Thailand is one of the few markets in the world where Pepsi outsells Coke. More than 60 years, Serm Suk Plc has been a Pepsi’s official production, marketing, and distribtuion representative in Thai market. After Serm Suk ended its contract with Pepsi Cola on November 1st, its new cola brand was introduced to public under the name “Est Cola” on November 2nd, starting of its first new business chapter in six decades, setting its visions on becoming a regional soft drink brand by 2015. Serm Suk’s Est Cola wins the a victory over Pepsi in soda war. According to Hidden traps in Decision Making by John S. Hammond, Ralph L. Keeney and Howard Raiffa, Pepsi is in a framing trap: Frames as gains versus losses. Pepsi would like to maximize the profit by not renewing a partnership contract with Serm Suk or in other words we called "Loss aversion". Pepsi believes that if Serm Suk can do succesful soda business, we (Pepsi) must do better. Here are the reasons why Pepsi lost this war.
1. Pepsi does not understand Thai people’s way of life
Pepsi-Cola will stop producing returnable glass bottles, for which Pepsi believes that the market is on a downtrend, and replaces them with multi-range and multi-size disposable PET bottles and cans. However, Thai people still more prefer the glass bottles. The Thai market is outstanding in that returnable glass bottles which represent 60-70 per cent of the soda pop market, with plastic bottles and cans making up the rest.
2. Distribution channel
Pepsi has DHL, international logistics company, as new distribution partnership to distribute its soft drinks to reach all channels. On the other hand, DHL doesn’t really know Thailand’s geographical area very well even it has advance GPS to measure the route. Information that Pepsi hold in its hand does not represent logistic optimization. Serm Suk which has spent 6 decades doing soda distribution must know better. Serm Suk has many distribution channels around the country, for example, vending machines, grocery stores, pop-up stores and more.
3. Business practice
Agreements between Serm Suk and nationwide retailers are sill the same under new brand “Est Cola”. Est will be distributed to cover up 80% of 200,000 grocery stores by upcoming month and to other distribution channels by more than 8,000 experienced employees with 1,200 sales trucks and 150,000 coolers. For Pepsi, it has provided 9,000 hours of training to all 3,000 direct and indirect employees to prepare them for the launch of the new Rayong plant. One-year training is weaker than 60-year Serm Suk’s experience. It seems Pepsi still need more time to study Thai market.
4. Leadership
Sermsuk Plc was overtook by Thai Beverage Public Company Limited, Thailand’s largest and one of the largest beverage alcohol companies in South East Asia. Even the name says “Public company”, this company still has an invisible bond of family business. Mr. Chareon Sirivadhanabhadi is ranked 3rd Thailand’s 40 Richest and 184th in Forbes Billionaires rank, who are the real company owner. Thailand’s business people are totally considerate each other. No one wants to be a rival of Sirivadhanabhadi’s family. No business people would like to give official support to Pepsi. Pepsi has learned a valuable lesson of Thai people’s connection. Pepsi’s strategy pays off Mr. Surakiart Sathirathai, a former foreign minister, who was recently chairman of Pepsi-Cola (Thai) Trading. Pepsi believes that Sathirathai Lastname might help boost up and promote business. This war is not only soda conflict but also two big family’s competition.
On November 2nd news reported that, “Est Cola sold 1,000,000 packs in 5 days. It is the largest selling numbers in Serm Suk history.” Thailand’s favourite soda’s brand is just a beginning. Future of Soda market of Est Cola, Pepsi and Coke, I have to say “No one knows” and time will tell. To be continued!!!
