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Pepsico Snacks pulls out of Slovakia

Last month, Pepsico Snacks decided to divest from Slovakia citing an unsatisfactory return on their investment. Because of Slovakia's small market size, the parent company, Pepsi, couldn't harvest enough profits to make it worth staying in the market. Instead, Pepsi has turned to local distributors to handle the market and will monitor the situation from Budapest.
"We've had good success in Slovakia in terms of market share," said John Stevenson, General Manager of Pepsico Snacks for Hungary and Slovakia, "but the returns weren't what we had hoped for." The company began an evaluation process of its business results in Slovakia in September 1996, Stevenson continued, and by October had taken the decision to "discontinue funding of our present Slovak operations."

Last month, Pepsico Snacks decided to divest from Slovakia citing an unsatisfactory return on their investment. Because of Slovakia's small market size, the parent company, Pepsi, couldn't harvest enough profits to make it worth staying in the market. Instead, Pepsi has turned to local distributors to handle the market and will monitor the situation from Budapest.

"We've had good success in Slovakia in terms of market share," said John Stevenson, General Manager of Pepsico Snacks for Hungary and Slovakia, "but the returns weren't what we had hoped for." The company began an evaluation process of its business results in Slovakia in September 1996, Stevenson continued, and by October had taken the decision to "discontinue funding of our present Slovak operations."

Slovakia's market was too minuscule for the international giant Pepsi to stay serious about. "Basically, market size was the constraining factor," Stevenson explained. "For our business to be successful, we need scale - either a large population, or a high rate of consumption. And Slovakia has neither of those."

However, Patrick Uram, Executive Director of the American Chamber of Commerce in Slovakia, cautioned against reading too much into the company's move to divest. "I think it was just a simple product marketing decision, no more," he said. "If you look at Pepsi's overall role in Slovakia, you can see that they are clearly very much interested in the country."

In fact, Pepsi-Cola has recently announced the opening of two new filling lines in Slovakia - one near Levice in early September, and another in Liptovský Mikuláš at the end of October. Total investment in both filling lines amounted to 30 million Sk ($890,000).

Pepsico Snacks is now negotiating with a distribution partner to serve the Slovak market. "We have a number of [possible] go-to-market strategies," said Stevenson, "and we hope to have everything ironed out before the close of the year."Stevenson called the early 1990's when many businesses were launched in then-Czechoslovakia the time of great optimism. "Entering eastern Europe in those days was an article of faith," he said. "Nobody had much business data but a lot of positive thinking. There was a lot of enthusiasm for this part of the world at that time."

But as balance-sheet calculations outweighed political idealism in forming business strategy, Stevenson said, Pepsico Snacks decided that Slovakia was best served from a distance, in Budapest. Likening the company's new approach rather to "a reconstitution than an exit from the country", Stevenson remained philosophical about the decision. "Each company has its own performance criteria and sets its own hurdles," he explained. "Our financial results simply haven't been as positive as we would have liked."

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