Pepsi struggles to stay relevant in Thailand’s substantial soft drink market after the end of a bottling deal makes it difficult for Pepsi to stay on Thai shelves.
BANGKOK – The day after PepsiCo Inc.'s bottling deal in Thailand expired, its partner of 59 years launched its own soft drink that has knocked Pepsi off store shelves.
Serm Suk Pcl, backed by the billionaire owner of Thai Beverage Pcl, Charoen Sirivadhanabhakdi, said its new soda "est" garnered 19 percent of Thailand's $1.8 billion cola market in just two months after its launch Nov. 2.
The two companies had a non-compete clause that expired when their contract ended Nov. 1. Pepsi has similar non-compete clauses with bottlers in other markets such as China. But the clause backfired in Thailand.
Pepsi's breakup with its bottler meant it also lost access to Serm Suk's vast distribution network, which delivers drinks to about 200,000 stores, restaurants and vending machines serving Thailand's 67 million people.
The following day, est hit the market, costing about as much as Pepsi and sold in the same bottles, with a red, white and blue logo similar to Pepsi's.
"We did not deliberately set out to push Pepsi off the shelves, but we have a very strong distribution network, and if we stop distributing for one company, that company's products will disappear from the shelves," Pragnee Chaipidej, advertising manager at Serm Suk, said in an interview.
Thailand was one of the few countries where Pepsi outsold archrival Coke, but Coke caught up in 2011 and built a lead last year, according to data from research firm Euromonitor International.
Euromonitor's figures show Pepsi's share of the cola market dipped by 2.6 percentage points to 36.1 percent in 2012, compared with Coke's 40.1 percent. Est, a name that has no meaning in Thai but was intended as a play on superlatives such as "biggest" or "tastiest," debuted at 2.1 percent even though it was available for only two months of the year.
"We welcome competition, and short-term fluctuation in market share is not our barometer for success," said Jeff Dahncke, senior communications director at Pepsi in Purchase, N.Y.
Pepsi has opened a $170 million bottling plant in Rayong, about 111 miles southeast of Bangkok, which it said can produce enough drinks to serve every consumer in Thailand. It joined with Deutsche Post AG's DHL for distribution. Dahncke said the first phase of distribution, which involves getting drinks into chain stores, was in place. The next phase is smaller mom and pop shops.
"What we have seen is a major drop in distribution and availability of Pepsi products," said Shakir Moin, Coca-Cola's marketing director for Southeast Asia.
Customers also have noticed Pepsi's absence from restaurant menus and store shelves, and that has become a hot topic of discussion on blog posts and social media.
"It's pretty much impossible to find a bottle of Pepsi these days," said Itiporn Lakarnchua, who works for an English-language radio station in Bangkok, adding that est tasted "much sweeter and more peppery" than Pepsi or Coke.
Pepsi has a long history in Thailand, entering the market in 1952 with Serm Suk at its side. But the relationship shifted in 2010 when Pepsi and its joint-venture partner Strategic Beverages started a hostile-takeover bid.
Pepsi's group failed to acquire the targeted number of shares. ThaiBev's Charoen later bought Pepsi's stake.
By January 2011, Serm Suk's board was developing plans for how it might operate without Pepsi, according to documents filed with the securities exchange. Their exclusive bottling agreement was terminated in April 2011, and the two officially parted ways Nov. 1, 2012.
"There's a very good chance that est cola will become the No. 2 cola brand in Thailand after Coca-Cola, pushing Pepsi to third place," said Pragrom Pathomboorn, an analyst at KGI Securities in Bangkok.
TRIP OR BLIP?
Distribution is the secret to Serm Suk's swift success in Thailand. With 200,000 outlets selling its products, it was able to flood the market quickly.
Thais are the biggest carbonated-soft-drink consumers in Southeast Asia, drinking on average more than 10 gallons per year, more than four times the per-capita consumption across Asia-Pacific, according to Euromonitor.
That helps explain why drink companies are investing so heavily in this market.
Serm Suk spent about $10 million on a marketing campaign starring three Thai teen pop idols to introduce est and has budgeted triple that amount for the full year. It plans to introduce more flavored soft drinks later this year.
Pepsi's new plant is part of a $600 million investment that also includes new marketing campaigns and a partnership with Bodyslam, a popular Thai music group.
PepsiCo's Dahncke said the new bottling plant and DHL deal soon would get its soft drinks back into the hands of customers.
"This is a business model we use successfully in other markets around the world," he said. "There is a brief transition period to get our new system ramped up, but we are very much on track."
Additional reporting by Pairat Temphairojana and Martinne Geller
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