Case study: AJE – taking on bigger rivals

The story
In the 1980s, growing conflicts led mainly by guerrilla movement Sendero Luminoso (Shining Path), forced Eduardo Añaños to flee his family farm in the Peruvian countryside for the small town of Ayacucho.

To support his family, Mr Añaños launched the soft drink Kola Real in 1988. The Añaños family had spotted an opportunity: because Coca-Cola and Pepsi trucks from Lima often came under attack from criminal groups, the two multinationals had limited their shipments.

Production began in a courtyard, after mortgaging the family home and using Mr Añaños’s personal savings. The family began selling the drink in recycled bottles, door to door, to local residents and stores, before expanding rapidly to the rest of the town. In 1991, the family founded AJE to bottle and expand the distribution of Kola Real.

The challenges
Peruvian society, like the rest of Latin America, is characterised by socioeconomic inequality. Wealth is concentrated in an upper class minority, while a lower class majority has an annual income of less than $650.

Big multinational soft-drink makers had traditionally targeted the upper classes with high purchasing power, and ignored the rest – ie the base of the pyramid, the demographic championed by economist C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid.

AJE focused on serving the lower income brackets. It concentrated on offering lower prices and invested in distribution that would reach more remote areas. This involved micro-entrepreneurs who used their own transport to distribute the product – an approach replicated everywhere that the group has since operated.

AJE’s success drew the attention of the big operators, who aggressively slashed prices and increased spending on advertising. However, this strategy only worked in the short term: poorer consumers reverted to Kola Real once the promotions had ended.

The strategy for expansion
For the launch of Kola Real in Lima, the Peruvian capital, the slogan was “The Fair Price Drink”. This strategy would be replicated in other markets to convey an idea of overpricing by rivals, while reinforcing perception of its product for quality.

AJE also developed other drinks, including water and juices, and bought up bottlers using PET containers, which were an innovation in the 1990s.

In 1999, the company decided to break out of Peru, starting with Venezuela.

It later entered the huge Mexican soft-drink market, which was dominated by Coca-Cola, deploying a sales force of 800 and focusing on developing a personalised service for retailers. The country has become AJE’s most important market.

The company then entered Central America, and in 2006 it set up in Asia.

The results
The company has annual sales of about $1.5bn in 16 countries. These include Ecuador, Mexico, Peru, Venezuela and Colombia, as well as other markets in Central America.

It is also represented in Thailand and Vietnam, where the target consumer is, again, in the lower-income strata.

The company’s goal is to rank among the world’s top 20 multinational food and drinks groups by 2020.

Key lessons
The company identified a “parallel” market – the bottom of the pyramid – that was underserved by big, established brands. In Peru, this segment of society represents 80 per cent of the market. Worldwide, the bottom of the pyramid represents about 2bn people. Many of them aspire to improve their lives. One manifestation of this is the increased consumption of branded goods.

AJE learnt that, rather than focusing on becoming the leader in a market, it had to focus on generating enough profits to enable it to sustain growth. In this way, it was able to fend off bigger and better resourced rivals that were able to lure customers with short-term strategies such as slashing prices.

AJE also realised early on that it had to adapt its bottom of the pyramid offering for each market’s specific needs.
- Financial Times, 7 Nov 2011