Yeo Hiap Seng's exclusive bottling deal with PepsiCo ends

The deal YHS had to bottle, sell and distribute carbonated drinks such as Pepsi, Mountain Dew and 7-Up here ceased yesterday.
The deal YHS had to bottle, sell and distribute carbonated drinks such as Pepsi, Mountain Dew and 7-Up here ceased yesterday.PHOTO: AFP

The exclusive bottling agreement that local company Yeo Hiap Seng (YHS) has had with drinks giant PepsiCo for decades is ending.

The deal YHS had to bottle, sell and distribute carbonated drinks such as Pepsi, Mountain Dew and 7-Up here ceased yesterday.

Mainboard-listed YHS disclosed the surprise news in a filing to the Singapore Exchange only yesterday evening.

PepsiCo did not respond last night to queries about who its next bottler and distributor here will be. In 2013, PepsiCo ended a 59-year- old partnership in Thailand with local partner Serm Suk to bottle its own cola drink.

However, for consumers who may be worried about where their next fix of Pepsi is coming from, YHS said in its statement that the agreement has been extended until Oct 31 to "facilitate a smooth disengagement" (smooth transition).

The news marks the end of a long history where Coke and Pepsi were bottled by Singapore companies.

For about 75 years up to 2011, there had been a deal where Fraser & Neave (F&N) produced, bottled and sold Coca-Cola's drinks in Malaysia, while Coca-Cola did the same for F&N in Singapore. Since then, Coca-Cola has bottled its own drinks at its Tuas plant.

On the positive side, the expiry of that agreement allowed F&N to start its own development of other carbonated soft drinks. Its 100Plus isotonic drink is a bestseller today.

YHS is similarly optimistic. It said yesterday that losing the deal will hit its earnings for 2017, but it expects the impact to be moderated by contributions from the company's new product lines and agency brands.

The move, however, comes at a difficult time for companies in the food and beverage sector.

YHS' net profit in the first quarter fell to $5.4 million from $9.15 million a year earlier due to lower earnings from the company's food and beverage (F&B) division.

Yeo Hiap Seng said in its first quarter report that it expects F&B margins to come under pressure due to soft economic conditions and a weak outlook for its key markets and uncertainty in raw material prices. Further volatility in regional currencies will hit as well, it said.

Chief executive Melvin Teo noted in the 2015 annual report that the company launched a branding campaign in the second half of last year to reinforce Yeo's market position in the Asian drinks segment and to rejuvenate its brand image.

It has aimed to tap into the youth market and has introduced a range of new products, including Chrysanthemum Tea, Soy Bean Milk, Winter Melon Drink and Jasmine Green Tea.

"In order to stay ahead of the competition, we continued to explore ways to raise our productivity, innovate and provide value-add to our customers," Mr Teo said.

"In this regard, we have upgraded and expanded our Singapore canning line that produces non-carbonated Asian flavoured drinks."

It is also focusing on growing its food products segment and new food service channels.

A version of this article appeared in the print edition of The Straits Times on July 01, 2016, with the headline 'Yeo Hiap Seng's exclusive bottling deal with PepsiCo ends'. Print Edition | Subscribe