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Fun Drinks in Mexico An Exciting New Expansion Opportunity

Fun Drinks in Mexico An Exciting New Expansion Opportunity. Executive Management and Staff Team 7 MBA 04 December 5, 2002. Agenda. Beverage market in Mexico Positioning of Fun Drinks Market testing Cost and profit analysis Qualifications of Action plan Key take aways.

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Fun Drinks in Mexico An Exciting New Expansion Opportunity

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  1. Fun Drinks in MexicoAn Exciting New Expansion Opportunity Executive Management and Staff Team 7 MBA 04 December 5, 2002

  2. Agenda • Beverage market in Mexico • Positioning of Fun Drinks • Market testing • Cost and profit analysis • Qualifications of • Action plan • Key take aways

  3. The Beverage Market in Mexico • No Fun Drinks equivalents • Young, receptive population • Low manufacturing costs • Increasing demand for fruit drinks

  4. The Beverage Market in Mexico Mexican Population Divided into Age Groups 15 – 29 26.3 M (27%) Younger than 14 32.7 M (33.5%) Older than 29 38.51 M (39.5%) Source: “Instituto Nationacial de Estadistica Geografia e Informatica,” 10 Nov 2002.

  5. Beverage Market in Mexico • Second largest per capita consumption • Sales of 33.5 billion liters in 2001 • No direct competition for Fun Drinks • Sports drinks: Gatorade and Powerade • Fruit juices: Sonrisa, Jumex, and Del Valle

  6. Beverage Trends in Mexico • New beverage trends in Mexico • Increased bottle water consumption • Increase in fruit beverage consumption • Non-carbonated drinks like Fun Drinks will grow market share in years to come

  7. Positioning Fun Drinks in Mexico • Target high school and college students • Eager to adopt new trend images • Feel unique and part of the “cool crowd” • Fill the gap • Between water, sports drinks and juices • For alternative and trendy image • For non-alcoholic, “cool” beverages

  8. The Message • Extreme taste • Wide assortment of fun flavors • Healthier alternative to soft-drinks • An affordable way to be different • “Made from the best stuff on earth” • “Hecho con lo mejor de la tierra”

  9. Testing the Market • Run pilot tests in Guadalajara • Mexico’s second largest city • The national test market • Guaranties 90% success in Mexico • Conduct market research in two stages • Stage 1 targets student groups • Stage 2 surveys the broad population

  10. Cost and Profit Analysis • Major Advantages • Low labor costs • Low raw material costs • Low facility development costs • Major Disadvantages • Underdeveloped infrastructure Source: Personal Interview, November 9, 2002

  11. Cost and Profit Analysis Profit Projection Net Contribution Project NPV $ in Thousands 03 04 05 06 07 08 Year

  12. Cost and Profit Analysis Assumptions • Annual sales growth of 7% • COGS is constant at 50% of sales • Overhead is constant at 5% of sales • Marketing expenses at 35% in first year decreasing 2% annually Sources: www.gigante.com.mx.

  13. Qualifications • Strong presence in Mexico already • 3rd largest company in Mexican beverage sector • 1992 acquisition of Aguas Minerales • 2002 acquisition of Squirt • Local market knowledge and access to distribution channels

  14. Strategic Fit of Expansion • Increase returns and profit • Achieve change in portfolio to continue top-line growth • Strengthen the parent company through acquired businesses

  15. Strategic Fit of Expansion • Focuses on core competencies • Develops a robust and sustainable position in regional markets • Grows company through its previous acquisition of the Fun Drinks brand

  16. Action Plan Assess market profitability • Develop proposal and obtain approval Market testing and analysis • Implementation planning • Obtain final executive approval Phases • Assess the current beverage market in Mexico • Determine the likely positioning of Snapple • Determine the most appropriate market research methods • Estimate all costs and perform a profitability analysis • Develop an action plan • Oct 28 – Nov 10 • Conduct stage one pilot testing and interviews • Conduct stage two one-site product testing and surveys • Analyze results from both stages • Establish brand awareness • Develop relationships with retailers • Understand local nuances • Dec 3 – March 31 • Develop an implementation plan and product launch based on test results and local nuances • Confirm the availability of resources • Address and confirm the viability of all legal and technical aspects of plan and launch • Refine plans and cost estimates as necessary • April 1 – May 15 • Formulate recommendations • Develop a communication plan for the results of market assessment • Address concerns and incorporate suggestions into plan • Build a consensus • Receive written approval and funding • Nov 10 – Dec 3 Activities • Communicate test results to the executives • Discuss plans for implementation and launch; refine plans as necessary • Establish criteria for measuring success • Establish an ongoing feedback process • Obtain executive approval and all necessary funding before proceeding with the launch • May 16 – June 15 Timing

  17. Key Take-Aways • Mexico is an attractive opportunity • Profits will be great • Fun Drinks in Mexico is a strategic fit • Solid plans for market testing and pre-launch preparation will ensure the best outcomes

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