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Quilmes expands in Bolivia, challenging local monopoly
Impact International / April 1, 1998

By Larry Luxner

High on a hill overlooking the Bolivian city of Cochabamba, a subsidiary of Argentine brewer Quilmes Industrial S.A. churns out thousands of bottles of Cerveza Taquiña a day for the local market. About an hour's flight east of here, another Quilmes affiliate brews Cerveza Ducal for thirsty beer-drinkers in Santa Cruz.

While the popularity of Quilmes' two brands is still generally confined to the regions where they're produced, the fact that they flourish at all signals the end of an era for Cervecería Boliviana Nacional S.A. (CBN), the country's longtime beer monopoly.

José Enrique Pacheco Alvarez, vice-president of CBN, says that before Ducal and Taquiña were bought by Quilmes in 1996, his company -- producers of Bolivia's famous Paceña brand -- enjoyed an 80% share of the national market.

"Now Taquiña has 70% of the Cochabamba market, and Ducal has 30% of the Santa Cruz market," concedes Pacheco. "Even though we weren't thrilled with the entry of Quilmes, we knew that sooner or later we'd have competition because of globalization."

In fact, globalization is creeping onto the Bolivian business scene in more ways than one. Last year, landlocked Bolivia -- following in the footsteps of Chile -- became an associate member of the Southern Common Market (Mercosur), triggering a timetable under which tariffs between Bolivia and its more prosperous trading partners will gradually be reduced to zero.

At the moment, Bolivian trade with Argentina, Brazil, Paraguay and Uruguay amounts to $450 million; by 1999, however, that could double. Both newly inaugurated President Hugo Banzer and Bolivia's business leaders -- many of whom originally opposed joining the powerful trade bloc -- hope the Mercosur connection will help lift their country out of poverty and into the 21st century.

"Businessmen were against Mercosur because they were lazy. Now they have to be on their toes," says Jorge Crespo, Bolivia's minister of foreign trade and investment. "The private sector has an incentive to produce more and better. Also it gives us an opportunity to attract investors to Bolivia because of this new, bigger market."

Because it is a member of the Andean Community, Bolivia wasn't eligible for full membership in Mercosur. In any event, with 7.1 million inhabitants and a GDP of only $7.5 billion, Bolivia trails all other Mercosur nations in terms of per-capita income as well as per-capita beer and soft-drink consumption.

Currently, the average Bolivian consumes 100 liters of Coca-Cola per year, compared to well over 300 liters for Chile. Likewise, the country's per-capita beer consumption comes to 23 liters, well below comparative figures for Argentina, Brazil, Chile, Mexico, Puerto Rico and Venezuela.

Nevertheless, Javier Villa Alvarez, an official at the Ministry of Industry and Com-merce, says beverages make up 13% of the country's industrial sector, just behind oil re-fining (14%) and ahead of textiles (12%), wheat milling (10%) and meat processing (9%).

CBN, which boasts a 66% share of the Bolivian beer market, was founded in 1886 and today ranks as the country's 10th largest company, with 1996 revenues of $51.5 million. Revenues for 1998 are projected at around $80 million, according to Pacheco, with $30 million of that going to the government in the form of taxes.

The company produces Paceña in various forms, including Pilsner, Centenario, Bock, Light and Dark. It employs 650 workers at three Paceña breweries (in La Paz, Oruro and Santa Cruz), and at a bottling plant and malteria in La Paz, as well as raw materials centers in Tarija and Chuquisaca. In addition, CBN employs around 5,000 farmers, distributors and others indirectly.

Pacheco says his company and the two breweries owned by Quilmes -- Santa Cruz and Taquiña -- control about 97% of the Bolivian market, whose size is estimated at 1.6 million hectoliters. The remaining 3% consists of imports, led by Corona, Budweiser and Heineken.

"We're trying to increase our per-capita beer consumption," he said. Climate is a big factor, with consumption higher in Santa Cruz, Beni and other tropical zones than in the capital city of La Paz, which sits at 12,000 feet and is surrounded by mountains and the altiplano highlands.

Indeed, sales of Paceña and its rival brands increase dramatically in February, during the time of Carnival. The logos of all three can be found plastered along highways, and behind stages at salsa concerts. CBN also exports Paceña to nearby countries where large numbers of Bolivians live, including Argentina, Brazil, Chile, Paraguay and Peru.

But that's not enough for Pacheco.

In April, CBN hopes to begin shipping beer to the United States, particularly to the Washington metropolitan area -- home to nearly 85,000 Bolivians. Pacheco says that "of total production, about 8% is for export. But this year we want to boost that to 20%. We've made $10 million in new investments and equipment in order to go to 1.5 million hectoliters in fiscal 1998."

Pacheco says his aim is to ship between 30,000 and 40,000 cartons a month to Washington and other places where lots of thirsty Bolivians live, such as Chicago and southern California. He's not that interested in Miami or New York, since the Hispanic communities there are mainly Cuban and Puerto Rican, and therefore not familiar with the Paceña label.

But exporting to the U.S. market has its own cost factors. While it's cheaper to ship beer in cans rather than bottles, says Pacheco, "for the U.S. government, it's prefer-able to bring products in transparent bottles because of narco-trafficking." In February, the Clinton administration certified Bolivia's drug-fighting efforts, though Bolivia -- a major coca producer -- is still on a list of 29 countries being watched closely by Washington.

"Because of differences in climate and season, we can sell more beer during the Bolivian winter, since it's summer in the U.S.," he said, estimating that such exports could pull in an additional $1 million in annual revenues. "The government gives us incentives for non-traditional exports in the form of compensation for taxes. The state is very interested in helping increase exports, not just of beer but all products."

Pacheco says his company spends around $2 million a year in advertising. Quilmes declined to say how much it spends, though Pacheco thinks it's around $8 million a year.

Two years ago, Quilmes -- which has extensive brewing and soft-drink operations throughout the Southern Cone -- paid $48 million to enter the Bolivian beer market. Under the deal, Quilmes Internacional Bermudez (QIB) acquired 54.6% of Incesa, a Bolivian holding company that controls 100% of Cervecería Santa Cruz and 85% of Taquiña.

At the time, William R. Engels, manager of corporate finance at Buenos Aires-based Quilmes, told Impact International that Bolivia represented a "very good opportunity" for his company, saying that "Paraguay has been a very profitable business for us, and Bolivia has twice the population of Paraguay."

Engels, who still has the same position at Quilmes, says that in 1997 -- the company's first full year of operations in Bolivia -- it slashed its total workforce from 1,000 to just over 500 employees. Today, Quilmes has a 77% interest in Santa Cruz, and a 68% share in Taquiña.

Engels says that last year, the Bolivian beer market grew around 9%, and that he's "very satisfied" with his company's performance both at the Ducal brewery in Santa Cruz, and the Taquiña brewery in Cochabamba.

"The capacity of the two plants is around 1.2 million hectoliters, and last year we sold between 500,000 and 600,000 hectoliters," he said. "There is room for growth. We basically feel comfortable with that market, and we don't need to make large investments in property and equipment."

Asked about potential exports, Engels says "beer is a very localized product. We can export a little bit, but it's very unlikely we'll see any big movement in this respect."

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