PepsiCo Inc. (PEP:US), the maker of Gatorade sports drinks and Tropicana juice, expects its alliance with Tingyi (Cayman Islands) Holding Corp. (322) to lift China beverage volumes from the third quarter.
The deal, which was approved by China’s Ministry of Commerce in March, will see Tingyi’s drinks unit become the franchise bottler in China for PepsiCo.
The Tingyi unit will make, sell and distribute sodas and Gatorade drinks as the U.S. company invests to narrow the gap with Coca-Cola Co. (KO:US) in the world’s second-largest economy. The Purchase, New York-based company was the fourth-largest soft- drink maker in China with 4.9 percent share in 2011, according to Euromonitor International.
“We’ll start to see significant pickup in growth rates” by as early as the third quarter from the alliance, Tim Minges, PepsiCo’s chairman for the Greater China region said in a May 3 interview in Shanghai. “We are going to gain from the increased distribution, penetration from western China and northwestern areas where we don’t currently have plants.”
Under the deal announced last November PepsiCo will transfer equity interests in its bottling operations in China to Tingyi beverage subsidiary Tingyi-Asahi Beverages Holding Co. In exchange PepsiCo will receive a 5 percent stake in Tingyi-Asahi, with an option to increase that to 20 percent by October 2015.
Shares of PepsiCo rose 0.1 percent to $66.91 in New York on May. 3. Tingyi slid 0.5 percent in Hong Kong trading today to HK$20.90, while the benchmark Hang Seng Index fell 0.8 percent.
PepsiCo will be able to get closer to customers with the expanded distribution network, Minges said.
The alliance is designed to boost market share and generate sales and earnings growth, he said, without providing specific forecasts.
“You’ll see this combination of affordability and availability and that’s when the magic starts to happen,” he said.
One of the first signs of the deal will be Tingyi’s “Master Kong” branded juice carrying the Tropicana logo by early June, Minges said. The number of bottling plants in the combined PepsiCo-Tingyi system will exceed 70 in China, he said.
Coca-Cola and Tingyi led the China soft drink market with 15.8 percent and 13.1 percent share in 2011, respectively, data from London-based Euromonitor show.
PepsiCo said in 2010 that it planned to invest $2.5 billion in China in the food and beverage businesses over a three-year period, including in manufacturing plants and research and development.
The company is on track with that plan, spending about $700 million so far, Minges said. It is investing in a food and beverage development center in Shanghai where products can be developed, manufactured and also tested by customers. The facility, which will do work for China and other parts of Asia is expected to open later this year, according to Minges.
PepsiCo yesterday unveiled its new “Live for Now” marketing campaign to revive its flagship cola, with plans to plaster images of dead pop star Michael Jackson on 1 billion soda cans. The strategy which will be implemented in 20 countries, starting in China tomorrow, the company said in a statement.
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