Playing in an industry with high barriers to entry, Royal Crown Cola’s local bottler is testament that even ‘late bloomers’ have the power to change how the game is played

One thing the NBA and the ready-to-drink (RTD) beverage industry have in common is that both arenas witness a continuous onslaught of battles between the reigning champs and the underdogs.

Some decades ago when the RTD industry in the Philippines looked like an open-and-shut case of industry concentration with its economies of scale creating high barriers to entry, competition was just in the form of Coke and Pepsi battling it out to see who will eventually come out as the Filipinos’ soda of choice. Today, however, a funny thing has happened: smaller firms entered the market, seemingly undeterred by the dominance of the two industry giants. On top of that, the choices of RTD beverages have also expanded to not only new soda brands, but functional beverages, flavored iced teas, energy drinks and healthier alternatives as well.

From Underdog To Tiger

When Asiawide Refreshments Corporation (ARC) began its operations as the local exclusive distributor of American brand Royal Crown (RC) Cola in 2002, Chief Operations Officer Gerry T. Garcia shares that they just wanted to add on to the economy of the country by participating in the growth of the RTD industry. “Our original objective was really sustainability,” he says. “However, as we continued to work on that, we eventually hurt competition. Because when you want to work on being stable, you have to be important in the minds of the consumer.”

But it was evident that, as with sports fans, consumers do not necessarily have room to rally for two preferred cola brands. “If a consumer picks your brand, he’ll kick the others out,” says Garcia. “And as with most latecomers in an industry, chances are that if you grow, may matatapakan ka talaga (you’ll eventually step on some toes). Your consumer already has a top-of-mind choice that you’ll dislodge. But it wasn’t intentional for us to take away business. We were there to cater to the CDE market—for them to enjoy a quality drink that’s at par with international brands, at a price within their budget. We came in to offer an alternative, not knowing that this approach will actually help us succeed.”

Predetermined or not, ARC is clearly enjoying its fare share of the market—especially the Metro Manila sari-sari store segment. And it is definitely hurting the industry’s top guns. When the company opened its first Mindanao plant in Davao where cola prices were considerably higher than in Manila, Garcia shares that six months before they even entered the market, existing brands begun lowering their prices. “If I had to compare us to the U.S., I’d say we’re like Walmart whose original intention was to give consumers lower-priced products,” says Garcia. “Sustainable sa amin ang low price because of our low operation costs. When our competitors try to match their prices to ours, it hurts their profitability in the process.”

‘RC ng Bayan’

An advantage ARC holds over its competition is the flexibility of its agreement with RC Cola International. “Our competitors’ products, being successful worldwide, only have one taste—the cola they sell in the U.S., for example, tastes like the one sold here,” Garcia points out. “But RC International has actually given us the leeway to come up with a product suitable to the average Filipino palate. And when we conducted a series of blind taste tests before Fernandore-launching RC Cola in 2002, laging nananalo ang (a consistent winner was) RC.”

While it may be the exclusive bottler of an international brand, ARC has initiated a distribution system that deviates from the international status quo. “When we started ARC, we had the opportunity to reinvent to some degree the way soft drink distribution is being done,” says Garcia, who has actually worked for three industry players. “The much imitated system initiated by us is our distribution system, which is almost 90 percent third party. We decided that instead of us investing, we thought it best to partner with third party distributors because not only could we expand faster, we would also be helping third party entrepreneurs.”

This innovative distribution system eventually paved the way for ARC to invest on its single-minded “RC ng Bayan” marketing campaign, which rated 4.8 out of 5 in the ACNielsen Brand Equity Index, as well as add on to its sole product line. To date, ARC’s brand portfolio has grown to accommodate Zesto Fruit Soda in California Juicy Orange and Juicy Lemon variants, and Arcy’s Root Beer—all original Pinoy brands that help maintain ARC’s stronghold in the sari-sari store market.

Even in the face of intense competition, ARC is steadily expanding its operations to further strengthen its position in the RTD market. “We hope to cover the entire country in the next five years,” shares Garcia. “Today we have seven partnered plants but there’s still white areas where we have no presence at all—Iloilo, Pangasinan, Cebu, Cagayan de Oro…We’d like to have a plant for every major province. And while we do that, we’ll take the predictable route and still maintain our platform of ‘Great Taste, Great Value.’”

Published in Manila Bulletin’s Business Agenda section. June 14, 2010