19 June 2008 - PepsiCo's international activities now account for just over half of the company's revenue and operating profit growth.
The company’s annual international revenue growth rate has increased at an average 16% since 2003 (from USD 8.7 billion to USD 15.8 billion), whereas its annual operating profit growth rate rose by 22% during that same period (from USD 1.1 billion to USD 2.3 billion).
Meanwhile, PepsiCo’s international growth margins have increased from 12.2% in 2003 to 15.1% in 2007.
PepsiCo products reach some 12 million points of distribution internationally each week. Mexico, alone, accounts for 800,000 of these outlets. At the same time, of the total 185,000 PepsiCo employees, over 100,000 are non-US-based.
Providing an overview of PepsiCo’s international development and recent acquisitions in the snack and soft drink categories, Richard Goodman, the company’s Chief Financial Officer stated: “our growth is just getting started”.
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Indeed, the CFO, at an investor conference in Paris yesterday, highlighted the fact that PepsiCo’s international markets for snacks and beverages are showing 8% and 10% compound annual growth rates respectively.
“We are the leader in savoury snacks in just about all the countries where we do business”, added Goodman.
He explained that, besides the competitive advantage PepsiCo has in terms of worldwide distribution, the company is able to produce all its products in the country where they are consumed. |
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Moreover, another key to company success, says Goodman, is the flexibility of its brands, which can be tailored to local tastes and cultures.
PepsiCo develops flavours locally with food experts. “We then take the flavour profile and leverage our global seasoning technology to make it come alive on the chip”, added Goodman.
He then provided the example of the company’s ‘Kurkure’ spice snack in India, which has enjoyed success and helped towards almost doubling the firm’s business in India.
“Food is an inherently local business”, added the PepsiCo CFO.
In the company’s Q1 2008 statement issued in April, Chairman and CEO Indra Nooyi commented: "PepsiCo International performed well on virtually every dimension. Volume gains in snacks and beverages were broad-based and balanced across the segments.
"During the quarter, we made significant progress to strengthen our platforms for future growth and profitability. In partnership with the Pepsi Bottling Group, we announced the acquisition of Lebedyansky, the largest juice company in Russia -- adding market leading, healthy juice brands to our portfolio in this large and growing market. We also completed a joint venture with the Strauss Group to add Sabra fresh, refrigerated dips to our North American snacks portfolio”, added Nooyi.
In his presentation, Goodman identified some potential geographic growth opportunities.
Indeed, he argued that to get India’s and China’s snack per capita growth to Russia’s level, and, to get Russia’s snack per capita growth to Poland’s level, would represent a USD 2 billion opportunity in snacks for PepsiCo.
Meanwhile, in the beverage segment, to get India’s and China’s and Russia’s soft drink per capita growth to Thailand’s level, would also represent a USD 1 billion opportunity in beverages for the US firm.
The company will also count on its international acquisitions to penetrate local markets further.
For instance, Goodman highlighted the October 2007 purchase of snack producer Comercio de Doces Lucky in Brazil, which allowed PepsiCo to fill in a geographic “white space”. He then said that Lucky will serve as a model for expanding further into Brazil but also and in other South American countries.
Finally, another industry segment where PepsiCo sees extra growth is what Goodman calls “Adjacent” categories, which are not part of the US firm’s core activities.
He stated that his company is continuously looking to expand in adjacent categories in the US and globally. “Being able to diversify in adjacent spaces is a big idea for us”.
The entry into the European salted nuts sector via the November 2005 acquisition of Sara Lee's European nuts business in the Netherlands, Belgium and France for 130 million euro, is an example of PepsiCo’s diversification strategy.
"They will broaden our product portfolio by immediately giving PepsiCo a strong position in branded nuts, a large category that's increasingly popular among consumers interested in convenience, great taste and nutrition. This also will give us an important source of products to sell in other markets where we have an established nut business”, stated Michael D. White, chairman and chief executive officer of PepsiCo International, at the time.
More recently, the January 2008 acquisition of Penelopa, Bulgaria's leading producer and seller of branded nuts and seeds, will help PepsiCo increase its presence in Bulgaria as well as in neighbouring Balkan countries.
"Penelopa's line of high quality nuts and seeds is very consistent with our global focus on addressing consumers' growing interest in health and wellness", said White.
Richard Goodman then concluded that PepsiCo’s international strategy, especially in developing countries, is a long-term project, which will require customer identification to the firm’s products, such as the success of the Lay’s in China and Walkers crisps in the UK as popular key brands.
However, confronted with commodity inflation and its potential impact on global consumer spending, PepsiCo is trying not to spoil the popularity of its brands by hiking consumer prices.
“We have not been taking pricing above inflation (in developing countries). Most of the time we have been taking pricing below inflation … We continue to be very disciplined in pricing and making sure that we can bring our consumers along with us”, said Goodman.