Varun Beverages (VBL), the largest bottler of PepsiCo drinks outside the US, has bagged the contract to bottle and distribute PepsiCo drinks across India, clearing the path for PepsiCo to exit the bottling business in the country.
The Ravi Jaipuria-led RJ Corp company on Monday said in a regulatory filing it entered into a binding agreement with PepsiCo India - the local subsidiary of New York-headquartered beverages major PepsiCo. The agreement will allow VBL to bottle and market all PepsiCo drinks — both cola and non-cola — leaving the cola major with only rights to produce and distribute its snacks.
Once cleared by the Competition Commission of India and Securities and Exchange Board of India, the deal would mean that VBL would be able to operate in seven more states and five union territories (UTs) in the south and west India. These regions would add nine more PepsiCo production facilities to its existing operations.
VBL has so far rights to bottle and market all PepsiCo drinks through 22 plants in 20 states, including the fast-growing seven northeastern states and two union territories Delhi-NCR and Chandigarh, after its successful acquisition of crucial central and east Indian states like Madhya Pradesh, Chhattisgarh, Jharkhand, Bihar and Odisha, last year. Further, it has rights for Sri Lanka, Zambia, Zimbabwe and Morocco (one plant each).
The refranchising operation, if successful, would bring crucial territories such as Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, and Telangana under VBL’s fold. Put together, these states constitute nearly 40 per cent of the country's Rs 34,000-crore branded beverages market.
PepsiCo India, which exits bottling operation completely, would be left with its snacks business.
that includes key brands such as Lays, Kurkure, and Doritos. The firm will continue to operate three food plants - Uluberia (West Bengal), Pune (Maharashtra), and Channo (Punjab).
The ongoing refranchising operation, since 2013, has begun to give PepsiCo better returns. In 2017-18, the firm turned profitable after years. But, it slipped to the third spot in 2018 in the Rs 33,560-crore savory snacks market in India, behind Haldiram's and Balaji Wafers - from second in 2016 - according to Euromonitor International.
The deal would give VBL an unprecedented edge over all its competitors in the country. While, most other bottlers of Coca-Cola and PepsiCo have rights for specific regions - after the deal is approved, VBL would have access to the entire branded beverages market in India.
Currently, Sri Lanka and Nepal, along with India, contribute some 90 per cent of its Rs 4,500-crore yearly revenue. The rest comes from regions such as Morocco, Zambia, and Zimbabwe - acquired in 2018.
While the firm acquired bottling and marketing rights for major territories in North and East in 2013 for PepsiCo brands such as Pepsi Cola, Mountain Dew, Mirinda, 7Up, and Nimboos, it added five states in the central eastern India in 2018. VBL acquired bottling rights for non-cola brands such as Tropicana, Slice, and Aquafina in 2018. With 244 million cases of beverages bottled during January-September 2018 - compared to 224 million cases in CY2017 -- VBL ended 2018 with an all-time high with over 51 per cent of PepsiCo's total volume in the region.
Addition of new territories and brands has invariably worked in favour of VBL's growth trajectory. Since its listing on the Bombay Stock Exchange three years ago, VBL's yearly sales jumped to Rs 4,516 crore in CY17. During the first nine months of 2018, it posted operating revenue of Rs 4,424 crore - up 11.4 per cent from Rs 3,973 crore in January-September, 2017.
VBL's rise is expected to aid Ravi Jaipuria, the founder chairman of RJ Corp, in taking the group's revenue beyond $5 billion (or Rs 35,000 crore) by 2022 and is also expected to benefit the promoters significantly.
At present, Jaipuria owns 21.46 per cent of VBL, followed by his son Varun Jaipuria, who has 21.45 per cent. While 30.56 per cent is held by the promoting group firm, RJ Corp, Reliance Growth Fund is the fourth largest stakeholder with 3.31 per cent in its kitty. Sundaram Mutual Fund and Tata Large and Mid-Cap Fund own 1.14 per cent and 1.07 per cent, respectively.