Branding Lessons from Inca Kola, the Peruvian Soda That Bested Coca-Cola

Anyone who has visited Peru or become a fan of Peruvian gourmet cooking — led by such chefs as Gaston Acudio and Pedro Miguel Schiafino — is aware of the passion that the people of that country feel for Inca Kola. With its yellow-gold color, sweet flavor and secret formula, this carbonated drink is one of the few local brands, along with Irn-Bru in Scotland, that have been able to beat Coca-Cola in the products' home turf.

The rivalry between Inca Kola and Atlanta-based multinational Coca-Cola is almost as old as the Peruvian brand's history. The origins of Inca Kola date back to 1910, when a British family called Lindley settled in the country and founded a company aimed at manufacturing and marketing drinks, which they dubbed the Santa Rosa Soft Drink Factory. The first Inca Kola was marketed in 1935.

From that point on, the company "built an image of the brand that was tied to the national identity," notes Pablo Nano Cortez, chief economist at Scotiabank Peru. Teresa Serra, professor of marketing at IE Business School, adds that this image is articulated through "the link of the brand with the Inca culture through its name and the design of its logo [the Inca icon on the label and Peru's national colors on the first delivery trucks]," along with an intense publicity campaign that has, throughout its history, used such slogans as 'The drink with a national flavor,' 'The flavor of Peru,' and 'Celebrate Peru.'" In addition, the drink is supported by a distribution system and sales force that extends throughout the country in such a way that Inca Kola has become a "national drink available to all consumers without any distinction in class," Serra says.

The success of Inca Kola also reflects the uniqueness of Peruvian consumers, who tend to have very strong ties to products that they associate with personal and national identity, according to Renato Peñaflor Guerra, professor of marketing at the ESAN business school in Peru. "Inca Kola managed to get involved in the search for this identity in such a way that it was recognized as one of its characteristic elements. The positive thing is that the company never lost this aspect in its promotion of the product," Guerra notes.

Today, Guerra adds, the brand continues to be associated "with what differentiates us as Peruvians — our creativity and ingenuity." This has been manifested in the advertising slogan used in recent times by the brand: "With creativity, everything is possible." In Guerra's view, this "reinforces even more [Peru's] ties with the brand …. It has already become even more strongly associated with [Peru's] major strength: its gourmet cooking. It is no longer considered possible to have a traditional Peruvian meal without having an Inca Kola."

Cortez points out that Inca Kola has always counted on the additional advantage that it goes very well with the flavors of Peru's signature dishes, which are a fusion of Asian and indigenous foods known as "chifa." Peruvians are especially proud of the country's cuisine, Cortez notes, and Inca Kola's compatibility with those flavor profiles have further strengthened the brand's place in Peruvian culture, and its position as the market leader (although Coca-Cola is a close second in terms of popularity.)

Currently, Inca Kola has a local market share of 26%, followed by Coca-Cola, which entered the Peruvian market in 1936, with 25.5%. Approximately 50 brands compete for the soft drink market in Peru, with a combined penetration level of 74.4% of all households, according to a report by Scotiabank Peru. Inca Kola's popularity has been a source of national pride, experts note, compared with the clear domination of Coca-Cola throughout the continent of South America.

During the 1980s, the differential in market share between the two brands was even greater, as Inca Kola then controlled 35% of the market and Coca-Cola only 21%. The two brands would go on to pull into an even closer tie for consumer dollars, but Inca Kola gained two important business advantages in 1995 when Peruvian fast-food chain Bembos introduced the drink as a substitute for Coke in its restaurants and McDonald's broke its exclusivity agreement with the Atlanta-based multinational and opted to sell both Coke products and Inca Kola at the chain's Peruvian locations.

If You Can't Beat Them …

In 1999, Coca-Cola purchased 50% of the shares of Inca Kola for $200 million, subsequently taking control of overseas marketing and production for the brand. The Lindley Corporation was permitted to retain ownership of the soft drink within Peru.

According to Serra, Coca-Cola has adopted a defensive strategy toward Inca Kola. By acquiring an ownership stake in Inca Kola, the company "acquires the distribution business, on the one hand, and defends itself against damage. Instead of trying to ruin the brand or do away with it, Coca Cola allied itself with [Inca Kola]," Serra notes. Peñaflor suggests that, in reality, Coca-Cola took advantage of the great opportunity that the product was offering. "Even if [Coca-Cola] had triumphed and erased Inca Kola from the map, it might have left a vacuum that would then have been filled by another player," Peñaflor says. "Coca-Cola saw an opportunity to continue the development of that brand, and it took it. It was a great opportunity to create an unbeatable portfolio."

Gerard Costa, an ESADE professor who studies ethnic and consumer marketing, notes that this development in the Coca-Cola-Inca Kola rivalry demonstrates that "the battle against multinational brands requires resources." Lindley's efforts to contain Coca-Cola led it "to undertake such heavy investments in the 1990s that Lindley ultimately suffered losses and it then needed to sell off part of its shareholdings." Despite the fact that Inca Kola's sales improved in 1998, the company lost $9.6 million over the first eleven months of that year, according to the Lima stock exchange. This situation precipitated its search for a partner that could capitalize on the company's assets and, at the same time, could help it explore international markets.

Other companies were candidates to achieve these goals, including Cervecerias Unidas, Chile's largest brewery, and Grupo Polar, Venezuela's leading brewery. But Lindley committed itself to Coca-Cola "because it was looking for something that seemed to make it easier to move into foreign markets at that time," notes Serra. Over time, however, it has been demonstrated that Inca Kola "has only been able to travel beyond its borders in those locations whose population include [sizable] groups of Peruvian immigrants, such as in neighboring Chile," Serra adds. In Chile, Embotelladora Andina, a local bottling company, recently announced that it has begun to produce Inca Kola with the goal of satisfying the widespread demand "from those Peruvians who live and work in the metropolitan Santiago area," Carlos Romero, Coca-Cola Chile's head of marketing, told America Economia, the Latin American business magazine.

Inca Kola also has a presence in Ecuador, Peru's northern neighbor, as well as in Central America and some U.S. states. Nevertheless, the modest presence of Inca Kola even in those markets demonstrates the true intentions of Coca-Cola's acquisition of the Peruvian firm, Costa says. Even if multinationals are constantly improving their management of brand portfolios, including local brands, they have to decide "if those local brands should be managed as 'uni-cultural' brands [directed only at their initial targets] or as multicultural brands [using their financial muscle and marketing power to target it to other communities]," he adds. In Costa's view, in this case, Coca-Cola decided to incorporate the drink only into "its local portfolio and to do little more than that. The only thing that might change this strategy would be an increased flow of immigration from South America. The fact that Coca-Cola has not developed the product in any new target country, such as Spain — where there are quite a few Latin American immigrants — really demonstrates the basic strategy."

Serra sees few ways for Coca-Cola to promote the international expansion of Inca Kola. "Although [Coca-Cola] would like to promote the brand, it would never undertake a huge marketing campaign because that would mean a cannibalization of its own brand." He notes that the way to tackle this would be a distribution campaign tied to Peruvian gourmet cooking, but not an initiative that would distribute the drink on a massive scale. "Although this product sells very well in certain places, it ultimately has to satisfy the local taste of any location you want to take it into."

In the case of Inca Kola and other yellow Peruvian colas, this appears to be a challenge. Costa believes it is very much questionable if the success of the drink is due to its smell, taste and functional characteristics. Argentine writer Jorge Luis Borges has said it is the ideal flavor for the Peruvian meal because it is "simply an implausible drink." One indication of how unpleasant the flavor of this soft drink can be for foreigners is the lack of success that it is having in its expansion in Asia. In addition, its sales in the U.S. and Japan are limited to Peruvian immigrants and Latino ethnic groups."

Cortez adds that while Inca Kola is widely consumed as an accompaniment to Peruvian fusion food in its country of origin, the current level of "consumption of yellow colas in Asian countries has still not borne out" the encouraging forecasts about its potential. Actually, the internationalization initiatives undertaken by Grupo Añaños, a Peruvian competitor in this sector, have involved "Big Cola" — that is to say, black colas, rather than yellow colas like Inca Kola.

Peñaflor agrees that it would be very hard for Inca Kola and other similar beverages to take advantage of the growing appeal of Peruvian cuisine overseas. For that to happen, the product would first need to be perceived as a typical Peruvian drink. This association would need to be achieved on both a perceptual and logistical level, he adds, working hand in hand with Peruvian restaurants that are opening their doors in foreign countries and with Promperu, the Peruvian organization that promotes exports and tourism.

Replicable Models

The battle of soft drinks in Peru did not end for Coca-Cola when it forged an alliance with Inca Kola. Other brands, such as Kola Real, won space in the domestic market thanks to lower prices and relatively good quality, and they took advantage of the fact that Inca Kola seems to be moving, little by little, away from its original positioning.

According to Costa, Inca Kola has not remained strictly loyal to its winning formula "in the sense that it has not maintained its positioning. It has built on the positioning it had, and on the younger generation. In the middle of the last decade, it evolved toward trying to identify itself with the values of the younger generation. That was a very professional process, but [Inca Kola] could not maintain its emotional image."

The apparent passivity of Coca-Cola with regard to the international expansion of Inca Kola also resulted in other brands trying to fill the gaps in those markets. In Spain, for example, Cristal Cola has tried to attract the great number of Ecuadorian residents in that country with a flavor that reminds them of Inca Kola.

But this is not the only area where global soft drink companies such as Coca-Cola are competing. Peñaflor notes that local soft drink brands that try to associate their brands with the future of their country could surge "within the context of a crisis in which international organizations and the meddling by big countries in the economic management [of smaller countries] has been [widely] discussed." Something similar to this is happening with soft drinks such as Mecca Cola in France and Qibla Cola in Great Britain, which are trying to attract a potential market of 1.2 billion Muslims by positioning themselves as anti-American alternatives to Coca-Cola.

According to Costa, the Inca Kola model can be replicated in every country where "globalization, during times of economic weakness — such as in Peru during the 1980s and 1990s — led consumers to identify themselves with their own local products." In this strategy, brands must not only take into account the culture of consumers, adds Peñaflor. In addition, brands "can also become part of that culture by transforming themselves from a product associated only with a particular occasion, place or event, into something associated with the identity that society wants to achieve."

Finally, the soft drink sector will have to deal with another challenge: The growing importance of other categories of drinks, such as juices and bottled waters. "Over the long term, the move toward the consumption of healthier drinks will affect levels of consumption," notes Peñaflor. All the more so, he adds, after recent reports in the U.S. associating the consumption of soft drinks with rising rates of obesity and other unhealthy conditions. Ultimately, "the opportunities in this sector will involve managing [product] portfolios to address the very diverse demands of consumers."

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