The PepsiCo challenge (to archrival Coca-Cola) never loses its fizz for the world's #2 carbonated soft drink maker. Its soft drink brands include Pepsi, Mountain Dew, and their diet alternatives. Cola is not the company's only beverage: Pepsi sells Tropicana orange juice, Gatorade sports drink, SoBe tea, and Aquafina water. The company also owns Frito-Lay, the world's #1 snack maker with offerings such as Lay's, Ruffles, Doritos, and Cheetos. The Quaker Foods unit makes breakfast cereals (Life, Quaker oatmeal), Rice-A-Roni rice, and Near East side dishes. Pepsi products are available in 200-plus countries; the US generates 50% of sales. The company operates its own bottling plants and distribution facilities.
PepsiCo's success is founded upon a broad portfolio of mega brands, each of which generates more than $1 billion in annual sales. Business is supported by nearly 700 manufacturing facilities worldwide.
Operations are organized into six business units: consisting of Frito-Lay North America (FLNA); Quaker Foods North America (QFNA); its Latin American food and snack businesses (LAF), including the Sabritas and Gamesa businesses in Mexico and snacks maker Mabel in Brazil; PepsiCo Americas Beverages (PAB), which includes bottling and distribution in North America and Latin America, and the Gatorade and Tropicana brands; PepsiCo Europe, which houses all the beverage, food and snack businesses in Europe; and, finally, PepsiCo Asia, Middle East and Africa (AMEA), which includes all the beverage, food, and snack businesses in that region.
PepsiCo's PAB division generates more than 30% of revenue for the company, while the FLNA and PepsiCo Europe divisions each bring in around 20%. The company's LAF and AMEA divisions each make up 10% of revenue. The remainder of revenue comes from QFNA.
PepsiCo rings up more than 50% of its sales in the US. Important international markets for the company include Russia, Mexico, Canada, and the UK. PepsiCo is also active in emerging and developing markets, particularly Brazil, China, India, Africa, and the Middle East.
Sales and Marketing
To promote its products, PepsiCo uses a combination of sales incentives, discounts, advertising, and other marketing activities. The company spent $3.9 billion on advertising and other marketing activities in 2014, the same as it spent in 2013, and about 20% more than it spent in 2012.
PepsiCo's customers include wholesale distributors, as well as grocery and convenience stores, mass merchandisers, membership stores, authorized independent bottlers, and food service distributors, including hotels and restaurants. The company's snacks, beverages, and other products are brought to market through direct-store-delivery (DSD), customer warehouse, and distributor networks. Wal-Mart is its largest customer, accounting for 12% of its 2014 sales; the retail giant accounts for about 20% of PepsiCo's North American business.
PepsiCo's revenue has remained flat for the past few years, growing by less than 1% to $66.68 billion in 2014. The company reported that most of its growth was thanks to higher sales volume from its FLNA business in North and Latin America driven by higher Doritos and double-digit growth in variety pack products; and growth from its AMEA business in the Asia and Middle East region. Revenue from the company's European division declined by $462 million (or 3%) due to unfavorable foreign exchange rates, which caused significant headwinds to the company's top-line growth.
Profits have also been mostly flat in recent years, with net income dipping by 3% to $6.51 billion in 2014, mostly as the company spent more on SG&A expenses mostly related to a combination of higher shipping and handling, research and development, and restructuring expenses.
Cash from operations, however, jumped by 8% to $10.5 billion, mostly as the company didn't have to pay as much in cash tax payments as it did in 2013.
Key to PepsiCo's growth strategy is to drive sales for its retail customers by introducing new products and enhancing existing products through more focus on global research and development. To this end, in early 2015, the company introduced two new flavors of its Moutain Dew Kickstart brand, and a new Quaker Instant Oats Caldo porridge product line across the Philippines. In 2014, the company boosted its research and development spending by 8% to $718 million; indeed, product innovations accounted for 9% of its net revenue that year (up from 8% in 2012). Reflecting some success that year, the company was reportedly the largest contributor to US retail sales among the largest 30 food and beverage manufacturers.
It's also been driving its snack brands to new markets as it bolts on new and more nutritious foods categories through small acquisitions and alliances. In 2013, Muller Quaker Dairy, a joint venture between PepsiCo and Theo Muller Group (a Germany-based privately held dairy holding company) opened of its new yogurt manufacturing facility in Batavia, New York. It serves as the national production and distribution center for a premium lineup of Müller brand yogurts to US supermarket and club retailers.
The company continues to expand its marketing efforts to grow more internationally. In 2014, the company launched its largest-ever global campaign for Pepsi and Lay's, cross-promoting the two brands in 28 markets around the world. Also that year, leading global football (soccer) club Manchester United Football Club and PepsiCo agreed to work together in a multi-year regional sponsorship agreement in Asia-Pacific. In 2013, PepsiCo announced plans to invest $5.5 billion in India by 2020 and $5 billion in Mexico to spread brand awareness in those regions.
To improve its profitability over the long term, the company also continues to focus on improving productivity by lowering overhead costs, utilizing its global scale, getting rid of duplication, and implementing new cost-saving technologies. In 2014, it managed to save $1 billion in productivity costs, and plans to do the same each year until 2019. The company plans to do this through increased automation in operations, using more share services, restructuring its global manufacturing operations to optimize its assets and resources, and restructuring its distribution network, among other measures.