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NEWS UPDATES Asean Affairs        3  March 2011

Soft drink war fizzles

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The long dispute between PepsiCo and its local bottler Serm Suk Plc (SSC) ended yesterday with the US beverage giant softening its tough stance and agreeing to amend its bottling contract with the Thai company.

SSC, the local bottler of Pepsi, Miranda and 7-Up, told the Stock Exchange of Thailand yesterday that it received a confirmation from PepsiCo that it agreed to the contract amendment. The proposal was approved by SSC shareholders on February 15 and PepsiCo was given 15 days to respond.

SSC and PepsiCo are scheduled to sign the new agreement by March 31.

The amendment contains a new formula for calculating the price of concentrates, which will result in a 9 percent reduction in price from the previous agreement.

Moreover, if PepsiCo insists on preserving the right to terminate the agreement upon a change of control in SSC, there would not be provisions for a penalty or damages to be incurred by the company.

As well, SSC would not be subject to restrictions on the production and sale of beverages other than cola.

PepsiCo stated it was confident a final agreement could be completed.

"It is not a win-or-lose issue. The problem for Pepsi is not just finding somebody to replace Serm Suk but the public has a negative attitude toward it after its failed attempt to take over the Thai bottler," an analyst said.

Prangnee Chaitidej, advertising and PR manager of Serm Suk, said the agreement would encourage both parties to return to a partnership.

"The new contract also lets Serm Suk generate more growth from expanding into other carbonated and non-carbonated beverages," she said.

That stipulation was thought to be key to any agreement as soft-drink demand in Thailand has a single-digit growth rate, lower than non-carbonated drinks such as Serm Suk's water brand, Crystal, which recorded a 17.5 percent increase in sales last year. Oishi green tea and Carabao Dang energy drinks, also distributed by Serm Suk, booked growth of 22.3 percent and 13.4 percent, respectively.

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