Shares of Mexico-based Coca-Cola Femsa, Coke's largest bottler in Latin America, were down more than 1 percent, while shares in bread and snacks maker Bimbo fell more than 2 percent in morning trading, as Mexico Congress was poised to approve a 1 peso-per-liter tax on sugary drinks and an 8 percent tax on junk food as part of a wider tax overhaul.
The Senate approved the plan, which aims to curb rising obesity levels as well as lift the poor tax take in Latin America's No. 2 economy, on Thursday morning, before sending the bill back to the lower house of Congress for final approval, expected later in the day.
Mexico, where obesity rates are now higher than in the United States, will be the first major soda market to tax high-calorie sodas, following a handful of other Latin American and European countries.
Mexicans are the world's biggest soda drinkers, guzzling about 707 8-ounce (0.24 liter) servings, on average, per year, according to U.S. newsletter Beverage Digest. The United States is the only other country in the same ballpark, clocking in at 701 servings.
Drink and snack food companies are expected to pass on the tax to consumers, which could put further pressure on economic growth which has slowed this year in Mexico, hurt by a drop in consumer spending.
Coke Femsa executives said on a call last week that they would pass on the tax by raising prices broadly between 12 and 15 percent.
"We think the industry will do the same thing because it's a heavy tax," Chief Financial Officer Hector Trevino told analysts on a call.
"Our operators are already looking at some of the strategies that we'll follow for next year and that includes doing a full reconfiguration of our whole portfolio, even doing some downsizing," Trevino added.
The company said it could reduce its workforce around 3 or 4 percent and cut back on distribution routes.
Coca-Cola controls more than three-quarters of Mexico's drinks market and stands to be hit the hardest by the soda tax, according to Beverage Digest.
Much smaller players in the market include PepsiCo and Dr Pepper Snapple Group.
Mexico's tax could be a "game changer" as "the first of the large soft-drink consumer markets to impose a significant excise tax on full-calorie soft drinks," wrote analysts at Credit Suisse in a report last month.
