PepsiCo, Inc. is in the Food and Beverage industry. The U.S. food and beverage industry sector (SIC 20) is the nation’s largest manufacturing sector at $321 billion and it is mature and developed. Additional growth in the food and beverage industry likely to come from overseas market and factors that will affect industry growth are population growth, economic conditions, and foreign trade patterns. The top competitors within the industry are:
– Cadbury Schweppes
– Kraft Foods
The U.S. population is expanding by less than 1 percent annually, and immigrants constitute about one-fourth of this increase. The population is continuing to age as the size of U.S. households shrinks. Current economic concerns cause spending restraint and prompt greater purchases of less costly private-label products and greater patronage of warehouse-club type operations.
The trend toward smaller households with increasing numbers of single-person and one-parent households is expected to continue. The combination of an aging population characterized by decreasing household size and greater numbers of single-person and one-parent households indicate that total spending for food and beverages is likely to increase very slowly. More women work outside the home and a higher number of single-person households cause redistribution of the food and beverage dollar away from home and towards other outlays at the expense of the retail grocery industry where potential profits are higher.
The operation in food and beverages has been a staple source of income in hotels for many years. Development of a food and beverage department in most of the hotels supplements the income generated from room profits as well as builds the image of the hotel. People come to hotels now not just for the room accommodations but also for the food and beverages they offer in their restaurants, cafes, ...
In order to combat the aforementioned trends, food and beverage processors will be pressured to provide products tailored to older and single-person households to minimize the natural appeal of away-from-home eateries. As mentioned in the first paragraph, domestic market growth will be limited, thus manufacturers will likely compete very aggressively for market share and intensify export efforts to increase sales and enjoy high profits.
Although there are lots of challenges, the food and beverage industry is very attractive industry due to following reason:
The size of the industry is about $321 billion. If played smart, it could be very profitable for the companies involved. The industry is Global and opportunities exist throughout the world. There will always be demand for food and beverages. Innovation and other alternatives (i.e., non-carbonated drinks, healthy alternatives).
PepsiCo, Inc., incorporated in 1919, is a world leader in convenient foods and beverages, with revenues of about $27 billion and about 143,000 employees. The company consists of the snack businesses of Frito-Lay North America (FLNA) and Frito-Lay International (FLI); the beverage businesses of Pepsi-Cola North America, Gatorade/Tropicana North America and PepsiCo Beverages International; and Quaker Foods North America, manufacturer and marketer of ready-to-eat cereals and other food products. In addition, in January 2001, the Company completed the acquisition of the beverage business of South Beach Beverage Company, LLC (SoBe).
SoBe manufactures and markets a line of alternative non-carbonated beverages, including fruit blends, energy drinks, dairy-based drinks, exotic teas and other beverages with herbal ingredients that are distributed under license by a network of independent distributors, primarily in the United States. PepsiCo brands are available in nearly 200 countries and territories. Its share of the US soft-drink market is about 32% and Frito-Lay has about 58% of the US snack-chip market.
FLNA – The Company’s domestic snack food business is conducted by Frito-Lay North America (FLNA).
Introduction The food and beverage processing industry, the largest manufacturing industry in Canada, is an important industry to the Canadian economy. In fact, Canada not only has a great deal of natural resources, including abundant water and most incomparable rich soil, but also possesses two accumulated advantages, involving long history and experience with food and beverage processing ...
FLNA manufactures, markets, sells and distributes a varied line of salty and sweet snack foods throughout the United States and Canada, including Lay’s and Ruffles brand potato chips, Doritos and Tostitos brand tortilla chips, Cheetos brand cheese-flavored snacks, Fritos brand corn chips, Rold Gold brand pretzels, Wow! brand low-fat and no-fat versions of potato and tortilla chips, Sunchips brand multigrain snacks, a variety of branded dips and salsas, Grandma’s brand cookies and Cracker Jack brand candy-coated popcorn. FLNA also sells and distributes Oh Boy! Oberto brand meat snacks under an agreement with the Oberto Sausage Company.
FLI – The Company’s international snack food business is conducted through Frito-Lay International (FLI).
FLI’s products are available in 120 countries outside of the United States and Canada through Company-owned businesses and affiliated companies. On most of the European continent, its snack food business is conducted through Snack Ventures Europe, a joint venture between PepsiCo and General Mills, Inc., in which the Company owns a 60% interest. In 10 Latin America countries, its snack food business is conducted through joint ventures between PepsiCo and Libracor, Ltd., a part of Venezuela’s Empresas Polar Group. The Company has a 50% interest in these ventures, except in one country, where it owns a 70% interest. FLI sells a variety of snack food products catered to local tastes, including Sabritas brand snack foods in Mexico, Walkers brand snack foods in the United Kingdom, Smith’s brand snack foods in Australia and Gamesa brand cookies and Alegro brand sweet snacks in Mexico. In addition, many of its United States brands such as Lay’s, Ruffles, Doritos, Tostitos, Cheetos and Fritos brand salty snack foods have been introduced internationally. Principal international markets include Mexico, the United Kingdom, Brazil, Spain, the Netherlands, Australia and South Africa.
The Company’s soft drink business operates as the Pepsi-Cola Company and is comprised of two business units. They are Pepsi-Cola North America (PCNA) and Pepsi-Cola International (PCI).
... international markets. Pepsi Max is now produced in over 40 countries and is the third largest-selling cola brand outside the ... food and beverage companies with annual revenues of $29 billion. Its principal businesses include: Frito-Lay snacks; Pepsi-Cola beverages; ... year compared to Pepsi’s rate, flat at 15.7%. Coke sold $12.7 billion worth of products internationally, while Pepsi’s ...
PCNA – manufactures concentrates of Pepsi-Cola Beverages, such as Pepsi, Pepsi-Cola, Diet Pepsi, Pepsi One, Mountain Dew, Slice, Mug, Fruitworks and Sierra Mist, for sale to franchised bottlers in the United States and Canada. PCNA’s bottlers are licensed, within defined territories, to manufacture, market, sell and distribute Pepsi-Cola Beverages and syrups. The Company has a minority interest in seven of these bottlers, including The Pepsi Bottling Group, PepsiAmericas and Pepsi Bottling Ventures LLC that distribute three quarters of its North American volume. The Pepsi/Lipton Tea Partnership, a joint venture of PepsiCo and Unilever N.V., sells tea concentrate to Pepsi-Cola bottlers, and develops and markets ready-to-drink tea products under the Lipton trademark, including Lipton Brisk and Lipton’s Iced Tea. PepsiCo’s partnership with the Starbucks Corporation develops ready-to-drink coffee products that are sold under the Starbucks Frappaccino trademark and are distributed by Pepsi-Cola bottlers. PCNA also licenses the processing and distribution of Aquafina bottled water. In addition, PCNA manufactures and sells Dole juice drinks for sale and distribution by Pepsi-Cola bottlers.
PCI – manufactures concentrates of Pepsi, Pepsi-Cola, Diet Pepsi, Pepsi One, Pepsi Max, 7UP, Mirinda, Kas, Mountain Dew and other brands for sale to franchised bottlers outside of the United States and Canada. PCI’s bottlers are licensed, within defined territories, to manufacture, market, sell and distribute Pepsi-Cola beverages and syrups. The Company has a minority interest in approximately 40 of these bottlers. In certain countries, PCI owns and operates the bottling businesses that manufacture, sell and distribute the Pepsi-Cola Beverages. Pepsi-Cola Beverages are sold in approximately 160 countries. Principal international markets include Mexico, China, Saudi Arabia, India, Argentina, Thailand, the United Kingdom, Spain, The Philippines and Brazil. Tropicana Products, Inc. (TPI) produces, markets, sells and distributes its products under trademarks such as Tropicana Pure Premium and Tropicana Season’s Best. In the United States, TPI’s portfolio also includes Tropicana Twister juice beverage products and Tropicana Pure Tropics 100% juice products. It also manufactures and sells Frui’Vita chilled juices, Looza nectars and juices, Copella fruit juices and Alvalle soups and fruit juices in Europe. Principal international markets include Belgium, Canada, France and the United Kingdom.
In the late years of the 19 th century, a new industry was getting born. An industry that was to become established as a major player in the market later in the next century - the Soft Drink industry. Today it is dominated by two main competitors Coca-Cola Co. and PepsiCo, Inc. , and a number of small soft drink producers. The Coca-Cola company rapidly evolved to a giant soft drink producer in the ...
Pharmacist Caleb Bradham invented Pepsi in 1898 in New Bern, North Carolina. He named his new drink Pepsi-Cola (claiming it cured dyspepsia, or indigestion) and registered the trademark in 1903. Following The Coca-Cola Company’s example, Bradham developed a bottling franchise system. By WWI, 300 bottlers had signed up. After the war, Bradham stockpiled sugar to safeguard against rising costs, but in 1920 sugar prices plunged, forcing him into bankruptcy in 1923. Pepsi existed on the brink of ruin under various owners until Loft Candy bought it in 1931. Its fortunes improved in 1933 when, in the midst of the Depression, it doubled the size of its bottles to 12 ounces without raising the five-cent price. In 1939 Pepsi introduced the world’s first radio jingle. Two years later Loft Candy merged with its Pepsi subsidiary and became The Pepsi-Cola Company.
Donald Kendall, who became Pepsi-Cola’s president in 1963, turned the firm’s attention to young people (“The Pepsi Generation”).
It acquired Mountain Dew in 1964 and became PepsiCo in 1965, when it acquired Frito-Lay. In 1972 PepsiCo agreed to distribute Stolichnaya vodka in the US in exchange for being the only Western firm allowed to bottle soft drinks in the USSR. With the purchases of Pizza Hut (1977), Taco Bell (1978), and Kentucky Fried Chicken (1986), it became a major force in the fast-food industry.
When Coca-Cola changed its formula in 1985, Pepsi had a short-lived victory in the cola wars (until the splashy return of Coca-Cola classic).
The rivalry was extended to ready-to-drink tea in 1991 when, in response to Coca-Cola’s Nestea venture with Nestlé, PepsiCo teamed up with Lipton (they now lead the market).
Between 1991 and 1996 PepsiCo aggressively expanded its overseas bottling operations. However, its efforts contrasted markedly with Coca-Cola’s well-oiled international distribution machine. The firm then shifted its attention to the organization of its overseas network.
This paper will examine Coca-cola and PepsiCo financial ratios and profit for the year 2007 and 2008 using the liquidity measurement ratio, profitability indicator’s ratio, debt Ratio, Operating performance ratio, cash flow ratio, and investment valuation ratio. It will explain both company’s liabilities, and a few personal opinions that could better both Coca-Cola and PepsiCo profits and ...
In 1997 PepsiCo spun off its $10 billion fast-food unit as TRICON Global Restaurants, putting itself in a better position to sell its soft drinks at other restaurants. Also in 1997 it bought Borden’s Cracker Jack snack and Smith’s snacks from the UK’s United Biscuits. In 1998 it bought Seagram’s market-leading Tropicana juices (rival of Coca-Cola’s Minute Maid) for $3.3 billion and rolled out one-calorie cola Pepsi One (which targets men and regular-cola drinkers).
The firm sold a 65% stake in its new Pepsi Bottling Group to the public in 1999.
In January 2001 PepsiCo bought a majority of South Beach Beverage Co., maker of SoBe drinks (fruit blends, energy drinks, teas, sports drinks).
PepsiCo later inked deals in Saudi Arabia and Egypt to expand the global reach of its snack foods operations. In May the company named president and COO Steve Reinemund as chairman and CEO; Enrico was named VC (where he will remain through 2002), and CFO Indra Nooyi was named president.
In August PepsiCo purchased The Quaker Oats Company (Gatorade, Cap’n Crunch) for more than $13 billion. Afterward, the company reiterated its decision to sell its All-Sport brand, a sports drink that competes (barely) with Gatorade, to Atlanta-based Monarch Co.
To succeed in today’s comprehensive and global markets and to sustain credibility with customers and shareholders, companies must have strong financial position.
Profitability: In 2001, PepsiCo’s was able to grow its net revenues by 6 percent, while achieving 9.88% net profits (increased by 5% compared to year 2000).
The company was able to maintain its Gross Profit and Operating Profit margins at the same levels. PepsiCo’s Return on Asset stayed at the same level as well, however, its Return on Equity decreased by 2.6%. In addition, PepsiCo was able to increase its interest coverate ratio to 19.4 times in 2001, which was increase on 4.6 times when compared to 2000 (14.8).
The company outperformed the market and industry in all areas. See table for more details:
Gross Profit Margin60.1%59.9%
Operating Profit Margin14.9%15.0%
Net Profit Margin9.9%10.0%
Return on Asset12.3%12.3%
Martin Manufacturing Company Historical Ratios RATIOS ACTUAL 2001 ACTUAL 2002 ACTUAL 2003 INCREASE (DECREASE) INDUSTRY AVERAGE Current ratio 1. 7 1. 8 2. 5 0. 7 1. 5 Quick Ratio 1. 0 0. 9 1. 3 0. 4 1. 2 Inventory turnover (times) 5. 2 5. 0 5. 3 0. 3 10. 2 Average collection period (days) 50. 0 55. 0 58. 0 3. 0 46. 0 Total asset turnover (times) 1. 5 1. 5 1. 6 0. 1 2. 0 Debt Ratio (%) 45. 8 54. 3 ...
Return on Equity30.8%33.4%
Liquidity and Capital Resources
PepsiCo has a strong cash-generating capability and its financial condition give the company ready access to capital markets throughout the world. PepsiCo’s principle source of liquidity is operating cash flows of $4.2 billion derived from net sales of $27 billion. Moody’s and Standard & Poor have given PepsiCo a debt rating of A1 and A, respectively, thus the firm has global accessibility to global capital markets. The company has favorable liquidity ratios. Liquidity ratios include the current ratio, quick ratio, and net working capital and they measure company’s ability to pay its short-term debts. See table below for ratio details:
Networking Capital$ 855$ 822
Activity ratios measure the operating characteristics of the firm. Activity ratios include the inventory turnover rate, receivable collection period, fixed asset turnover ratio, and total asset turnover ratio.
Inventory Turnover Ratio: This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. PepsiCo’s inventory turnover in 2001 was 8.2, which was a decline from 8.9 in 2000. However, The company overall outperformed the industry and Sectors which were 7.41 and 6.68, respectively
Accounts Receivable Turnover Ratio: This ratio indicates how well account receivables are being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired. PepsiCo’s receivable turnover ratio in 2001was 12.57 indicating an increase from 11.97 in 2000. Although it is a small increase, it still shows company’s ability to better collect its receivable. The company performed at the same level as the Industry and Sector (11.63 12.84).
Return on Assets Ratios: These measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. PepsiCo was able to maintain its ratios at a favorable level and even increase it slightly. See table below:
Acc Rec Turnover12.5711.97
Total Asset Turnover1.241.23
Fixed Aset Turnover3.923.89
Financial Leverage Ratios
Two ratios analyzed in this area are debt ratio and debt-to-equity ratio. The higher this ratios, the greater the degree of outside financing by creditors or funds provided by owners. PepsiCo’s debt ratio for 2001 was 60% and debt-to-equity ratio was 31%. Both ratios were decreased when compared to 2000, which have a positive affect on company’s ability to raise more money if needed and being able to get favorable ratings from Moody’s and S&P.
Total Debt to Asset0.600.63
LTD to Equity0.310.40
“PepsiCo’s overall mission is to increase the value of our shareholder’s investment. We do this through sales growth, cost controls and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity”.
PepsiCo’s business strategy focuses on growth via product innovation, consumer base expansion, and mergers and acquisitions.
It has an active research and development department, improving existing products as well as creating new products. Recent trends have seen consumers seeking “add-on supplements” and “all-natural ingredients.” In the past, “reduced fat” and “low sodium” labels had been popular amongst consumers. PepsiCo’s R&D has been able to meet this market demand.
PepsiCo’s marketing effort is amongst the most aggressive for any company. Advertisements for Pepsi, Mountain Dew, and Doritos are aired on network and cable programming, including prime time and other premium air times. PepsiCo is noted for using high profile celebrities (Michael Jackson, Larry Bird, Brittney Spears) in ad campaigns.
PepsiCo has been active in mergers and acquisitions activity to create operating synergies and increase firm value. As mentioned earlier, it has acquired such companies as Frito Lay, Tropicana, Quaker Oats, and all these acquisitions seem to be working as intended. PepsiCo is one of the largest food and beverage companies.
– Brand Recognition: PepsiCo is famous for its Pepsi Cola drinks, however, all other brands have strong brand recognition as well (i.e. Frito Lay, Quaker Oats, etc).
– Brand Loyalty: PepsiCo has loyal customer base for its products.
– Brand Diversification: PepsiCo is not only involved in beverage industry. It recent year acquisitions include Frito Lay (largest chips makers), Quaker Oats (healthy food alternatives), other aforementioned brands.
– Global Participation: PepsiCo brands are sold in more than 200 countries.
– Strong Financial Position: PepsiCo has a strong cash-generating capability and financial condition (see financial analysis portion of this paper).
– Competition with Coca-Cola: Coca-Cola has much stronger brand recognition that PepsiCo’s Pepsi-Cola drinks.
– Not concentrating on core business: PepsiCo has been concentrating on other areas of its business (food and non-carbonated drinks).
– Non-Carbonated Drinks: the US market appears to be shifting towards non carbonated drinks.
– Healthy Food Alternatives: consumers are becoming more and more health conscious
– Untouched Markets/Globalization: PepsiCo is a global company and it operates in about 200 countries. However, there are other markets that can be explored.
– Acquisition and/or Merger: PepsiCo can gain access to other markets by using M&A.
– Niche Marketing/Products: consumers buying and consumption habits change, thus PepsiCo should ensure that they meet the needs of all consumers.
– Competition: food & beverage industry is very competitive with such players as Coca-Cola, Cadbury Schweppes, and Kraft Foods.
– Consumption and Demand: variation in the consumption patterns of beverages and snack foods adds a risk to PepsiCo
– Commodity prices: rises in commodity prices would reduce operating profits for PepsiCo by increasing the cost of goods sold.
– Foreign exchange risks: international operations constitute about one-fifth of company’s annual business segment operating profit.
– Interest rates: PepsiCo’s portfolio to deal with interest rates includes primarily cash equivalents and short-term marketable securities. Unfavorable interest rates may result in unfavorable interest expense on its income statement.