The Breakup
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 launched a hostile takeover bid.
Pepsi's group failed to acquire the targeted number of shares and dropped the tender. 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 on Nov. 1, 2012.
Serm Suk's "Future Business Plan" laid out two scenarios, one in which the company continued its Pepsi partnership, and one that envisioned a future flying solo, according to the filings.
Under the standalone scenario, the plan called for expanding its offering of non-carbonated drinks such as juices; building up the drinking water business; distributing more food and drinks — and making carbonated soft drinks under a different brand.
"There's a very good chance that est cola will become the number two cola brand in Thailand after Coca-Cola, pushing Pepsi to third place," said Pragrom Pathomboorn, an analyst at KGI Securities in Bangkok.
Pepsi declined to comment on why its non-compete clause expired immediately upon conclusion of the Serm Suk deal. It was not clear whether Coke or other companies also have non-compete clauses that run only through the life of the contract.
In China, where Pepsi has a bottling and distribution deal with Tingyi Holding, it also included a non-compete clause that ends in 2050 when the contract does, according to terms of the agreement filed with the Hong Kong stock exchange. A Tingyi spokesman declined to comment.
In other major markets such as Russia, Pepsi's second largest, it uses its own bottling subsidiary. Dahncke said PepsiCo uses different distribution models to fit each location's economics and stage of development.
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 quickly flood the market.
Thais are the biggest carbonated soft drink consumers in Southeast Asia, drinking on average 39.2 litres per year, more than four times the per capita consumption across Asia-Pacific, according to Euromonitor.
That helps explain why drinks 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 launch 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 would soon 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."
