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Venezuela's Polar branches out to domestic business
Impact International / April 1, 1997

By Larry Luxner

CARACAS -- With a whopping 91% share of Venezuela's stagnant beer market, Cervecería Polar hardly has any more room to grow its core business -- and its snack-food sideline doesn't look very promising at the moment. So the beer company has begun looking to invest in other lucrative sectors of the Venezuelan economy.

In mid-January, Polar began bottling Pepsi soft drinks following the signing of a new joint venture between itself and PepsiCo, whose long-time Venezuelan bottler -- Grupo Cisneros -- had recently defected to Coca-Cola after 40 years. The new venture (70% Pepsi, 30% Polar) plans to spend $380 million in infrastructure and marketing within the next two years to bottle Pepsi, Sefen-Up and Polar's Golden soft drinks at two existing Polar bottling facilities -- Caucagua, 40 minutes from Caracas, and Villa del Cura, near Maracay. Polar is also building a third plant in eastern Venezuela that'll go online in early 1997, and possibly a fourth in the western city of Maracaibo.

"Pepsi has been on the streets since December on existing routes. In January, we added 240 routes," said Polar's finance director, Donald DeVost. "We're going to have a rollout, and cover the whole country in the next 30 months with upwards of 2,000 delivery trucks out on the street."

Gustavo Giménez, the president of Polar, says his new partnership with Pepsi "is not just an operation where bottling operations change hands, but an alliance of firms that will carry out important capital investments." Pepsi -- which has always outsold Coke in the Venezuelan market -- also said it would assume responsibility for its lawsuit against Cisneros for breaking its contract, which was supposed to have lasted until 1999.

"Pepsi had 80-85% of the brown cola market. No one thinks it's possible to regain that. Yet I think our distribution knowledge and skills cannot be underestimated," said DeVost, adding that "we'll probably end up with a 50% share when it's all over."

Polar has also branched out into the wine business with its Pomar Reserva brand, Venezuela's first native wine label. Last year, about 100,000 cases of Pomar were sold. That represents over 20% of Venezuelan wine consumption, which itself tumbled from 1.1 million cases in 1991 to 500,000 cases in 1996 because of the economic crisis. And that wasn't the only product line affected by hard times.

"Our snack-food business is just a shadow of what it used to be," said DeVost. "Chocolate is down 40-45%, salty snacks down 50%, ice cream down 35%. With beer, we've been extremely lucky; that market has shrunk only 5-6%. We're swalling margins."

Meanwhile -- in a bold effort to show that beer and oil can mix -- Polar has entered Venezuela's petrochemical industry as a minority investor. It has taken a 15% stake in Pro Falca, a $75 million venture that will produce propane polypropylene in the state of Falcón.

"We're also a minority shareholder in Grupo Zuliano, in Maracaibo, and in Methanol de Oriente, a huge petrochemical complex in José," DeVost said, adding that "we also have an interest in a urea fertilizer project in José."

Asked for his assessment of the Venezuelan economy, DeVost said President Rafael Caldera's freeing up of foreign-exchange controls has been "an outstanding success," and that his Agenda Venezuela could produce positive results following the 1.5% shrinkage of Venezuela's GDP in 1996.

"Our prognosis is one of guarded optimism," he said. "Agenda Venezuela is a good formula for restoring economic growth, but there are two very important stumbling blocks: reform of the labor law, and sterilization of excess foreign-exchange reserves so as not to put so much pressure on the bolívar. I think the bolívar should be devalued, and that the government should be more aggressive with management of the exchange rates."

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