For the exclusive use of J. Sivarajah TB0343 Lena Chua Booth Hola-Kola—The Capital Budgeting Decision
The consumption of sugar-sweetened beverages has been linked to risks for obesity, diabetes, and
heart disease; therefore, a compelling case can be made for the need for reduced consumption of
these beverages.
Health Policy Report, The New England Journal of Medicine,
October 15, 2009.
Mexico leads world in soda consumption, World Health Organization planning to fight it.
Carolyn Crist, Obesity Initiative, October 25, 2012. In December 2012, Antonio Ortega, the owner of Bebida Sol, had just finished reading a report done by his
general manager, Pedro Cortez, about the possible investment in a new product line, Hola-Kola. The idea of
Hola-Kola came about three months earlier when Antonio attended a seminar on youth obesity organized by a
local high school that his two children attended. Even though he had often heard of the rising obesity problem
in Mexico, Antonio was still very disturbed by the statistics indicating how the obesity rate in Mexico had tripled
since 1980, and that 69.5% of the people 15 years and older were either obese or overweight.
Even more shocking to Antonio, based on this statistic, Mexico now had the highest overweight rate in the
world, surpassing the United States.1
After the seminar, Antonio discussed the idea of Hola-Kola, a low-price, zero-calorie carbonated soft drink,
with Pedro Cortez. Pedro was excited about the idea, and liked the opportunity to launch something new, especially given that the company had not introduced a new product in the last five years. However, Pedro thought
a market study should be done to gauge the potential demand before the firm undertook the investment. Company Background
Bebida Sol is a small, privately owned carbonated soft drink company based in Puebla, Mexico. A retired executive from a popular fast-food restaurant chain, Roberto Ortega, founded it in 1998. During his career as
a restaurant executive, Roberto learned that Mexicans, regardless of social status, loved their soda pop. Many
would drink soda to quench their thirst on a regular basis, due to the lack of hygienic, drinkable water. With
the influx of international brands of soda pop, Mexico now had the highest consumption of carbonated soft
drinks per capita in the world.2 The average per capita consumption was 40% higher than the United States, at
163 liters (43 gallons) per year, while the United States consumed 118 liters (31 gallons), according to statistics
presented by the international organization Oxfam and the Mexican NGO Consumer’s Power. Due to the high
obesity problem, health and consumer groups in Mexico had demanded that the government impose a 20% tax
on soft drinks, claiming that it would not only reduce consumption, but the tax revenue could also be used to
fight health problems that soft drinks generated.3
“The World is Fat” by Catherine Rampell, 9/23/2010. http://economix.blogs.nytimes.com/2010/09/23/the-world-is-fat/.
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Mexican%20Market%20for%20Soft% 20Drinks_
Mexico%20ATO_Mexico_8-20-2009.pdf; Global Agriculture Information Network (GAIN) report MX9326.
3 “Mexico, Leader in Soft Drink Consumption”, July 10, 2012 http://www.mexicanbusinessweb.mx/eng/2012/
mexico-leader-in-soft-drink-consumption/.
1
2 Copyright © 2013 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor Lena Chua
Booth for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. This document is authorized for use only by Jeevini Sivarajah in Project Estimation and Cost Management Winter
2014 taught by Dr. Farhad Moayeri from March 2014 to September 2014. For the exclusive use of J. Sivarajah Exhibit 1. Rates of Overweight and Obesity Persons by Country (2010) Source: “World Obesity Stats—2010 and Beyond,” Douglas Robb, Sept. 27, 2010, Health News. The market leaders for carbonated soft drinks in Mexico were Coca-Cola, Pepsi-Cola, Dr. Pepper Snapple,
and Grupo Penafiel. Together, they accounted for a combined market share of more than 90%, with Coca Cola
being the major player. The Mexican soft drink market (products include bottled water, carbonates, RTD tea/
coffee, functional drinks, fruit/vegetable juices, and other soft drinks) had total revenues of $39.2bn in 2011,
representing a compound annual growth rate (CAGR) of 6.3% between 2007 and 2011. Market consumption
volumes increased with a CAGR of 4.5% between 2007 and 2011, reaching a total of 49.3 billion liters in 2011.4
Roberto thought these popular international brands commanded prices that might be out