D'Aguilar: Pepsi closing may open door for Bahamian investors

Argues Bahamian management team crucial to any reincarnation

By VERNON CLEMENT JONES, Guardian Business Editor, vernon@nasguard.com

The decision by PepsiAmericas to shut its manufacturing operation in this country presents an aggressive and committed group of local investors the opportunity to buy and develop that franchise, argues the Chamber head, nonetheless offering one major proviso: They must also manage it.

"There should be a group of Bahamians looking to rise up and take over this operation, but they but before they even do that they must commit to having it managed by Bahamians — those who know how work with Bahamian workers and in this environment" Dionisio D'Aguilar told Guardian Business last Friday. Coincidentally, he also serves on the board of directors for local Pepsi competitor Caribbean Bottling, producers of Coca-Cola product for this market.

It's the kind of manufacturing Pepsi-Cola Bahamas will cease come November 14. All of the company's 75 workers will be let go, with Pepsi presumably left to import its beverage line to satisfy local demand.

In a written statement, PepsiAmericas, the majority owner of the local subsidiary, argues the operation has simply failed to meet profitability expectations. That corporate parent is, in fact, the second-largest Pepsi bottler in the world with operations across 19 U.S. states as well as Europe and the Caribbean. Its VP of operations in this region, Rick Wooten, did not return Guardian Business calls Friday, although in that same statement refers to the decision to close the production line as a "difficult" one.

The move in fact follows the decision by rum bottler Bacardi to quit its own manufacturing activities in this country by early next year. Jobs of more than 100 other Bahamian workers will also be culled.

It's a collective loss that threatens the livelihood of hundreds of families, asserts D'Aguliar suggesting some of those jobs, at least at Pepsi, could be saved if the right Bahamian buyer steps forward.

He is not however blind to the challenges facing any prospective buyer given the vagaries of a small market and threat it poses to achieving economies of scale.

"The bottling business is very difficult in which to succeed in this country," he told Guardian Business. "Not only are there issues around labor management, but it's capital intensive.

"Recapitalizing that business would run, I'd say, a minimum of $5- to $10 million."

It's a threshold, even assuming the current owner's willingness to sell up both the facility and the franchise, that might simply be too high given the increased vigilance of lenders already reporting double digit growth in loan arrears for commercial accounts.

The business argument for such a deal may also be hard to pull off, concedes D'Aguilar.

Before PepsiAmericas majority acquisition of the facility in 2001, the operation changed hands from one Bahamian owner to another — neither apparently able to sustain the kind of profitability that would ultimately allude one of the world's largest and most experienced players.

Still, the brand Pepsi remains relatively strong in this tourism-focused market, with international supply agreements between the bottler and local fast food franchises like KFC, for example, still in play.

On Friday, Wells also told Guardian Business that recent changes to the government's customs tax schedule have actually worked to strengthen the manufacturing hand of his and other bottling operations, affording them a stronger competitive edge in some respects. That doesn't appear to have been enough to keep PepsiAmericas in place, suggested one other local business exec. He argues the country may simply be too small to support as many as three bottling operations. Ale producer Commonwealth Brewery remains in place.

As far as the soft drink industry, exact numbers about market share for its two primary producers are unavailable, said Wells, at the same time expressing genuine concern for Pepsi workers soon to be out of work.

As recently as last summer, their boss, Pepsi's head of operations in this country Carlos Palacios, told Guardian Business the loss of his company's local supply of carbon dioxide had added to the cost of maintaining the plant. That gas putting the fizz in soda pop had been the natural bi-product of rum distillation at Bacardi. It dried up when the alcohol producer turned off its taps.

Both Pepsi and Caribbean Bottling were left to import that crucial ingredient, a transition the latter appeared to effect more smoothly.

Still, D'Aguilar is convinced that Wells winning formula can be approximated at his competitor, but only with Bahamians at the helm of that ship now headed to drydock.