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Mexican energy drinks regulations could stunt innovation - Euromonitor

By Mark Astley , 17-Oct-2012

The price of Coca-Cola made Gladiator rose by MX$15 per litre as a result of Mexican energy drink taxes.
The price of Coca-Cola made Gladiator rose by MX$15 per litre as a result of Mexican energy drink taxes.

Strict Mexican government taxes and regulations on the sale of energy drinks could discourage new brands entering the market, Euromonitor has claimed.

According to the Euromonitor blog post, Will Increasing Regulation Slow Growth of Energy Drink in Mexico?, the energy drinks market has experienced “explosive growth” since products were first introduced to the country in 2002.

The industry achieved sales of $615m in 2011, according to Euromonitor.

There has, however, been somewhat of a backlash against energy drinks on an international scale following claims that excessive consumption of the products or mixing them with alcohol has led to the hospitalisation and death of scores of young people around the world.

No particular incidence of injury or death has been reported in Mexico. Despite this the Mexican government has taken a series of steps to regulate the sale of energy drinks.

Discourage new brands

In October 2011, the Mexican Senate officially banned the sale of energy drinks mixed with alcoholic beverages by all bars and restaurants. The Senate later voted to prohibit the sale of energy drinks to anyone under the age of 18.

“These restrictions make Mexico among the strictest countries in the world in their regulation of energy drinks,” said the Euromonitor post.

“It is unlikely that this ban will keep energy drinks out of the hands of teenagers entirely but is likely to slow growth rates in coming years. This strict regulatory environment may discourage new brands from entering the market or further product innovation,” it continued.

Price increase

Prior to the Mexican Senate bans, a tax was introduced on energy drinks. The tax – accounting for 25% of total production costs – put energy drinks on par with beer and wine.

In many cases manufacturers have been forced to pass on the additional costs to consumers, with unit prices increasing by an average of 27%. Gladiator – Coca Cola’s energy drink – jumped from MX$51 per litre to MX$66 per litre as a result of the tax.

“As these products are already considered expensive and thus far have been out of the reach of most lower and lower middle income consumers, further increasing unit prices may restrict the spread of energy drinks among these groups, which make up the majority of the Mexican population,” Euromonitor added.

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