ANDINA BOTTLING CO

ANDINA BOTTLING CO.: RESPONSE TO FINANCIAL QUESTIONS/ISSUES

Cost Issues Affecting the Integration of Chilean, Brazilian, and Argentinean Operations

With respect to operating costs, the most important variations between the Chilean, Brazilian, and Argentinean operations of Andina Bottling Co. are (a) raw materials, (b) distribution, and (c) cost group three, assumed to reflect personnel costs. Total raw materials costs are somewhat higher in Argentina (47.83% of net sales) than they are in Chile (45.71%); however, raw materials costs in Brazil (55.33%) are substantially higher than they are in Chile. Disposable bottle costs appear to be abnormally high (21.1%) in Brazil in relation to Argentina (1.24%) and Chile (4.77%). A suggested improvement in this operational cost area is for Andina Bottling Co. to centrally purchase disposable bottles for delivery to operations in each of the three countries from the Argentine source. Implementing this proposed action should not pose import/export problems, as Argentina and Brazil are full members in Mercosur and Chile is an associate member of the free trade group.

Another troubling operational cost area within the raw materials classification involves tow essential ingredients of the product formulation – concentrate and sugar. As the Coca-Cola Company dictates product formulation and provides the concentrate, there appears to be little justification for the dramatically lower concentrate cost in Brazil (10.77% of net sales) compared to such costs in Chile (18.25%) and Argentina (19.61%). If the Coca-Cola Company is providing a preferential price to the Brazilian operation, Andina Bottling Co. should negotiate comparable prices for all three bottling operations. If the concentrate price differentials are related to international currency translations, the company should consider importing concentrate for all three bottling operations in into the Mercosur area through the country …

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