SMC continues to pay the royalty despite declining coke sales and the fact that according to SMC, the Philippines company staff perform all the management and marketing functions at Coca Cola Bottlers Philippines.

Under the deal Atlanta receives annual income of approximately US$80 million (P4 billion) while SMC just retains around US$2.9 million (P150 million) for their efforts, according to an SMC spokesman.

The Coke beverage group reported revenues of US$ 174 million (P8,951 million), an increase of only percent in the first quarter, operating income was US$8.9million (P457 million).


Heaven & Hell
San Miguel has had a love hate relationship with Coca-Cola over the past ten years; In 1997 San Miguel stunned the Manila financial community with a share swap with Coca-Cola Amatil (CCA) which swapped San Miguel’s 75% stake in Coca Cola Bottlers Philippines for a 25% share of CCA.

The strategy appeared to be in strict accordance with the national growth policy, to give away its slice of the local pie for a bite at the global market – the Philippines Government effectively controlled a 58% stake in the San Miguel holding company following a sequestration of shares from long-term Marcos crony, Eduardo "Danding" Cojuangco Jr, and was being run by Arturo Enrile, former armed forces chief and Secretary of State for Transport and Communications.

After a lengthy and protracted High Court battle which out-paced several Philippine Presidents, Mr Cojuangco was given back his shares and reclaimed the key to his office.

Feet firmly under the table Cojuangco began restructuring the company, divesting assets of the former regime. CCA was one which he executed in short order, and the majority stake in the Coke bottling operation reverted to San Miguel.

During the first quarter of 2006, SMC kept its frenetic pace with sales rising 29 percent and by the end of 2006 revenues could hit US$4.7 billion (P243 billion) an increase of under 8 percent.

The lion’s share of this revenue growth came from international operations, particularly National Foods (NFL) and the resilience of SMC's food and packaging groups.


A life without Coke?
Is there a life for SMC without the Coke franchise?

Canning Coke may actually prove a bonus, beyond the obvious gains from the sale of SMC's 65% ownership in CCBPI – it is hardly likely that the Atlanta company will be particularly keen to exit the Philippines market.

For San Miguel, an exit from the Coke system would free them up to develop domestic product, either to replace Coke on the shelves (if Atlanta does withdraw) or to compete head on with their former partner – remembering always that the brand management and marketing skills were always in the hands of San Miguel stalwarts.

With a market share worth US$82.9 million, targeting Coke's CSD business is an obvious game-plan for SMC.

There are no shortage of alternative partners which San Miguel could court – Richard Branson’s Virgin Cola might make an interesting debut in a country where cigarettes brands with the name of Faith and Hope are advertised with pictures of The Madonna and Christ on Christmas calendars.

Then there is San Miguel’s own stable of products: Del Monte Pacific a major pineapple juice producer in Asia.

San Miguel also owns Berri, a market leader in juice and Australia's No. 1 juice company.

San Miguel bought NFL for P80.38 billion in July last year and 51 percent of Berri. It merged NFL and Berri to create a company with $880.6 million in sales and operating income contribution of A$106 million.


Management strategy
Under the management tandem of Chairman Eduardo "Danding" Cojuangco Jr. and President Ramon S. Ang, SMC has been looking for ways to grow, aggressively and fast.

Growth will come from three major sources-organic growth, acquisitions and new overseas markets. Ang wants SMC to become a $10-billion company in sales by 2008, and he says he's on target.

According to Chairman Cojuangco the Philippines alone cannot sustain a strong and stable long-term growth for a company like San Miguel.

"We already have more than 90% of the domestic beer market, 85% of soft drinks, 55% of hard liquor, 70% of processed meats and 52% of water," he told the local media, "and the population was growing by only 2% a year."

"We already have more than 90% of the domestic beer market, 85% of soft drinks, 55% of hard liquor, 70% of processed meats and 52% of water," he told the local media, "and the population was growing by only 2% a year."

Per capita, the Filipino's income has remained the same the past 20 years, at little over $1,000. And in recent years, costs have risen enormously, burning disposable incomes and dampening consumer demand.

So the only way to go was overseas. "If we are going to stay competitive today and in the future, San Miguel must also look outside the Philippines, and into the region," Cojuangco told the company's stockholders recently. "It's as simple as that."

SMC’s captive packaging arm, San Miguel Packaging Products has joint ventures in VietNam, Indonesia, China and Malaysia, and in 2005 significantly increased its presence in those countries.

Under Cojuangco and Ang from 1998 to 2005, SMC's net sales have risen 2.9 times to P226.7 billion, operating income 4.27 times to P17.5 billion, net profits 2.73 times to P9.03 billion, total assets 2.45 times to P338.5 billion, and cash dividends 1.33 times to P4.39 billion.