Cola war expected to intensify in Indonesia this year

Cola war expected to intensify in Indonesia this year

By Riyadi

JAKARTA (JP): The Cola war in Indonesia will intensify this year, with Coca Cola and Pepsi Cola competing to attract as many drinkers of soda as possible.

Pepsi declared war in January last year with its re-entrance into the Indonesia market. However, it lost out because it did not really know the market.

"We spent a lot of time last year on research on understanding the needs of consumers... And this year is our true beginning," Lance Tanaka, managing director of Pepsi Cola Indobeverages, said in an interview with The Jakarta Post last week.

He acknowledged that Pepsi was uncreative in its attempt to compete in the local carbonated drink market in the past because it basically did not invest much and did not understand consumers.

"People will see a very innovative Pepsi Cola this year... People will notice," Tanaka assured.

Coca Cola, however, seems unperturbed with the challenge. It said it is always ready to compete as competition is part of its business life.

"Let's compete to serve customers... Competition is healthy. Without competition, we would fall asleep. Such competition will eventually benefit costumers," Mugijanto, chief commissioner of Coca Cola Amatil Indonesia, told the Post.

Coca Cola has long been sold in kiosks and in all markets which keep the drink containers in red coolers. Promotional Coca Cola products have been available here for more than 64 years.

The presence of Pepsi Cola in Indonesia, however, has been on and off. Pepsi was previously franchised to the Mantrust Group in 1987, but the group, facing huge debts in the early 1990s, sold the franchise license to the Salim Group in 1993.

The Salim Group holds a 51 percent stake in Pepsi Cola Indobeverages, with Pepsi Cola International owning the rest. The venture handles the whole Pepsi cola industry, from producing cola concentrate -- the main ingredient in cola drinks -- to marketing the products.

The main drink brands under the venture include Pepsi Cola, Pepsi Max, 7UP, Miranda Orange and Tekita. Tekita, launched last month, is the venture's newest product.

Investment

When launching Pepsi's re-entrance into Indonesia last year, Evaryanti Hutapea of the Salim Group said the venture was investing some US$17 million in two bottling plants in Semarang, Central Java, and in Cikampek, West Java.

"That's nothing compared with what we are going to do in the future... Before, you didn't see big investment and big commitment from Pepsi Cola International to this market. Now, with the Salim Group, Pepsi makes a very serious investment commitment," Tanaka said.

He explained that for this year alone, Pepsi will increase the capacity of its two bottling plants to 624 million bottles and cans per year from last year's capacity of some 50 million.

Coca Cola, on the other hand, has 11 bottling plants in 11 cities across the country, with a combined capacity of 7,300 bottles and 1,050 cans per minute.

"Looking at our capacity, it will not be easy to beat us," said Jannus O. Hutapea, Coca Cola Indonesia's external affairs manager.

Unlike Pepsi Cola, the Coca Cola system is run by two companies here, namely Coca Cola Indonesia, which is responsible for the production of cola concentrate and the promotion of the products, and Coca Cola Amatil Indonesia, which does the bottling and marketing of the products.

Coca Cola Indonesia is a branch of Coca Cola International of the United States, while Coca Cola Amatil Indonesia is currently 90 percent owned by the Coca Cola Amatil of Australia and 10 percent by the Pan Java partners.

Drinks under the Coca Cola license include Coca Cola, diet Coke, Fanta, Sprite, Hi-C tea and Bonaqa packaged drinking water.

Coca Cola has invested more than US$200 million in Indonesia to support its production facilities, including bottling facilities, wastewater treatment, distribution systems and marketing equipment. It plans to invest $100 million each year to achieve its growth target of 30 percent per annum.

To ensure a steady growth, Mugijanto said that this year Coca Cola had earmarked $3.07 million for training and 5.5 percent of its annual revenues for promotional purposes.

"Maybe it's because of our competitors. But it is not a dominant factor, anyway. It is because we want to anticipate our increasing growth with our quality standard," Mugijanto said.

Last year, Cocoa Cola sold 4.07 million bottles per day, up from 3.5 million bottles per day in 1994, Jannus said. He claimed that products of Coca Cola currently outsell its nearest competitor by 15 to one, up from last year's ratio of 12 to one.

The absence of Pepsi in Indonesia in the past years provided Coca Cola with the opportunity to tap the market through cooperation with franchise restaurants such as McDonald's, Texas Fried Chicken, Wendy's and Pizza Hut. In the United States, home to both colas, Pizza Hut serves only Pepsi.

Tanaka contended, however, that Pepsi does not own Pizza Hut restaurants in Indonesia, it only owns the franchise. "The franchisee here owns the store and the people. So, they have the choice, and they can choose what beverages they want."

However, Kentucky Fried Chicken in Indonesia, which is also affiliated with Pepsi, now serves Pepsi. Before the re-entrance of Pepsi, Kentucky served Coca Cola.

Currently Coca Cola leads the carbonated soft drink market with an 85 percent share of sales, compared to Pepsi's less than 10 percent share.

Both Coca Cola and Pepsi, however, do not worry very much about the market share they control. Instead, they focus on expanding the market as there is tremendous potential in the soft drink market in Indonesia.

Carbonated beverage consumption in Indonesia is still very low, compared to consumption in neighboring countries.

Per capita consumption of carbonated drink in Indonesia per year is currently only seven servings. One serving is about eight ounces or an average glass.

In Malaysia per capita consumption has reached some 70 servings per year, in the Philippines 95 and in Singapore 170. In the United States the number goes as far as 350 servings per year.

"If you look at the Indonesian market, it is still very underdeveloped for soft drink consumption... So, there is going to be a tremendous amount of growth in consumption in soft drinks," Tanaka said.

Sharing Tanaka's opinion, Mugijanto said, "Let's develop the market together and grow together."