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Glass gives way to plastic in PepsiCo profit push

23-March-2005
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Glass gives way to plastic in PepsiCo profit push

In a significant strategic initiative, PepsiCo India is putting together a plan to gradually replace returnable glass bottles (RGBs) with PET bottles for selling carbonated softdrinks.

“We are working on the product side as well as the branding side,” PepsiCo India chairman Rajeev Bakshi told Business Standard.

Currently, RGBs of 200 ml and 300 ml account for nearly 80 per cent of PepsiCo’s sales volumes.

Sale of PET bottles of higher pack size (500 ml and 2 litres) is low “Our research shows that today consumers buy large volume packs only on special occasions. Our aim is to make it part of everyday consumption,” said Bakshi.

According to Bakshi, the industry’s dependence on the RGB model has restricted carbonated softdrinks to impulsive purchases.

“The RGB business model has to go. It is not a package that integrates itself into consumers’ regular consumption pattern,” Bakshi said, adding that the change would have to be gradual, and it could take the market nearly five years to shift totally to PET bottles.

If the plan comes through, it would result in huge savings and vastly improved margins for PepsiCo.

According to Bakshi, softdrinks packaged in PET bottles can be used to service markets that are 600 to 700 km away from the bottling unit, whereas the glass bottles cannot be moved beyond 200-250 km.

This will not only sharply bring down the company’s freight costs as empty bottles wouldn’t have to be transported back, it will also allow PepsiCo to service all the markets in the country with nearly a dozen fewer bottling units.

“The RGB model makes the carbonated softdrinks business rather unique and difficult to operate. When the packaging is replaced by PET, or even aluminum cans, this business would be like any other FMCG business,” he said.

Internationally, RGBs account for a minor proportion of the softdrinks sold. Cans are the most popular means of packaging. Even in China just five per cent of PepsiCo’s sales happen through RGBs.

But in India, both PepsiCo and Coca-Cola have only marginal sales through cans as the cost is much higher. A 330 Ml can of Pepsi retails at Rs 18 compared with Rs 8 for a 300 ml bottle.

“We are having to import cans at 80 per cent more than the international prices. We could sell a can for Rs 12 if we get them at international prices,” he said.

According to Bakshi, it would require nearly Rs 500 crore, and an assured demand of 30 million cases to put up a can making plant in the country.

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