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 rang up 51% of its sales in the US in 2012. 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.
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 four business units: PepsiCo Americas Foods (PAF), consisting of Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), and all of 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 the Gatorade and Tropicana brands, as well as bottling and distribution in Latin America; PepsiCo Europe, which houses all the beverage, food and snack businesses in Europe; and, finally, PepsiCo Asia, Middle East and Africa, which includes all the beverage, food, and snack businesses in that region.
Sales and Marketing
To promote its products, PepsiCo uses a combination of sales incentives, discounts, advertising, and other marketing activities. Advertising and other marketing activities totaled $3.7 billion in 2012 vs. $3.5 billion in 2011.
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 11% of its 2012 sales; the retail giant accounts for about 17% of PepsiCo's North American business.
Like warm cola, PepsiCo's sales and earnings lacked fizz in 2012. Indeed, sales declined 1.5% in 2012 vs. 2011, while net income fell 4% over the same period. The company's better performing businesses included its Latin American food and snack businesses (LAF), which posted a 9% jump in sales, and Frito-Lay North America, up 2%. Year-to-year sales at all of PepsiCo's other business segments declined, with its core PepsiCo Americas Beverages business down nearly 5%, reflecting the sale of the company's beverage business in Mexico in late 2011.
On a geographic basis, sales in the US rose less than 1%, while sales in Mexico -- an important market for the food and beverage maker -- sank 17%. Sales in Russia posted a gain of 2% in 2012 vs. 2011, while sales in Canada fell by 2%. Brazil, a relatively new market for the company, saw a 1.5% rise in annual sales.
PepsiCo blamed its sagging profit in 2012 in part on costs related to strategic investments, higher commodity costs, and higher advertising and marketing expenses.
Key to PepsiCo's growth strategy is to drive snack brands to new markets as it bolts on new and more nutritious foods categories through small acquisitions and alliances. In mid-2012 PepsiCo and Germany's privately held dairy holding company Theo Müller Group formed a joint venture to tap US dairy demand for the first time. Muller Quaker Dairy herds a premium lineup of Müller brand yogurts toward the dairy aisle of supermarket and club retailers.
To complement its portfolio of nutrition-oriented brands at home, PepsiCo formed a JV with GNC to develop and sell fortified coconut water products under the Phenom brand. The products debuted in GNC stores in mid-2011, ahead of a wider release. PepsiCo also controls a majority stake in O.N.E., a California-based producer of coconut water. Along with private equity firm Catterton Partners, Pepsi increased its holding in the coconut water maker in 2010, following an initial investment a year earlier. PepsiCo is able to broaden distribution of O.N.E.-branded beverages through its PBC bottling unit.
Meanwhile, in a move designed to drive new products to market faster and increase its soda brand presence in China, PepsiCo has agreed to sell both its bottling operations and its beverage joint venture with Asahi Group Holdings (part of Asahi Breweries) to Tingyi (Cayman Islands) Holding Corp. As part of the deal, PepsiCo will take a 5% stake in Tingyi-Asahi Beverages Holding with an option to raise its stake in Tingyi-Asahi to 20% by 2015. In fall 2012 Tingyi and PepsiCo opened a new beverage plant in Zhengzhou. Also, PepsiCo opened a new food and beverage innovation center in Shanghai in late 2012. PepsiCo's largest R&D facility outside of North America, the Shanghai plant serves as a hub of new product, packaging, and equipment innovation for the company's business throughout Asia.
Mergers and Acquisitions
PepsiCo in 2011 purchased Russia's Wimm-Bill-Dann Foods. The deal gave PepsiCo a leadership position in Eastern Europe's food and beverage market. Through International Dairy and Juice Limited (IDJ), a joint venture with Almarai, PepsiCo also holds a share of Egyptian dairy and juice producer Beyti. Other health-conscious beverage ventures include PepsiCo-Tata Tea held with Tata Global Beverages.