Pepsi Competes Against Itself
By George Anderson
It’s a common practice. Retailers and restaurants serving immigrant populations or consumers who just want to eat “authentic” foods import the versions of popular international brands such Pepsi-Cola manufactured in other countries into the U.S.
While the practice is not normally viewed as controversial – if anything it’s seen as smart target merchandising by retailers serving specific demographic groups – it has become a source of dispute between PepsiCo and an Atlanta food wholesaler specializing in serving the Hispanic food market.
According to a report in the Atlanta Business Chronicle, a federal lawsuit filed last month by Pepsico against Diaz Wholesale & Manufacturing Co. asks that the wholesaler stop selling Mexican-bottled Pepsi in the U.S.
The suit alleges that product may have been damaged in transport and that its quality control mechanisms and labeling requirements for beverages made in Mexico are not the same as they are here.
“The Mexican product is neither authorized nor intended for exportation out of Mexico or for importation into, or sale or distribution in, the United States” contends the plaintiff and “PepsiCo hasn’t authorized Diaz to sell the product here.”
Moderator’s Comment: What is your take on this case and the value (or lack thereof) of selling imported versions of popular brands sold here to immigrants
and other consumers?
Diaz Wholesale & Manufacturing distributes imported products to restaurants, mom and pop grocery stores and large chains such as Kroger and Publix.
Pepsi’s suit against Diaz doesn’t indicate the retail customers who have purchased the Mexican-made product or how much of it has been sold. It does seek
to have Diaz end its sale of the Mexican product and to turn over any profits it has made to date to the manufacturer. –
George Anderson – Moderator
Multinationals like Pepsi have no qualms about sending jobs across borders to lower their costs. But when the product comes back across the same border, that’s a reason to head for court?
Free trade should benefit both buyers and sellers.
Our consumer-based marketplace should be suggesting to Pepsi that if they perceive a product need or niche in their category, they should strive to fill it and compete with any other products there – including imported versions of their own brands.
I agree with Mr. Lempert. The Mexican Pepsi/Coke phenomenon has been thriving in Arizona, Texas and S. Cal. for a long time. The customer base is not only Hispanics, but quite a few Anglos who prefer the immediate sweet hit that the sugar formulas deliver. In Arizona there are pop shops that sell these formulations at significantly more than the hfcs formulas. I think Coke and Pepsi are missing a big opportunity to sell a higher margin product.
Pepsi has a much bigger problem than Diaz Wholesale if they have to go to court to control this problem. I would suggest that Pepsi consider the following. 1. Determine which Mexican Bottler is selling product to Diaz Wholesale and order them to quit selling on penalty of increasing their cost of concentrate by 500%. 2. Work with US retailers purchasing product from Daiz and let them know that the quality of the product is not backed by Pepsi Cola. Serve them with legal documents advising them that the Diaz product is not recognized by Pepsi Cola as legitimate product and is thus counterfeit and not a product the Pepsi Cola Co will be held responsible for should civil actions surrounding the product arise due to quality, etc. 3. Order all divisions of Pepsi Cola to stop servicing any US Diaz soft drink customer from a domestic bottler. 4. Institute and “insurance” surcharge for any and all non soft drink products because we don’t know what else might be fake and have to protect ourselves from law suits. 5. Speak to the Coca-Cola company and find out how they are handling the problem. If they don’t have a problem, find out what they are doing right that is discouraging the creation of this problem in their system.
There are lots of ways to stop this problem without resorting to dealing with the legal weenies in court.
You cannot replicate authenticity. Either something is authentic or it isn’t. If your target market is a group of people who want food or drink exactly the same as they had in their former homes or childhood or whatever, you cannot create a sufficiently convincing substitute in a different environment. The new product may resemble, in some ways, the original and some people might even find it preferable. But it will never be the same. If Pepsi doesn’t like having its own product imported, that’s tough. Their challenge, should they accept it, is to find new products that might appeal to that audience and wean them off the original. After all, if they emigrated, they must have some leanings towards the lifestyle in their new environment. Encourage them to mix and match and show them why the all American true blue brand is better. Give them attractive choices; tempt them; woo them. Bullying the importer and rushing off to court is not the way to do it. Nor is publicising the fact that their Mexican product is actually inferior. Not smart, folks, not at all.
From Pepsi’s response, it looks like cross-border marketing has entered the U.S.marketing thruway. With increasing globalization, the proliferation of cable channels and online media, Mexican brands of cookies, beers, colas and a variety of different retail categories have begun to send warning signs to U.S. brands. PepsiCo’s own launch of brands for Latinos, like Doritos Salsa Verde, and Gamesa line of cookies in the U.S., is only one side of this industry.
Ignoring the legal arguments in Pepsi’s recent case against Diaz, from a marketing perspective, it clearly sends a signal to U.S. foods and beverage manufactures that global brands are seizing every opportunity to target Ethnic USA.
Asian Indian banks are aggressively targeting Non-Resident Indians. South Asian groceries regularly stock beverages, teas, fast-foods and “Made-In-India” brands from global companies like Nestle or Unilever. And, it is quite common to see shoppers pack Horlicks, Ovaltine, Red-Label or Maaza (mango drinks) into their shopping carts for their “taste-of India”.
Fispal, Brazil’s largest food show organizer, has debuted a major event in Miami to tickle the palates of U.S. food chains and grocery stores. Venezuelan Roberto A. Weill is launching Miami-based Latino Food Network Corp. to distribute goods from multiple nations.
Blue Chips like Pepsi are among the top rung of marketers who get ethnic and grassroots marketing. Imagine what the average marketer needs to prepare for in this global game of retail marketing.
International CPG companies have seen this before with the creation of the European Union. The driving factor then was a price difference that resulted in legal gray market (diverting in the USA) activity. With the growth of the Hispanic market segment, many more companies can expect to be competing with themselves. Legal systems in other countries are different than ours and do not find this practice remotely questionable. Most counties have formal and informal trading with their border partners. Thus, governments look the other way. One option is to price products the same worldwide. This solves one and creates another problem of being competitive in the local market. Rebate control may be the only option.
Here in Southern Arizona, I’ve had occasion to see and purchase Mexican bottled Pepsi in 12-ounce glass bottles from a cooler bin at the front of a local chain supermarket. A hand-lettered sign on the bin said the product was from Mexico and used cane sugar sweetener.
Clearly, this was merchandised at the local level. The store manager at the location in question is himself Mexican-American (and apparently quite good at his job, I might add). At $1.50 a bottle, and displayed for impulse purchasing, this product was hardly robbing Pepsi of its rightful profits. It was, however, visibly positioned to make the store’s Mexican clientele feel a bit catered to.
PepsiCo should be careful that, in protecting its legal flank against a hypothetical threat, it may alienate a segment of its constituency. Put it this way – if Mexican-Americans are so nostalgic for the taste of the Pepsi they were used to in their home country that they will pay four-times the unit cost for an occasional swallow, that’s a kind of loyalty to be encouraged, not quashed.
Not sure it’s about “competing with one’s self” – rather satisfying consumer needs. The Mexican product (in both Pepsi and Coke) is made with sugar instead of high fructose corn syrup, which is what the Hispanic consumer prefers and is used to. As the per capita consumption of cola continues to decline, perhaps this is the wake up call to both companies telling them it’s time to go back to the pre HFCS formulas on which they built their brands.