The regional food and beverage industry has been highly dynamic in recent years with acquisitions, sales of brands to competitors, and announcements of massive investments by companies seeking to expand their presence both at home and abroad.
Growers in Shan State in Myanmar could give Pepsi a year-round supply of potatoes for its growing snack business.
The arrival of the Asean Economic Community (AEC) at the end of 2015 will lead to even more intense competition as the last remaining tariff barriers fall on many goods, including raw materials for food and beverage production. Consequently, businesses must ensure that they are strong enough to protect the market at home and be ready to expand across borders.
Among them is the Thai unit of PepsiCo Inc, which has undergone a restructuring to bring its core snack and beverage businesses closer together and increase their competitiveness.
At the same time, Pepsi-Cola (Thai) sees the potential for Thailand to be a regional hub for its snack business. To serve that purpose, it is looking at sourcing raw materials from Myanmar to secure enough potatoes for its flagship Lay's chips all year round, while expanding potato farming in Thailand as well.
"Once the tariff is cut to zero in countries like Malaysia, Laos, Myanmar and Cambodia, we can export by using the (snack) production base in Thailand," said Parinya Kitijatanapan, PepsiCo's vice-president for Asia Pacific and general manager for Thailand. "Exports will be easier, enabling our products to have better access to reach consumers in other markets."
Pepsi’s 5-billionbaht bottling plant in Rayong is running at nearly full capacity as the company rebuilds its market share.
While more products from abroad will enter Thailand as well, Mr Parinya said Pepsi would remain competitive by virtue of its manufacturing capability with two snack plants, and strong brands with a decades-long presence.
"Absolutely, we are competitive because we have been here for 60 years (for Pepsi) and at least 20 years for snacks, so our personnel are quite ready with experience and support from qualified leadership in the snack business," he said.
"In a country where the production cost is a competitive advantage with enough raw material supplies, we will use it as production base. Thailand is an agricultural country with quality service. We're looking at the possibility of using the raw materials and technology that we have to develop products to expand to other markets."
In the beverage business, every country in Asean has strong local products. Mr Parinya expects new entrants to Thailand in the premium segment, such as mineral water priced at 30-50 baht a bottle, and in segments where Thailand does not have a product available.
"We cannot avoid the increasing competition. There are more and more players in the market and in the end, consumers will benefit. So far, product prices have been lowered and this has been driven by healthy competition," he told Asia Focus.
Since March last year, Mr Parinya has led the Power of One (Po1) Thailand Business Unit, which emerged from the integration of PepsiCo's food and beverage businesses in countries where it had the two businesses, including Malaysia, Japan and China.
Earlier, the 49-year-old executive was general manager of PepsiCo's South Cluster in China, overseeing six huge beverage factories along with operations in Hong Kong, Taiwan and Macau and 6,000 workers. In Thailand, PepsiCo directly employs 2,700 people.
Speaking about the Power of One concept, Mr Parinya said it arose from the conclusion that the snack and beverage businesses have two things in common — target customers and trading partners.
"The key is that if we can combine [the two businesses] and make them better — where one plus one will be more than two — we will do it," he said.
"It's not about cost-cutting but finding synergies as much as we can to grow sustainably. It doesn't mean we will cut headcount but in fact we have the opportunity to grow further."
Reporting to Mr Parinya are two general managers for food and beverage businesses in Thailand. For markets such as Thailand, China and Japan, the country head is local, which Mr Parinya said could provide better insights in developing domestic presence.
"Having a local head is good but it's not everything. If the person is qualified, no matter what colour skin they have, be they male or female, local or foreign, their capability is the top priority. Pepsi has flexibility," he said, noting that Indra Nooy, the CEO of Pepsi Co in the US, is an Indian woman.
"My motto is that if we want to succeed in the business and to lead people, we need to walk after them so will be able to empower and coach them while making sure we can support them," he said. "At the same time, we have to give them freedom. Whether in China or Thailand, we have to empower the employees to make the most of our human resources and marketing channels.
"We want to grow sustainably. Pepsi has been in the Thai market for a long time and we want to stay much longer. To have sustainable growth, we have to be equipped in many aspects. We have to have qualified personnel, take good care of our brand and the consumers."
PepsiCo in November 2012 ended a 58-year bottling and distribution contract with Serm Suk, a unit of Thai Beverage Plc, which then brought out its own Est cola brand and quickly gained market share because of the huge Serm Suk distribution network, including thousands of small shops and restaurants. Pepsi has had to rebuild its presence on its own. Last year it opened a 5-billion-baht beverage manufacturing plant in Rayong with the aim of regaining the top position in the Thai market again.
In the past two years, Mr Parinya said, Pepsi had come back substantially with more and more outlets, though it has yet to regain the full network it had in the past.
"Before, there were some places where you couldn't find Pepsi to drink, but now such gaps are being eliminated. The coverage is getting bigger, thanks to our strong brand and qualified team," he said, adding that the Rayong plant was now running at nearly full capacity.
"We're also growing together with our partners. We can't grow just by ourselves. In the beverage business, we have strong partners such as the modern trade, traditional trade, wholesale and retail shops. In every province, we have partners to grow the business together. Now, we can find Pepsi in every province."
The company's core brands are Pepsi and Mountain Dew, which was launched late last year targeting consumers in their late teens, who have welcomed the product. PepsiCo's other brands also include Mirinda, Seven Up, and Lipton Tea, its joint venture with Unilever. It also has the Gatorade sports drink and Aquavess bottled water, which was launched last year.
The company is also strengthening its snack line to ensure sustainable growth. Currently it has three major categories: potato chips, extruded snacks and other items such as rice crackers, nuts, popcorn, fish and squid snacks.
To develop the snack business, especially the flagship Frito-Lay potato chips, Mr Parinya says the company needs to secure a year-round supply of potatoes. In Thailand, potatoes grow only during the six-month dry season.
"We want to source potatoes locally as much as we can and we're working with the Agriculture Ministry to improve yields per rai and to expand plantation areas in each district of every province," he said.
The company currently has potato farming in nine provinces: six in the North and three in the Northeast. But it wants to secure more supplies during the Thai rainy season.
"During the time that potatoes can't grow here, we need to rely on imports in order to run our production all year round to serve the market," he said.
Under the AEC, potato imports from other Asean countries will be subject to a tariff of just 5%, compared to 27% on potato imports from outside Asean under a quota allocated by the government.
PepsiCo has started to buy potatoes from farmers in Heho, a mountainous district in Shan state in Myanmar, about 580 kilometres north of Chiang Mai. The project is still at the small-scale trial stage.
"Farmers in Heho grow and eat potatoes as their main food, but a different strain from what we grow in Thailand," said Mr Parinya. "Given the weather, landscape and growing conditions, Myanmar has the potential to become another source of materials for us."
The trial project started in 2013 and will be expanded this year. It takes two to three years to determine whether such a venture can be expanded to a commercial scale, he added.
At Rojana Industrial Park in Ayutthaya, PepsiCo has invested 2.8 billion baht in a second snack plant that began production in February with capacity to serve future expansion. Most of the output will serve the Thai market initially, but the company is looking to sell its snacks in Laos and Myanmar within 18 months.