PepsiCo plans to sell bottling operations to franchisees in south and west India
, ET Bureau|
Oct 06, 2017, 09.02 AM IST
NEW DELHI: PepsiCo India is planning to sell its bottling operations to franchisees in the south and west, thereby divesting that part of the business nationally, said two top executives with knowledge of the development. The aerated drinks category has been grappling with single-digit growth for more than two years compared with high double-digit growth in its foods business.
The company sold its bottling operations in the north and east to franchisee Ravi Jaipuria three years ago. It is not yet clear whether PepsiCo will split its bottling assets among multiple partners or consolidate further with Jaipuria. One of the executives said a deal could be valued at close to Rs 3,000 crore. The national-level divestment is likely to be finalised in the first half of next year, said one of the executives cited above.
PepsiCo, which makes Pepsi cola, Mountain Dew and 7Up aerated drinks, has about nine company-owned manufacturing facilities in the south and west. Once the plan goes through, PepsiCo will own the brand name, sell concentrate to franchisees and market its carbonated beverages, while bottling, sales and distribution will be owned and run by franchisees.
Once the plan goes through, PepsiCo will own the brand name, sell concentrate to franchisees and market its carbonated beverages, while bottling, sales and distribution will be owned and run by franchisees.
The company declined to comment. “We do not comment on rumours or speculation,” a PepsiCo India spokesperson told ET.
“The move to franchise its bottling business nationally is in line with the New York-based company’s strategy of being asset light in the beverages business,” said one of the executives cited above.
The move will turn the India arm of the US beverage and snacks giant into one primarily focused on foods and health. Globally, in most mature markets such as the US and Europe, Pepsi-Co is already driven by franchisee bottlers. The company’s snack brands, especially Lay’s, Kurkure and Doritos, are gaining share month-on-month, trade sources said.
"We have had double-digit value growth in the foods business with Lay’s being the fastest-growing food brand in FMCG (fast-moving consumer goods) in India,” said Jagrut Kotecha, vice-president, snacks. “Our second master brand in the snacks portfolio, Kurkure, is also growing and the response to our new offerings like Doritos, Lay’s Maxx and Kurkure Triangles has been very positive.”
Growth has slowed in the Rs 22,000-crore carbonated soft drinks market as consumers switch to healthier beverages such as juices, energy drinks, flavoured tea, fortified water and dairy-based beverages. Both PepsiCo and rival Coca-Cola have been hedging risks by reducing dependence on core soft drinks and introducing either sugar-free drinks or non-aerated beverages. PepsiCo’s recent launches include 7Up with natural sweetener stevia, Pepsi Black with zero sugar, hydration drink Revive and several local and international flavours in juices.
PepsiCo on Wednesday reported weaker-than-expected beverage sales for the third quarter in the US, which it said was on account of declining store traffic. Beverage sales fell 3.4%, even as sales of snacks including Frito-Lay, Doritos and Cheetos rose 3.2%. The company did not provide India numbers.
Unlike rival Coca-Cola, which has multiple bottlers as franchisees besides its own bottling arm Hindustan Coca-Cola Beverages (HCCB), PepsiCo’s bottling business in India is consolidated with just one bottler in the north and east, which is rare. The Jaipuria group company RJ Corp is PepsiCo’s second-biggest bottler globally and operates its bottling business through listed entity Varun Beverages Ltd (VBL).
VBL operates PepsiCo’s bottling in 18 states and two union territories. Its latest acquisition was PepsiCo’s bottling business in Madhya Pradesh and Odisha last month. VBL also operates many PepsiCo plants in overseas markets such as Sri Lanka, Mozambique, Zambia and Morocco.
RJ Corp has diversified business interests with franchises for restaurant brands including Pizza Hut, KFC and Costa Coffee. It sells ice-cream under its own brand Cream Bell and runs grocery retail chain JMart. Other interests include education, hotels and real estate. About half of its $1.6-billion annual business is accounted for by PepsiCo.
The company sold its bottling operations in the north and east to franchisee Ravi Jaipuria three years ago. It is not yet clear whether PepsiCo will split its bottling assets among multiple partners or consolidate further with Jaipuria. One of the executives said a deal could be valued at close to Rs 3,000 crore. The national-level divestment is likely to be finalised in the first half of next year, said one of the executives cited above.
PepsiCo, which makes Pepsi cola, Mountain Dew and 7Up aerated drinks, has about nine company-owned manufacturing facilities in the south and west. Once the plan goes through, PepsiCo will own the brand name, sell concentrate to franchisees and market its carbonated beverages, while bottling, sales and distribution will be owned and run by franchisees.
Once the plan goes through, PepsiCo will own the brand name, sell concentrate to franchisees and market its carbonated beverages, while bottling, sales and distribution will be owned and run by franchisees.
The company declined to comment. “We do not comment on rumours or speculation,” a PepsiCo India spokesperson told ET.
“The move to franchise its bottling business nationally is in line with the New York-based company’s strategy of being asset light in the beverages business,” said one of the executives cited above.
The move will turn the India arm of the US beverage and snacks giant into one primarily focused on foods and health. Globally, in most mature markets such as the US and Europe, Pepsi-Co is already driven by franchisee bottlers. The company’s snack brands, especially Lay’s, Kurkure and Doritos, are gaining share month-on-month, trade sources said.
"We have had double-digit value growth in the foods business with Lay’s being the fastest-growing food brand in FMCG (fast-moving consumer goods) in India,” said Jagrut Kotecha, vice-president, snacks. “Our second master brand in the snacks portfolio, Kurkure, is also growing and the response to our new offerings like Doritos, Lay’s Maxx and Kurkure Triangles has been very positive.”
Growth has slowed in the Rs 22,000-crore carbonated soft drinks market as consumers switch to healthier beverages such as juices, energy drinks, flavoured tea, fortified water and dairy-based beverages. Both PepsiCo and rival Coca-Cola have been hedging risks by reducing dependence on core soft drinks and introducing either sugar-free drinks or non-aerated beverages. PepsiCo’s recent launches include 7Up with natural sweetener stevia, Pepsi Black with zero sugar, hydration drink Revive and several local and international flavours in juices.
PepsiCo on Wednesday reported weaker-than-expected beverage sales for the third quarter in the US, which it said was on account of declining store traffic. Beverage sales fell 3.4%, even as sales of snacks including Frito-Lay, Doritos and Cheetos rose 3.2%. The company did not provide India numbers.
Unlike rival Coca-Cola, which has multiple bottlers as franchisees besides its own bottling arm Hindustan Coca-Cola Beverages (HCCB), PepsiCo’s bottling business in India is consolidated with just one bottler in the north and east, which is rare. The Jaipuria group company RJ Corp is PepsiCo’s second-biggest bottler globally and operates its bottling business through listed entity Varun Beverages Ltd (VBL).
VBL operates PepsiCo’s bottling in 18 states and two union territories. Its latest acquisition was PepsiCo’s bottling business in Madhya Pradesh and Odisha last month. VBL also operates many PepsiCo plants in overseas markets such as Sri Lanka, Mozambique, Zambia and Morocco.
RJ Corp has diversified business interests with franchises for restaurant brands including Pizza Hut, KFC and Costa Coffee. It sells ice-cream under its own brand Cream Bell and runs grocery retail chain JMart. Other interests include education, hotels and real estate. About half of its $1.6-billion annual business is accounted for by PepsiCo.
