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PepsiCo re-enters 'Magic Kingdom' with Shanghai Disney deal

By Adam Jourdan

SHANGHAI (Reuters) - PepsiCo Inc (NYS:PEP - News) has signed a deal to supply beverages to Walt Disney Co's (NYS:DIS - News) first China resort, breaking The Coca-Cola Co's (NYS:KO - News) quarter century monopoly over beverage supply to the U.S. theme park operator.

PepsiCo and its partner in China, Tingyi Cayman Islands Holding Corp , will exclusively provide beverages to the Shanghai Disney Resort, its first on mainland China which is set to open at the end of 2015, PepsiCo, Disney and Tingyi said in a joint statement on Thursday.

Coca-Cola has had a long-standing tie-up with Disney, while it has been at least 25 years since PepsiCo last sold its beverages through the theme park chain, a Dubai-based PepsiCo spokesman said.

The deal is only a tiny segment of China's 421 billion yuan soft drink sector, but marks a blow for PepsiCo against Coke in the highly competitive market, where both brands are coming under increasing pressure from Chinese rivals and changing consumer tastes for local flavours.

"I wonder what kind of message it sends to Coke globally. Even though the Disney park is only one small thing, China has massive room to grow for the Disney brand. Tying up this deal could mean good things going forward," said Ben Cavender, Shanghai-based principal at China Market Research Group.

Disney said it currently has no plans to ink similar deals with PepsiCo to supply its other resorts, although it is "actively pursuing opportunities in a variety of different sectors," Murray King, vice president of public affairs for the Shanghai Disney Resort, said.

The PepsiCo spokesman said he could not comment on whether PepsiCo and Disney planned other tie-ups. Disney has a further 11 theme parks and 44 resorts around the world, according to its official website.


Coca-Cola edges the China market with a 15.7 percent share of China's soft drinks market in 2012, ahead of PepsiCo's 4.5 percent share by off-trade volume, according to data from Euromonitor. China's soft drinks sector is worth around 421 billion yuan.

Chinese consumers are increasingly opting for healthier alternatives in food and drink, which has also hit growth for fast food chains such as McDonald's Corp (NYS:MCD - News) and KFC-parent Yum Brands Inc (NYS:YUM - News).

Coca-Cola remains the soft drinks supplier for Disney resorts outside mainland China. It is the beverage provider for Disney's 11 parks in the United States, Hong Kong, France and Japan, a Singapore-based spokeswoman for Coca-Cola said.

"The Coca-Cola Company and The Walt Disney Company share a long-standing partnership that dates to the first Disney television show in 1950 and the first Disneyland theme park in 1955. Today, our global partnership with Disney is as strong as ever," she added in emailed comments to Reuters.

Though it retains the biggest market share in China, but local rivals are catching up. Pepsi's partner in the market, Taiwanese Tingyi, raised its market share from 9.9 percent in 2007 to 12.8 percent in 2012, according to Euromonitor.

Tingyi and PepsiCo beverages will be the sole range of drinks sold at the Shanghai park, a Tingyi spokesman said. All three companies declined to put a value on the deal.

The key question for Pepsi is if it can leverage its tie-up with Disney outside the limits of the resort, said Cavender.

"If they can do more Disney-themed adverts elsewhere I can see this benefiting them a lot, and the fact Disney switched from Coke to Pepsi here could mean big things for the years ahead in other markets too," he said.

(Editing by Stephen Powell)