PepsiCo exits Indonesian snack market with sale of stake in Indofood Fritolay joint venture

INDONESIA – American multinational food and beverage company PepsiCo is exiting the Indonesian snack market after more than 30 years of existence in one of South East Asia’s most populous nation.

Following the exit, PepsiCo’s 49% share in its local joint venture PT Indofood Fritolay Makmur (IFL) has been acquired by Indofood CBP Sukses Makmur Tbk for about US$35.13 million.

Indofood’s now owns 99.99% shares in the company, up from 51%.

PepsiCo and Indofood CBP entered the joint venture back in 1990, in order to produce and distribute Frito-Lay snacks throughout Indonesia.

Under the terms of the agreement, IFL will cease the production and sale of PepsiCo brand products, namely Cheetos, Lay’s and Doritos.

The transaction which requires the share sale to be completed with six months also states that PepsiCo cannot market any competing products in the country.

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“Fritolay, PepsiCo and/or its other affiliates may not manufacture, package, sell, market or distribute any competing snack food products in Indonesia for three years from the expiry of the transition period,” according to the official statement by Indofood CBP.

A deeper case of ‘regional discomfort’

The exit comes just over a year after the PepsiCo terminated its contract with local bottling partner PT Anugerah Indofood Barokah Makmur (AIBM), effectively exiting the country’s Soda market and ending the distribution of leading brands such as Pepsi, 7up, Mirinda, and Mountain Dew.

Two fast food companies in Indonesia, Pizza Hut and Kentucky Fried Chicken also terminated the cooperation contract with the carbonated beverage provider starting Oct. 1, 2019.

Analysts in the food industry translated PespsiCo’s exit as a manifestation of a deeper case of ‘regional discomfort’ and not a market specific issue relating to consumer shift away from snacks and beverages.

For instance, on the beverage side, PepsiCo exited Indonesia despite the sector showing a growth of 22.74 percent.

“PepsiCo have cited declining carbonated soft drinks sales as a reason for this move; and yet Coca-Cola actually intends to expand its business in the country, geographically increasing its footprint in terms of production and distribution,” GlobalData Principal Consumer Insight Analyst Richard Parker said.

“Does this indicate challenges associated with Pepsi’s brand name strength in Indonesia? When thinking of Coca-Cola versus Pepsi, does this show that, in some cases, ‘there can only be one’? Parker posed.

Apart from its exit in Indonesia, PepsiCo has also exited its snack business in the Philippines choosing to rather export snack brands such as Cheetos, Lays, Doritos, Rues, Red Rock Deli, Fritos, Tostitos, Sunchips, smartfood, Munchies, and Rold Gold from oversees.

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