FEMSA’s sugar deal

Oh, oh, more ammunition for the obesity police. At the end of May 2013 Coca-Cola FEMSA, the largest Coca-Cola franchise bottler in the world, completed its merger with Grupo Yoli, a family-owned Coca-Cola bottler and soft drink manufacturer, best known for its lime-flavoured soft drink Yoli, popular in its home base of Acapulco.

Grupo Yoli is a tiny outfit compared to FEMSA – in terms of volumes it only represents 3 percent of FEMA’s output. But the merger is another step in FEMSA’s strategy to consolidate the Mexican market. The Coca-Cola System already controls over 70 percent of the country’s off-trade market for carbonates.

Through this USD 700 million transaction, which was announced in January this year, FEMSA also upped its stake in Promotora Industrial Azucarera, S.A. de C.V. ("PIASA"), another privately-owned Mexican company, to more than 37 percent, Coca-Cola FEMSA reported.

Thanks to PIASA’s complicated name, the deal attracted little attention. In actual fact, PIASA is the largest sugar producer in Mexico and currently produces about 450,000 tons of refined sugar, reports say.

This should give an unwanted boost the obesity police’s insulin level. Mexico ranks third worldwide when it comes to sugary drinks. Per capita consumption is 119 litres. Only the Argentinians (131 litres) and the Chileans (121 litres) drink more. Carbonates are aspirational drinks for low-income consumers, says Euromonitor, a market research company, and consumption is set to grow.

While Coca-Cola seems to be the prime target of the obesity police in the U.S. and Europe, the issue – soft drinks causing bulging waistlines and diabetes – receives far less attention in Mexico. No one would think of launching a campaign to ban the sale of super-sized offerings as did New York’s mayor Michael Bloomberg, whose controversial plan was overturned at the last minute by a judge in March this year.

In a country like Mexico, where huge swathes of the population are overweight, there is not much stigma attached to being chubby. That’s why there would probably be stiff opposition to regulating consumers’ behaviour, as measures such as higher taxes on soft drinks would fall disproportionately on the poor, The Economist wrote in April 2013.

The Economist added that Mexican soft drinks manufacturers have already proved adept at fending off sin taxes and other forms of anti-obesity regulation, as existing in the U.S., in their domestic market.

Still, Coke likes to be seen as proactive. In May 2013 it announced four global commitments to tackle obesity, including making diet versions of its drinks available in all 206 countries where it is sold, and stopping advertising aimed at the under-12s. By getting its retaliation in first, Coke hopes to prevent Bloomberg-style legislation elsewhere.