PepsiCo Wants To Extend Its Soft Drink Business After Its Bottling Contract With Serm Suk Ends In October

US beverage giant PepsiCo has devised a "Plan B" in the event it loses its tussle with its Thai bottler Serm Suk Plc by quietly taking over the San Miguel beverage factory in Thailand to establish its own production base.

The company wants to extend its soft drink business after its bottling contract with Serm Suk ends in October this year.

A source in the beverage industry said Pepsi-Cola (Thai) spent 4 billion baht to set up its own soft drink facility. It bought the 95-rai fruit juice factory at Amata City Industrial Estate in Rayong from the Philippines' largest brewer, San Miguel, in the past two months for 2 billion baht.

San Miguel entered Thailand's juice market in 2007 with Berri, a 100 % fruit juice. Prior to selling its fruit juice factory to Pepsi, San Miguel made an offer to Tan Passakornnatee, the founder of Ichitan Group, for 600-700 million baht.

San Miguel still operates its beer factory in Pathum Thani province. In addition to the factory, Pepsi also spent 2 billion baht to buy several machines to install at the plant.

A market analyst said Pepsi acquired the fruit juice plant not only to expand its soft drink business in Thailand but also to increase bargaining power over Serm Suk.

Though the contract between Pepsi and Serm Suk ends on Oct 31, 2012, it is possible the distribution relationship will continue as Serm Suk has the strongest network with 1,400 trucks. Pepsi-Cola (Thai) has vowed to decide this month whether it will hire Serm Suk.

The same source said that even though Pepsi now has a factory, it is not easy to expand locally. This is because it does not have supporting facilities for glass or non-returnable bottles.

Pepsi's strength in non-returnable bottles allowed it to take market leadership from arch rival Coca-Cola, as over 85 % of glass bottle capacity is supplied by Bangkok Glass, owned by whisky tycoon Charoen Sirivadhanabhakdi, which also owns Serm Suk through Thai Beverage.

"It's quite difficult for Pepsi to set up its own glass bottle factory, because that takes a lot of investment and because of the economy of scale," the source said.

Pepsi-Cola (Thai) Trading Co had no comment about the purchase.

The company plans to spend 80 million baht on a new campaign to strenghthen its leadership in the ready-to-drink black tea market this year.

It launched the Never Lose Your Cool campaign yesterday, giving away 90 motorcycles to customers, and hired Urassaya "Yaya" Sperbund as the presenter for Lipton.

The company expects the new campaign will boost sales of Lipton black tea by 25 % this year. Lipton controls 55 % of the 2-billion-baht black tea market.

Parinya Permpanich, marketing and sales operation director of Serm Suk, said it lost 300-400 million baht from the floods, but has resumed 90 % of its capacity at its soft drink factory in Pathum Thani.

Source: Bangkok Post