated Coca-Cola Company’s growth plans in the Brazilian market. According to beverage sector experts, Coca-Cola’s strategies to stop tubaínas’ market growth in Brazil either failed to revert market share lost or, when they did succeed, eroded the company’s...