Panamerican Beverages, Inc.

Torre Dresdner Bank
Piso No. 7, Calle 50
Panama City
Panama
Telephone: (507) 223-8723

Panamco LLC
701 Waterford Way, Suite 800
Miami, Florida 33126
U.S.A.
Telephone: (305) 929-0800
Web site: http://www.panamco.com

Public Company
Incorporated: 1945
Employees: 28,500
Sales: $2.65 billion (2001)
Stock Exchanges: New York
Ticker Symbol: PB
NAIC: 312111 Soft Drink Manufacturing

Panamerican Beverages, Inc., also known as Panamco LLC, is the world’s second largest bottler of Coca-Cola soft drink products and the leading beverage bottler in Latin America. Based in Panama City and in Miami, Florida, Panamco boasts a relationship with The Coca-Cola Company stretching back more than 60 years. Entering the 21st century, the two companies are more closely linked than ever: Panamco is one of an elite group of “anchor” bottlers for the soft drink giant, and Coca-Cola owns nearly 25 percent of Panamco, with two seats on Panamco’s board of directors. Panamco’s operations stretch across a major portion of Latin America, holding exclusive Coca-Cola bottling licenses in most of Mexico (excluding Mexico City), the states of Sao Paulo and Mato Grosso do Sul in Brazil, most of Colombia, half of Guatemala, and all of Venezuela, Costa Rica, and Nicaragua. Apart from the Coca-Cola line, Panamco also produces, markets, and distributes other Coca-Cola brands, including Beat, Delaware Punch, Frescolita, Hit, Sprite, Fanta, Kuat, Quatro, Lift, and Canada Dry. Altogether, Coca-Cola products account for 90 percent of Panamco’s revenues, which topped $2.65 billion in 2001. The rest of its sales come from sales of beer, including the Heineken and Kaiser labels in Brazil, and Regional in Venezuela; bottled water, including the Risco, Premio, Agua de Lourdes, Crystal, Manantial, and Top labels; and other soft drinks, including regional specialties such as Keloco (Mexico), Club K (Colombia), and Powerade (Costa Rica). Panamco has long succeeded in navigating the often turbulent waters of its Latin American markets, in part by maintaining a decentralized structure of more or less autonomous, country specific subsidiaries. The company has been listed on the New York Stock Exchange since 1993, and reports its earnings in U.S. dollars. In 2000, Panamco moved its main headquarters from its longtime home in Panama City to new offices in Miami, Florida. With little room for additional geographic expansion—the company already had captured nearly 25 percent of the continent’s total soft drink market—Panamco was targeting initiatives to encourage an increase in soft drink consumption. Most of Latin America’s markets have per capita consumption rates of less than half of their neighbor to the north. Yet with a far larger proportion of the population under the age of 30, the Latin American beverage market remains an area with strong potential for future growth.

Family-Owned Bottler in the 1940s

In 1941, the American Albert H. Staton led a group of investors in acquiring a number of Coca-Cola bottling franchises in Mexico. That group migrated to Panama during the years of World War II and, in 1945, the company incorporated as Panamerican Beverages. By then the company, which became a family-run concern, began expanding into other Latin American markets in order to shield itself from the risks of operating with a single market in the often turbulent Latin American region. The company acquired its first Coca-Cola bottling franchise in Brazil in 1944. A year later, Panamco moved into Colombia as well.

In 1950, Panamco gained the franchise for the state of Sao Paulo, one of the most important markets in Brazil. This franchise provided the launch pad for the company’s expansion into other parts of Brazil. Over the next several decades, Panamco succeeded in establishing itself as a major Coca-Cola bottler in its three core markets of Mexico, Brazil, and Colombia. For much of this period, Panamco operated in its markets through three primary subsidiaries, Azteca in Mexico, Indega in Colombia, and Spal in Brazil. Over time, the company opened up the capital of these subsidiaries to local minority shareholders. This policy helped the company continue to build its position, despite the recurring waves of political and economic turmoil that affected these markets in the last decades of the 20th century.

Indeed, Panamco’s close ties to the Latin American community helped it to survive where many other companies failed. As Chairman and CEO Francisco Sanchez-Loaeza told Industry Week: “Many American and European companies come to Latin America to do business, but the vast majority of them are not successful. The problem is they do not understand the complexities of the Latin American business environment. Companies that have been here a while and understand the culture, they survive.”

Panamco did more than just survive. By the early 1990s, the company had grown to become the world’s largest Coca-Cola bottler outside of the United States, and the largest bottler in Latin America. Part of Panamco’s success was due to Coca Cola’s vast marketing campaign, with an advertising budget among the largest in the world, which helped impose the brand as one of the few truly global brands and make it one of the world’s top beverages. Panamco also had capitalized on the strength of Coca-Cola’s expanded portfolio, which included such brand names as Sprite, Fanta, and Hit, as well as a number of brands and flavors specific to the Latin American market (Colombian consumers, for example, prefer apple-flavored soft drinks). The company also added sales of bottled mineral water.

By 1993, Panamco had topped $1 billion in revenues for the first time. The company now prepared to move to a new level of operations. For this, the company abandoned its family-owned status and opened its capital to outside investors. In 1993, the company went public on the New York Stock Exchange, where it sold more than 15 million shares. The company also adopted U.S.-based GAAP accounting principles and began reporting its financial statements in U.S. dollars.

In 1994, the Mexican economy entered a crisis when the peso was sharply devalued. Yet Panamco maintained its course, and even stepped up its investments in that country, modernizing production facilities and rolling out new packaging, such as disposable plastic bottles. As Sanchez-Loaeza told Industry Week: “We didn’t panic and that helped us. We operated much the same as if nothing were wrong. During the devaluation we didn’t reduce investments, especially in assets that could generate volumes. We suffered less than our competitors because we invested in new markets. We spread the risk, and it minimized damage from the crisis. It’s a long-term business we’re in and we always see it that way.”

Similar economic difficulties faced the company in Brazil, where inflation had hit double-digit rates. Yet there too Panamco maintained its investment program, including the acquisition of Refrigerantes de Santos, giving it production and distribution rights to Coca-Cola and distribution rights to Kaiser and Heineken beer in the coastal region of Sao Paulo. Meanwhile, the company made a new public offering of more than six million shares, raising funding to pursue the buyout of its major subsidiaries, increasing its stake in Azteca to 74 percent and its position in its Colombian holding companies to 88 percent. Panamco now prepared itself for a still more dramatic expansion program.

Bottling Champion in the New Century

A major step in Panamco’s growth came in 1995 when The Coca-Cola Company named its largest Latin American bottler as one of its exclusive class of “anchor bottlers.” In this way, the Atlanta-based soft drink maker took a direct interest in Panamco’s growth—building its participation in the company to include a 16 percent voting share—while pledging to contribute financial and marketing muscle to Panamco’s expansion plans in the region.

Key Dates:

1941:

Albeit H. Staton leads a group of investors in acquiring a small Coca-Cola bottling operation in Mexico.

1944:

Panamco acquires a Coca-Cola bottling franchise in Brazil.

1945:

Panamco incorporates in Panama and acquires a bottling franchise in Colombia.

1950:

The company acquires the Coca-Cola bottling and distribution franchise for Sao Paulo, Brazil.

1993:

The company is listed on the New York Stock Exchange.

1994:

The acquisition of Refrigerantes de Santos gives Panamco production and distribution rights to Coca-Cola and distribution rights to Kaiser and Heineken beer in the coastal region of Sao Paulo.

1995:

Panamco is named one of Coca-Cola’s anchor bottlers; it acquires Embotelladora Tica and 85 percent of the Costa Rican soft drink market.

1996:

The company acquires Embotelladora del Valle S.A. and Industrias del Atlantico SA and gains 100 percent control of the Costa Rican Coca-Cola market.

1997:

The company enters Venezuela with the $ 1.1 billion purchase of Coca-Cola y Hit de Venezuela, the country’s leading bottler; it enters Nicaragua through the acquisition of Embotelladora Milca, that country’s only Coca-Cola bottler.

1998:

The company buys the leading Coca-Cola bottler in Guatemala, Embotelladora Central SA, for $39 million.

1999:

Panamco suffers its first ever net loss, which reaches $59 million for the year.

2002:

The company announces that it has returned to profitability, posting $118 million in net profit on $2.65 billion in revenues for the 2001 year.

The anchor bottler designation was followed by an important acquisition for Panamco. At the end of 1995, the company acquired Embotelladora Tica, based in Costa Rica, marking the company’s first expansion beyond its longtime core markets of Mexico, Colombia, and Brazil. Meanwhile, in its primary base Panamco continued to go from strength to strength, building its market share in Mexico to 69 percent, in Colombia to 51 percent, and in Brazil to 54 percent. The Tica acquisition, meantime, gave Panamco an 85 percent share of the Costa Rican soft drink market.

At the same time, Panamco continued its policy of buying out minority partners in its local subsidiaries. By 1995, the company had achieved 85 percent and 97 percent of its Brazilian and Colombian subsidiaries, respectively. The company was also busy on its product development, introducing Fresca and Risco purified bottled water in Mexico; Cherry Coke and another Coca-Cola brand, Guaranà Tai, in Brazil; and the apple-flavored Lift drink in Colombia. The company also continued implementing a strategic marketing and distribution plan, placing 57,000 coolers—for a total of 132,000 company-owned coolers—in its Latin American markets.

Panamco began preparing for the consolidation of the Latin American bottling market, where the Coca-Cola franchise branch counted more than 100 bottling companies. Panamco expected to become a motor behind the creation of a smaller number of far larger and more profitable bottling companies. In 1996, the company increased its coverage of the Costa Rican market, paying $14 million to acquire Embotelladora del Valle S.A. and Industrias del Atlantico SA.

Panamco’s position as one of only eight Coca-Cola anchor bottlers worldwide also placed it in primary position to acquire new franchises in its operating territory. Such was the case in 1996 when the company took over two franchises in Colombia that had been held previously by competing bottlers. By the end of that year, Panamco’s revenues had doubled in the short period since its public offering, topping $2 billion for the first time.

In 1997, Panamco entered a new market, Venezuela, when it paid $1.1 billion for Coca-Cola y Hit de Venezuela, that country’s largest soft drink bottler. Soon after, Panamco entered another Latin American market, buying up Embotelladora Milca in Nicaragua. That $42 million purchase gave Panamco 100 percent control of the Nicaraguan Coca-Cola products market as well—and a 78 percent share of the country’s overall soft drinks market. Meanwhile, Panamco continued building up its shares in its regional subsidiaries, boosting its ownership of its Mexican subsidiary to 95 percent. The company also more than doubled its placement of coolers and vending machines, topping 320,000 company-owned units. In addition, Panamco launched its new “100 meters rule,” establishing a company goal of offering its soft drinks within 100 meters of every consumer. Rolled out at first in Mexico, the “100 meters rule” was quickly extended to all of the company’s operating areas.

Panamco turned to Guatemala in 1998, buying up that market’s leading Coca-Cola bottler, Embotelladora Central, S.A., for $39 million. That purchase gave the company a 40 percent share of the Guatemalan soft drink market and helped cement the company’s implantation in Central America. The company then joined its Guatemalan, Costa Rican, and Nicaraguan operations under an integrated management structure in order to achieve greater regional synergy. Another strategic acquisition came in September 1998, when Panamco paid $48 million for Refrigerantes do Oeste, SA, based in the state of Mato Grosso do Sul, where it held a market share of more than 49 percent.

Panamco’s rise was cut short in 1999, however, when it reported its first ever net loss, reaching $60 million for the year. The company responded by an extensive cost-cutting exercise, which included the elimination of nearly 3,500 jobs. Despite its difficulties, Panamco maintained its longstanding commitment to investment. As part of its “100 meter rule,” the company continued its aggressive placement of coolers, adding more than 75,000 new coolers and vending machines that year, bringing the company’s total number of such outlets to more than 666,000. Panamco also began exploring nontraditional distribution routes, such as street corner and even traffic light sales.

Soft drink consumption in Latin America, where much of the economy was hard hit by a lingering recession and a series of natural disasters, continued to shrink at the turn of the millennium. Nonetheless, Mexico proved to be the company’s bright spot, posting increases of some 20 percent in revenues. This helped the company reduce its losses somewhat, to just $14 million for the year. By 2001, Panamco appeared to have completed its turnaround, posting a net income of $188 million. Part of the company’s success came through strong increases in sales of bottled water, one of its fastest-growing product lines. Yet Coca-Cola remained the true motor for Panamco’s growth as it eyed further expansion throughout Latin America in the coming years.

Principal Subsidiaries

Panamco Mexico, S.A. de C.V.; Refrescos do Brasil S.A. (Brazil; 90%); Panamco Colombia, S.A. (97%); Embotelladora Coca-Cola y Hit de Venezuela S.A.; Embotelladora Panamco Costa Rica, S.A.; Embotelladora Milca, S.A. (Nicaragua); Embotelladora Central, S.A. (Panamco Guatemala).

Principal Competitors

Bavaria S.A.; Companhia de Bebidas das Américas; Coca-Cola FEMSA, S.A. de C.V.; Cervecería Nacional, S.A.; Embotelladora Andina S.A.; Grupo Continental, S.A.; Pepsi-Gemex, S.A. de C.V.

Further Reading

Michaels, Anthony J., “Coke’s Monster Bottler Has Latin Fizz,” Fortune, December 11, 1995, p. 204.

“New Coke Bottler Hopes to Boost Profits in Venezuela,” Panorama, July 1, 1997.

“No Fizz to Panamerican Beverages Results,” South Florida Business Journal, November 2, 2000.

Van Yoder, Steven, “Thirst for Success,” Industry Week, May 15, 2000.

—M.L. Cohen