PepsiCo. is one of the largest companies into the manufacturing and marketing and sales of snacks and cold drinks, which includes carbonated and non-carbonated beverages, salty and sweet snacks like chips, other grain based snacks. The company is rated as the second largest global beverage and snack company in the world. Apart from the flagship brand of softdrink “Pepsi”, the company also manufactures Quaker Oats, Gatorade, Frito-Lay and Tropicana.
The Pepsi Cola Company was estibalished long back in 1898, with its headquarters at NewYork, and after merging with Frito Lay in 1965 the company name changed to PepsiCo. One of the highlights of Pepsico, is that it received a 100 percent rating by the Human Rights Campaign in 2004 on the Corporate Equality Index.
Market structure- Oiligoply
PepsiCo. is one of the successful company under the Oligopoly Market of Coldrinks, beverages and snacks The soft drinks consumption in US is around 600+ bottles per annum, and country like India which is supposed to be one of the top five markets in terms of growth of the soft drinks is around 6 bottles per annum. India being one of the fastest growing markets, can be a promising market for soft drinks. Among the softdrink companies, one of the major competitor for PepsiCo is Coca-Cola Co. In progressive countries like India, Coco-Cola acquired lots of local brands like Limca, GoldSpot, Thums Up etc. and Pepsi Co. with drinks like Miranda and 7Up as also Pepsi.
Both the companies were tightly in competition, and have been a dircet competitor to each other for such a long time in all the markets that they exist that its has been christened the “Cola War”. Coca Cola has always had the edge over PepsiCo as the leader in the segment. But lately the Pepsi has closed the gap. Its stock price is up 40% over the last five years compared to Coke. Coke’s sales has been very unstable as it had only one product and management was changing frequently, however Pepsico was growing internally as well as externally by merging with Frito Lay and cutting off Taco Bell, KFC, Pizza Hut etc.
The market share of each of the company is more or less the same, though there is a conflict in the estimates quoted by different sources. The other companies who are into the liquid refreshment beverage markets are Nestle, Cadbury Schweppes etc.. however PepsiCo is one of the largest shareholder in US market for the liquid refreshment beverage market.
As the softdrinks industry is an open market, lots of local products by other small companies were introduced, since there is an easy entry into this market as demand has been stable or rised, some new sellers also had entered into this market.
However, PepsiCo with its innovative and variety of products always caught the market attention. Biggest markets for PepsiCo are in the United States, Mexico, United Kingdom and Canada.
Amongst the Food & Beverages manufacturers, PepsiCo is the second largest food & beverage company with net sales of more than $30 billions.
Products and Brands
Pepsico globally operates with over a 100 products divided into four major brands.
- Frito-Lay Brands: These include several snacks such as a potato chips, popcorn snacks and cookies. Outside America, the company the brand has developed several successful sub-brands depending the on the local taste and culture. Like in India, Kurkure, is a brand developed by the Frito-Lay arm of Pepsi as a spicy hot snack in tandem with the local taste.
- Pepsi-Cola Brands: This brand contains soft drinks and beverages products. The products are subdivided into Cola & Fruit flavors, aerated & non-carbonated, Diet and Regular etc. The sub-brands are Mountain Dew, Slice, Aqua Fina Mineral Water, Sobe. In international markets PepsiCo has acquired and operates other major brands like Miranda, 7up, Evervess, Fiesta etc.
- Gatorade Brands: Gatorade has been a highly successful sports drink to the mass market snack beverage. It is non-carbonated and is intended to rehydrate and to maintain the carbohydrates and electrolytes in the body.
- Tropicana Brands: This brand consists mainly fruit juices, like Orange, Grape Strawberry, Citrus , Lemon juices and a variety of mix and match juices.
- Quaker Brands: Quaker is the breakfast cereal brand with products like Oatmeal, rice cakes, chocolate powders and even canned fish.
PepsiCo also has Partnership Brands which it does not own like, Elma Chips, Starbucks ice and coffee beverages like Frappuccino, DoubleShot, Iced Coffee, Mandarin (license), D&G (license), Lipton beverages Brisk, Original Iced Tea, Ben & Jerry’s Milkshakes, Dole juices & juice drinks (license), Sunny Delight (produced by PepsiCo for Procter & Gamble).
- Pepsi recently introduced Pepsi Raw to the UK market, their first new
- Pepsi drink in ten years. Currently only available in select bars and clubs, the new product is marketed as the first completely natural drink from the Pepsi stables.
- PepsiCo. brands and companies http://pepsico.com/PEP_Company/BrandsCompanies/index.cfm
“PepsiCo net sales were $32,562 million in 2005 and increased more in year 2006-07, reaching near $40.05 billions in current year 2008. In 2005, PepsiCo’s net revenue increased 11%, reflecting across all divisions, increased volume, favorable effective net pricing, and net favorable foreign currency movements. Volume gains contributed 6 percentage points. The United States represented 61% of net revenue; Mexico was 10%; United Kingdom was 6%, Canada was 4%; with all other countries generating 19%.”
The PepsiCo portfolio includes 17 brands that generate $1 billion or more each in annual retail sales. Retained earnings of PepsiCo increased 13% in recent years, from $18,730 million to $21,116 million.
During the first quarter of year 2007, PepsiCo, showed enormous growth, this is summarized below:
% Growth Rate
- Volume (Servings) 4
- Revenue 9
- Division Operating Profit 9
- Net Income 16
- Earnings per Share 17
There has been allegations that Pepsi contains unacceptables levels of pesticides and impurities which has hit overall sales in several markets. Due to the pesticides issue, there was an initial jerk in the market situation, demand of the product was decreased. In countries like India, Government had issued ban of cola soft drinks, which effected the profitability of the company and loss of revenue, wastage of resources etc. Pepsico was however able to convince that Pepsi products are safe for use through its advertisements etc., and got favourable response from its customers.
The company had to suffer extra costs of processing and testing of the water samples, but the company was ready to bare it as otherwise the amount of damage of not taking such initiatives may risk the company reputation in long run. The supply rate therefore was not effected by the cost of production.
PepsiCo had to thus afford higher cost of production even though for a short period. Many times the company increases and decreases prices for staying in the market, as other competitive sellers sell their product at a very low cost. PepsiCo, however has adopted new technologies and came out with different schemes, which attracted its customers and thus demand and supply were almost equivalent.
An average increase of 8.5% is assumed for the year 2008 for coverage of retiree medical benefits, which is however projected to decline gradually to 5% in 2014 and thereafter.
The Demand and Supply of PepsiCo has almost been in equilibrium for past many years. PepsiCo has been able to meet the demand of its customers fully, and out ragged problems which came in between the demand and supply.
The company has been successfully running under profit from past many years. Their net revenue reached $35.137 in the year 2006 and the division operating profit reached to $7,172, which was much higher than in the year 2005.
In the year 2007, the total operating profit was $7,272 which was 11% higher than year 2006, and the net Income was $5,599.
|Summary of Operations||2007||2006||Change in %|
|Total net revenue||$39,474||$35,137||12%|
|Division operating profit||$8,025||$7,307||10%|
|Total operating profit||$7,272||$6,569||11%|
|Earnings per share||$3.38||$3.00||13%|
The stock price rose to $75+ by the year ending 2007, which is quite high as compared to the year 2006. The below graph shows the market price of stock for past five years.
PepsiCo’s overall performance for the last many years has been profitable even though there was tough competition from other companies. The company has been able to perform quite satisfactorily coming up to the demand of its customers through efficient marketing and advertisings. Market share of PepsiCo comparing to its rival companies like Coco Cola has been highest for past many years. The company has been financial strong showing $1 billion or more each in annual retail sales. Even though the company faced higher cost of production for advertisements and other marketing schemes for bringing the company reputation after the pesticides issues & complaints faced by it in countries like India, the company came out completely from the problems and was able to comply with the demand and supply and as on date holds the credit of being second largest company in manufacturing and marketing of beverages & snacks all over the world.