As US firms work to take advantage of the $700-billion global beverage marketplace there are many challenges that must be overcome to find success in the growing opportunities within this sector. Proving out successful international strategies are companies such as Starbucks, Nascent Wine Co. Inc., Pepsi Bottling Group, Inc. and Coca Cola Co. who have learned to overcome the challenges associated with entering international markets through understanding the culture, the environment and by developing key marketing and distribution partners within the global beverage markets.

Meeting Challenges for International Growth

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With the diversity of global beverage markets, the ability of companies to adapt becomes a key attribute to being an accepted part of international economies. Andrea Foote, Editor in Chief for Beverage World explains, “One of the biggest challenges for beverage companies looking to expand abroad is understanding the distribution model and retail environment in international markets. In order to get the depth of market penetration required to make real volume and share gains, marketers need to partner with the right distribution partner. They must also be willing to adapt their brand messaging, product mix, the product formulation of existing brands, packaging and their go-to-market strategy to meet the cultural and economic realities of a new marketplace.”

Among the high growth international targets, Mexico posts the greatest export opportunity for every US beverage company large and small according to Jorge Olson, managing partner of Liquid Brands Management Inc., a beverage consulting firm. “It has all the ingredients of a great customer. It has a great infrastructure including roads and ports to ship truckloads of products, many beverage distributors selling to supermarkets and convenience stores and more than 500,000 stores willing and able to buy new products throughout Mexico. Not only that, but Mexico is one of the largest consumers of beverages in the world per capita and as a country including soda, flavored water, energy drinks and beer, ” states Olson.

Nascent Wine (OTCBB: NCWT), a global beverage and food distributor, understands the necessity of tapping into established networks in international markets and has strengthened their position within Mexico through an acquisition strategy that has allowed them to aggressively grow their distribution base. Nascent’s CEO Sandro Piancone describes, “Every time we make an acquisition, we get sales people, their customer base, unique permits, and exclusivity for certain brands, once we get this, we are positioning ourselves for hyper growth because we now take this product line and spread it through out our present distribution system. Our management team is constantly looking for exclusive distribution agreements for Mexico, like the one we signed with Ferrarelle Water.”

Nascent is not alone in its pursuits of growth through Mexico’s water market, which according to Jorge Olson, “is the second largest in the world by volume at more than $8 billion U.S. dollars per year with an incredible annual growth of 30% per year.” He continued by saying that "one of the best areas of expansion in Mexico is in bottled water and mineral water for convenience stores and food service where there is a great demand but not much variety or distribution."

Compounding the complexities of international markets is the importance of understanding and conforming to the political polices and legislative requirements. Mr. Piancone explains Mexico’s environment, “Some of the key challenges for companies entering this market is first being able to import the products into Mexico. They need to be a Mexican corporation, they must be an importer of record with the Mexican government, and they must request and then receive all of the necessary import licenses to do business. Then once that is all in place, they must have the infrastructure to import products and have the street knowledge to roll out products in each market in Mexico. It takes a different skill set to roll out in foodservice, then convenience stores and the most challenging is in the retail supermarkets.”

Corporate giant Starbucks (NASDAQ: SBUX), has been highly successful in entering a growing number of global beverage markets. Starbucks’ international strategy, according to company spokesperson Katherine Cheng, is based on establishing partnerships with companies that share similar corporate values and philosophies, bringing strong knowledge of the local market and a proven track record in the food and retail industry in those respective markets. “We usually consider several options when we look at international opportunities for growth. Regardless of business structure, our commitment to our business partners worldwide is 100 percent. The opening of Starbucks stores in a country creates jobs in the market where we offer our partners a great work environment and competitive compensation and benefits, in line with our guiding principles of treating our partners with dignity and respect, explains Cheng.

Another very real challenge, especially in today’s world, is dealing with local sentiments toward America. As described by Beverage World’s Andrea Foote, “Both Coke and Pepsi, for example, have had a very up-and-down experience in the Middle East over the years due to changing sentiments toward America. These products are so strongly associated with America that they have a lot of exposure when anti-American sentiments run high. The issue is coming to a head in India, where the legacy of policies that were designed to limit foreign involvement in the market has created an atmosphere of distrust that lingers today.”

Coca Cola (NYSE: KO) and Pepsi (NYSE: PBG) have recently been dealing with an international crisis as they fight allegations in India that accuse the companies of having pesticide levels in their soft drinks that exceed proposed Indian safety standards. Some insiders believe that Coke and Pepsi are being singled out because they are foreign owned, however the Center for Science and Environment in New Delhi India that released the pesticide findings denies any such anti-American motivation behind the allegations. Despite this controversy, both companies have experience tremendous growth realizing 52 week high stock prices in August, a testament to the overall strength of beverage markets domestically and abroad.

Starbucks attributes part of their success at entering new markets as due to the Company’s high level of respect for the surrounding environment and communities where they do business. “Our stores are designed to be architecturally friendly to the local landscape. In many of our international markets, our stores incorporate local elements and blend naturally into their surroundings. Through becoming part of the local community, our words and actions speak for themselves. Starbucks partners strive to be good neighbors and active contributors in the communities where they live and work. This is part of the Starbucks culture,” explains Cheng.

While Starbucks adapts their selection of food items to suit the areas and culture they are operating within, the Company has found great success in the confidence that customers have in the consistency of their coffee all around the world. As Katherine Cheng states, “Starbucks localizes the pastries and food items to cater to customer preferences and to enhance the coffee experience. While the menus may be localized, the quality of coffee and the Starbucks Experience remains the same in our stores all over the world.”

Market Opportunities:

The growth in the global beverage market is expected to continue across a variety of segments from new and creative drink formulas, to the basic tastes of water. According to Andrea Foote, “Sports drinks and energy drinks rank among the fastest growing food and beverage categories across all continents. The lifestyle and functional associations connected with these products seem to lend them universal appeal. Overall consumers seem to be looking for value-added beverages that offer something more than refreshment. At the same time, all commercial beverages have tremendous growth potential on a global basis.”

Moving forward to take advantage of the growth in the demand for water and energy drinks, Nascent recently signed a letter of intent to exclusively distribute Ferrarelle brand beverages in Mexico. “We plan on being the first national distributor of imported beverage and food in Mexico. We see our greatest growth potential in water products and energy drinks. We have the infrastructure to take brands and leverage them throughout our system,” stated Mr. Piancone.

According to Beverage Marketing Corporation, in the US 93% of beverage consumption is accounted for by branded products, in the rest of the world only about 25% of liquid consumption comes from commercial products. “As markets such as China, India and Indonesia become more urban and commercial, there is a tremendous opportunity for volume growth for all beverage categories. The real challenge is for beverage marketers to find a way to participate in that growth profitably,” describes Foote.

Recognizing the potential associated with Asian beverage markets, Starbucks has been expanding within China for over 7 years. Katherine Cheng explains, “We have been very pleased and gratified with our rapid store growth and strong brand acceptance in China. Since opening in Beijing in January of 1999, we have been pleasantly surprised at the way in which the customer throughout China has embraced the Starbucks Experience. The unaided awareness of Starbucks really has surprised us, as well as the relevancy of Starbucks as a third place experience between home and work. China no doubt will be the largest market for Starbucks outside of the U.S. over time due to its growing economy, the customers' affinity for iconic brands and increasing purchasing power. In addition, we believe that the nascent coffee market in China will give Starbucks a critical advantage and the opportunity to create an industry where none existed (as Starbucks has done in the United States).”

Starbucks, according to Cheng, is gearing up for aggressive expansion in China as it recognizes the huge growth opportunity in the market. “As we aggressively build on the strong momentum that we have established in our early days in China, we will remain true to our core values. The announcement of the establishment of our $5 million education fund speaks to this commitment to our core values. In the past 30 years, we have built a company that has successfully maintained the delicate balance between being a positive force in the world community and increasing shareholder value. Starbucks will continue to build on the strong consumer acceptance and relevance of the Starbucks brand by applying out business experience globally.”

Despite Coke and Pepsi’s current issues surrounding their soft drinks in India, this region continues to represent a key beverage market and growth target for many firms. Evidence of this is seen in Starbucks’ plans for further expansion within India. “Starbucks Coffee Company is excited about the great opportunity that India presents to the Company. We are looking forward to offering the finest coffee in the world, handcrafted beverages, the unique Starbucks Experience and legendary service to customers in India within the next 18 months. However we do not have announcements to make regarding this market at this time,” describes Cheng.

A significant factor in the rise of the beverage market in India is seen in the increased consumption of bottled water and the growing number of players entering this arena, creating one of India’s most thriving sectors.

Dr. Uday Lal Pai, a well known financial writer based in India explains, “Even though it accounts for only 5 percent of the total beverage market in India, branded bottled water is the fastest growing industry in the beverage sector. Packaged drinking water, is the biggest segment and includes brands such as Parle Bisleri, Coca-Cola's Kinley and PepsiCo's Aquafina. While the single largest share in the mineral water market might still belong to an Indian brand -- Parle's $52 million Bisleri brand has a 40 percent share -- multi-national corporations are not far behind.”

Overall, while the challenges for U.S. companies continue to exist and test marketing, branding and the adaptability of companies, the opportunity for growth within the global beverage markets remains undeniable. With factors such as the growing issues of water scarcity and contamination driving the water segment, as well as consumers looking for more from their drinks overall such as vitamins, energy boosting abilities and unique flavours, not only has a beverage boom been created, but a deeper portfolio of available products and revenue channels for businesses has resulted.

Ann-Marie Fleming
Ann-Marie Fleming completed her MBA in the United States, where she attended Webster University. She also holds an Honors B.A from the University of Toronto. She has over sixteen years of experience within the financial industry to include retail banking and brokerage, investment banking, and mortgage brokerage within the United States and Canada, with a firm background in corporate research.

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