Pepsi unit seen expanding plant capacity

With its “phenomenally strong” sales performance in the Philippine market, multinational beverage and food group PepsiCo Inc. expects its local unit to infuse more investments in manufacturing and logistics  and hit the $1-billion revenue mark in the next two to three years.

In an interview with Inquirer last week, Dubai-based Pepsico senior vice president and chief finance officer Stefano Sartoretti said the Pepsico group, through local unit Pepsi-Cola Products Philippines Inc. (PCPPI), was keen on expanding its capacity in the Philippines. For Pepsico, the Philippines is becoming more competitive as a manufacturing hub.

Sartoretti—who covers Asia, Middle East and Africa—said the Philippines was “one of the most successful countries” for Pepsico, growing twice faster than the 8-12 percent growth in his coverage area.

To sustain future growth, he said PCPPI would spend about  $75 to $100 million yearly in expanding capacity.

“We’re adding capacity in the manufacturing lines, warehouses and distribution,” said Sartoretti, who was in the country last week.

The rule of thumb for the Pepsico system is to grow business in each market by two to three times the expansion of the domestic economy. “That’s the growth (PCPPI) that we have been able to achieve in the last few quarters,” he said.

Sartoretti said the group had underestimated the speed at which the local business would grow. “It’s an unfortunate situation as quite often, you have to invest ahead of the curve,” he said.

“The capacity is very tight, so we’re putting in more money and we’re trying to catch up. As of now, we still have capacity to fulfill demand but yes the capacity utilization is very high, at more than 90 percent,” he said.

About 70-80 percent of PCPPI’s beverage products are served in glass format because bottling is the most cost-effective way to package products relative to cans and plastic, he said.

“The intent is to provide the products at the lowest possible price so we give value to the consumers,” he said.

In more developed markets around the world, however, glass bottling is diminishing. In the case of the United States, for instance, the portion of the business that relies on glass packaging is now  below 3 percent, the Pepsico executive said.

Pepsico is very happy with the “outstanding” growth and the share price gains of its Philippine unit, partly attributable to the fast-growing domestic economy.

As of now, he said, PCPPI ’s gross revenue is about $600 million. If the current growth trajectory and macroeconomic backdrop would remain, he said crossing the $1-billion turnover mark could be two to three years away.

Growing the non-carbonated business, which now accounts for 30 percent of the business, is part of the strategy. Acquisition is an option but in an environment where business is already growing very fast, the need for inorganic growth is reduced, he said.

Sartoretti said there were now a lot of opportunities for Southeast Asia—particularly Vietnam, Myanmar, Thailand and the Philippines—to attract more manufacturing locators, considering that wages in China, the main focus of investors in the last 10 years, have been going up.

“In addition to becoming more competitive in the wage profile, the Philippines remains an economy that offers a lot of capable individuals with high level of education,” Sartoretti said.

“I think we will see a lot of shifting by manufacturing and services companies from other channels of the world to the Philippines,” he said.