According to market sources, Schweppes's bottler in Mumbai, McCoy Bottling, has stopped bottling and distributing the company's brands and is trying to negotiate a deal with Coca-Cola. Earlier reports had indicated that it was PepsiCo which was trying to poach on McCoy. This was denied by PepsiCo.

However, retail sources said that McCoy's promoter Ajay Khemka was prompted into breaking up with Schweppes by competition and is now making an effort to tie up with Coke.

Khemka's defection may not be such a simple matter as he has a seven-year binding contract with Schweppes which states that he would not bottle for competition in this period. However, his decision of not bottling or distributing Schweppes products has already affected the company's sales in Mumbai during the summer season. Schweppes is sourcing products from its neighbouringbottlers in Nagpur and others to meet the demand of the Mumbai market. Meanwhile, it has also slowed down its promotions and marketing plans as it is unable to service the market effectively.

While Coke has admitted that McCoy did approach them, the company is categoric in denying any interest to start negotiations with any Schweppes bottler and spoiling its relations with Schweppes. The reason for this lies in the fact that Schweppes had allowed one of its bottlers to enter into a contract manufacturing agreement with Coke as there was a lot of unutilised capacity lying idle with the bottler.

For Coke, this was a great opportunity to further strengthen its operations. Schweppes had then gone ahead and offered a similar contract to Coke with its Goa bottler. Goa had, in fact, been the first region where Coke and Pepsi first clashed regarding bottling operations when Pepsi signed up Coke's Goa bottler. Therefore, getting a packaging base in Goa, which is a huge cola market, is extremely crucial toCoke.

In such a scenario, striking a deal with McCoy may affect Coke's immediate bottling advantages derived from Schweppes. Also, Coke and Schweppes have worldwide contract-packaging and distribution partnerships which restrain both companies from battling it out in India.

However, Coke's urgent need for fresh capacity, especially in the PET segment, makes market observers believe that the company may not be totally adverse to signing up McCoy as it has a reasonable PET manufacturing capacity. The PET segment has registered a staggering growth in the first half of 1998 with sales volumes rising by nearly 300 per cent.

While PepsiCo has four PET bottling facilities to support and service this surge in demand, Coke has only one at Pune which is already running at full capacity. This summer, Pepsi managed to sell double the amount of Coke's PET sales due to this reason.

Urgent requirement for fresh PET capacity may, therefore, tempt Coke into looking at McCoy. When contacted, the Schweppes spokespersonwas not available for comment. However, market sources confirmed that eventhough Coke has responded to Schweppes's allegations of poaching, the matter may take a turn for the worse, straining relations between Schweppes and Coke.