Coca-Cola FEMSA has overcome crises before, demonstrating the ability to successfully adapt to and capitalize on dynamic environments to emerge a stronger company.
This year, we acted swiftly to develop a comprehensive management framework to guide our COVID-19 mitigation actions and comeback plans. This allowed us to protect our short-term results while fostering our long-term goals. Our top priority was – and remains – the health and wellbeing of our employees, customers and consumers. As the countries in which we operate began implementing restrictive measures at different paces and levels, we worked closely with FEMSA, The Coca-Cola Company and the rest of the global Coca-Cola System to share and adopt the best practices that allowed us to successfully navigate the challenging environment.
By embarking on a deep transformation to create a leaner, more agile organization before the pandemic with the rollout of our Fuel for Growth program, Coca-Cola FEMSA was better positioned to adapt to the fluid market environment of 2020 in a nimbler and more disciplined way. Keeping in mind the importance of our purpose to “Refresh the world,” we utilized four strategic priorities to facilitate our transformation and growth as an integrated commercial beverage platform:
The One KOF strategic framework:
One Vision, One Platform, One Future
The 5Cs of Caring
The 5Cs of Caring
Among many other efforts and collaborations, Coca-Cola FEMSA focused our mitigation actions in five key areas to ensure business continuity.
Protect the health and wellbeing of our entire workforce. We reinforced health, sanitation and hygiene protocols for all employees and provided Personal Protective Equipment (PPE) to our manufacturing, commercial and distribution teams. We implemented daily monitoring and communication protocols across our organization, and extended health recommendations to our employees’ home environment.
Continue to offer their beverage of choice anytime, anywhere. To reach consumers in new ways, we prioritized and simplified our portfolio, leveraged affordability, expanded options for platforms and packages and reinforced our digital presence by leveraging direct-to-consumer channels.
Closely support our communities through clear social initiatives. For example, we donated more than 3.8 million liters of beverages across our territories and worked with industry partners to bolster healthcare efforts in vulnerable communities. Additionally, to support Mexico City’s Ministry of Health, we teamed up with The Coca-Cola Company and other organizations in the #SumamosPorMexico initiative to transform the Citibanamex Convention Center into a temporary healthcare center. We also collaborated with health authorities to leverage our marketing spaces and trucks to communicate preventive measures. In Brazil, we collaborated with local stakeholders to distribute more than 500,000 liters of sanitizing alcohol and to donate 26,000 COVID-19 tests focused on frontline healthcare professionals.
Remain close and continue to serve them in the best possible way. Through programs such as “Mi Tienda Segura” across Latin America and “Movimento Nos” in Brazil, we contributed to industry efforts to help more than 50,000 “mom & pop” shops re-open their businesses safely, offering them supplies and protocol guidance. In Mexico, we delivered more than 25,000 protective plexiglass shields for store counters and 100,000 masks to traditional trade clients.
Proactively strengthen our balance sheet and protect our cash flow. With a disciplined approach to capital allocation, we prioritized the security of our cash position by developing control towers to optimize our cash sources and uses. We refinanced long-term debt, aggressively targeted savings opportunities and selectively prioritized capital expenditures, enabling us to solidify our financial position in the face of a challenging environment.
We navigated the year with resiliency and creativity to ensure solid short- and long-term results and opportunities. While it was difficult to completely avoid the effects of COVID-19 health-related measures on business results, we were able to anticipate changing consumer behaviors throughout the year to successfully offset these impacts.
Our volume decreased 2.5% to 3.3 billion unit cases, and total revenues decreased 5.6% to Ps. 183.6 billion (US$ 9.2 billion). However, operating margin increased 60 basis points to an operating income of Ps. 25.2 billion (US$ 1.2 billion), driven mainly by declining PET costs, favorable currency hedging initiatives and our operators’ outstanding ability to generate savings and efficiencies.
Guided by our obsessive consumer focus, we are consolidating a winning total beverage portfolio to satisfy evolving tastes and lifestyles. We are improving our competitive position in the still beverages category and expanding our water portfolio to establish consistent leadership across this growing category. We are also driving sparkling beverage growth by leveraging portfolio innovation and affordability, while driving our low- and no-sugar beverage portfolio ahead of consumer trends.
In 2020, we saw mix shifts as lockdowns and social distancing measures generated declines in on-the-go consumption and reshaped purchase occasions. As consumers increased at-home consumption, we responded by developing new packaging innovations and expanding home delivery routes. In Mexico, our home delivery program, “Coca-Cola en tu hogar,” grew double digits from the prior year. We also further diversified our portfolio to capture market share in the growing hydration, nutrition and energy categories, while entering the alcoholic ready-to-drink category.
Examples of Portfolio Innovation
a premium sparkling mineral water that is now part of our portfolio in Mexico, which grew at an impressive pace, setting the stage for continuous growth in the sparkling water category.
Topo Chico Hard Seltzer:
a premium offering in Latin America that represents the first step by the Coca-Cola System into the alcoholic ready-to-drink space in the region.
With the pandemic came economic uncertainty around the world. Knowing our consumers were facing challenging environments, we prioritized and simplified our portfolio to offer more affordable options across categories, and responded swiftly to increased demand for affordable single-serve bottles, multipacks and multi-serve returnable presentations. In 2020, returnables grew double-digits relative to the prior year across our key markets. In Argentina, Colombia, Mexico and Uruguay, we also introduced the universal bottle presentation, a multi-serve PET bottle with the flexibility to offer affordability to our consumers through a returnable bottle that can be exchanged for returnable presentations of Coca-Cola, Sprite, Fanta or Valle Frut (a non-carbonated fruit-based beverage), successfully expanding our affordability with returnables to our flavored sparkling and still categories.
To incentivize and accelerate “easy” transactions, we also continued to execute on our Magic Price Points strategy, which conveniently prices single-serve beverages at the value of a single common coin or bill.
Our second strategic priority in 2020 was to deepen our ongoing digital transformation and omnichannel capabilities to fulfill our vision of becoming a fully digital, interconnected, agile and flexible platform. This not only included internal automations such as scaling and optimizing human resources and finance processes, but deploying new solutions for order taking, customer care, route-to-market and logistics models. When COVID-19 hit, we leveraged our omnichannel strategy and capabilities – including accelerating planned technology rollouts – to reduce physical interactions and accept more orders through digital channels and B2B platforms. In total, our digital channels grew more than 75% year-over-year on a consolidated basis.
Our new WhatsApp-based chatbot feature for accepting orders digitally was rolled out in Brazil and Mexico and the number of orders placed through this channel climbed exponentially throughout the year. These applications have fully automated functionality, offering the most convenient and efficient selling windows for our clients – 24 hours a day, 7 days a week. As of year-end, we had more than 270,000 active customers registered with us on WhatsApp in Brazil and Mexico. By the end of 2020, we were digitally accepting as many as 15,000 orders per day and growing – the equivalent of having more than 200 additional salespeople making customer visits.
Our third strategic driver in 2020 focused on our environmental sustainability agenda. We strengthened key performance indicators throughout the year and met our 2020 goals on time, specifically:
Ensuring Business Sustainability
Improved our water-use ratio per liter of beverage produced, from 1.52 liters in 2019 to 1.49 in 2020– an industry benchmark. We also returned to the environment more than 100% of water used in the production of beverages in Argentina, Brazil, Central America, Colombia and Mexico.
Ensuring Business Sustainability
Increased our use of recycled PET from 24% in 2019 to 29% in 2020, exceeding our 2020 target of 25%.
Ensuring Business Sustainability
Expanded the use of clean energy in our manufacturing facilities in Mexico from 71% in 2019 to complete eight months above 85% in 2020 and peaking at 96% by year-end, thus meeting our original goal of 85%.
Having achieved our 2020 sustainability goals, we began working on more ambitious future objectives. We confirmed our risks and opportunities by completing a revised materiality analysis to inform our priorities. We became the first Mexican company and the third Latin American company to achieve the approval of the Science Based Targets initiative (SBTi) for our 2030 greenhouse gas (GHG) emissions reduction goals. We now have a clearly-defined, third party-approved pathway to reduce our GHG emissions in line with what is necessary to meet the goals of the Paris Agreement, including limiting global warming to well-below 2°C above pre-industrial levels. We also issued our first ever green bond in the international capital markets for US$705 million due in 2032, representing the largest for a Latin American corporation and a first for the Coca-Cola System. View our Green Bond Framework here.
Looking ahead, we intend to allocate an amount equal to the net proceeds from the green bond offering to finance eligible green projects in three categories where we know we can contribute the most to the United Nations Sustainable Development Goals:
Our new SBTi-approved 2030 Emissions Reduction Plan aims to drive positive environmental change across our entire value chain to:
We will seek opportunities to use water more efficiently and to further protect water security in the territories where we operate. By 2030, we will continue to return to the environment the same amount, or more, of water used in the production of beverages.
In alignment with FEMSA’s Zero Waste to Landfill goal, as of 2020, 65% of our bottling plants have earned Zero Waste to Landfill certification, including 100% of our manufacturing facilities in Mexico. We also remain committed to “World Without Waste”, the global initiative led by The Coca-Cola Company, which includes 2030 targets to collect and help recycle the equivalent of 100% of the primary packaging we place in the market, as well as integrating 50% of recycled PET resin into our bottles.
In 2020, Coca-Cola FEMSA was the only Latin American company in the beverage industry included in the Dow Jones SustainabilityTM Emerging Markets Index for the eighth consecutive year, and is part of the Dow Jones Sustainability MILA (Mercado Integrado Latinoamericano) Pacific Alliance Index for the fourth consecutive year since its creation. We are also proud to be included in the 2021 S&P Sustainability Yearbook, the FTSE4Good Emerging Index, the new S&P/BMV Total Mexico ESG Index and the Bloomberg Gender-Equality Index.
Our fourth strategic priority in 2020 – and the final building block of our foundation for success – was nurturing a collaborative, value-driven culture for all employees. In 2020, we continued the important work we first embarked on in 2019 to create a leaner and more agile organization fully focused on consumers. As part of our People 4 Growth area of transformation, for example, we continued to focus on a series of functionalization initiatives for key departments, intended to better align regional strategies and more easily share best practices. We strengthened our Human Resources organizational model by implementing a labor risk methodology to understand the changing needs of our people, inform new ways of working and mitigate identified gaps.
We also continued to deploy our “KOF DNA,” a model that guides our people with the tools and capabilities they need to succeed. Toward this end, we improved communication channels through new digital optimization processes and launched a series of companywide engagement surveys.
Among the four values that make up the KOF DNA - Operational excellence, Owners mentality, People first, and Agile decisions – we truly brought the “People first” mentality to life in 2020 through the many actions we undertook to ensure the safety, wellness, productivity, cohesion and communication of our people. We also focused on “Agile decisions” to empower our management teams, build their leadership capabilities and equip them to face the year’s challenges resiliently and resolutely.
For more information, please visit Coca-Cola FEMSA’s 2020 Annual Report.