PepsiCo Indonesia - Failure Case Study

Summary

On October 10, 2019, PepsiCo decided to exit the Indonesian soft drinks market, discontinuing its contract with AIBM. PepsiCo is one of the world's major buyers of palm oil, which is used for the production of snack foods, especially in its Asian business centers where it is widely available, in addition to being cost-effective and shelf-stable. However, palm oil cultivations in these countries have come into disrepute for the rapid depletion of rainforests and peatlands, loss of animal habitat, and labor rights abuses. Accordingly, in Indonesia, PepsiCo halted direct and indirect sourcing of palm oil from January 2017 from a subsidiary of AIBM that had come under fire due to claims of deforestation and human rights abuses. This escalated the disharmony between the two companies, thereby paving the way for the end of the distribution agreement.

On October 10, 2019, PepsiCo decided to withdraw from the Indonesian market, terminating its contract with AIBM, a local distributor for PepsiCo products in the country. The move came soon after PepsiCo closed its snacks factory in the Philippines the month before.

Scope

• PepsiCo broke ties with its local partner, which was beset by claims of deforestation and human rights violations.
• Demand for sugary soft drinks is weakening in Indonesia.
• Stifling regulations as well as a sugar tax impeded PepsiCo's growth in the local market.
• The looming threat of taxes and consumer disinclination towards consumption of sugary drinks drive the need for beverages with health benefits.

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