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Will the Mexican Soda Tax Hurt Coca-Cola's Sales?

By Asit Sharma – Nov 13, 2013 at 6:00PM

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Mexico is one of Coke's biggest markets worldwide. The Mexican Congress has passed a new tax on snacks and sugary drinks. Does this bode ill for Coca-Cola?

Image of Mexican Coke bottle cap courtesy Evan P. Cordes, under Creative Commons License.

Coca-Cola (KO) has been fighting negative perceptions around its sweetened carbonated beverages for some time, and now the stakes are escalating. This month, in an effort to combat near-epidemic obesity and related health problems, the Mexican Congress approved a measure taxing high-calorie snacks and sugary beverages. The tax on beverages is equal to one peso per liter and will be assessed on manufacturers. How much of an effect will this have on Coca-Cola and its major Mexican bottler, Coca-Cola FEMSA (KOF)?

In the following video, Fool contributor Asit Sharma translates the effect of the one-peso-per-liter tax to dollar terms, and discusses possible near-term and long-term consequences of the action. Many investors may not be aware that Mexico is one of Coke's biggest markets worldwide and wields significant influence in Coke's Latin American market. Asit argues that how Coke chooses to react in the long run is as important as any short-term sales effect, and suggests the likely actions that Coke may take to respond.

Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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