2.1 PROFILE OF PEPSICO

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1 CHAPTER PROFILE OF PEPSICO PepsiCo Inc. is an American multinational food and beverage corporation headquartered in Purchase, New York, United States, with interests in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products. PepsiCo was formed in 1965 with the merger of the PepsiCola Company and Frito-Lay, Inc. PepsiCo has since expanded from its namesake product Pepsi to a broader range of food and beverage brands, the largest of which include an acquisition of Tropicana in 1998 and a merger with Quaker Oats in 2001 which added the Gatorade brand to its portfolio. As of January 2012, 22 of PepsiCo's product lines generated retail sales of more than $1 billion each, and the company's products were distributed across more than 200 countries, resulting in annual net revenues of $43.3 billion. Based on net revenue, PepsiCo is the second largest food & beverage business in the world. Within North America, PepsiCo is ranked (by net revenue) as the largest food and beverage business. Indra Krishnamurthy Nooyi has been the chief executive of PepsiCo since 2006, and the company employed approximately 297,000 people worldwide as of The company's beverage distribution and bottling is conducted by PepsiCo as well as by licensed bottlers in certain regions. PepsiCo is a SIC 2080 (beverage) company. 50

2 2.2 History - Origins The recipe for Pepsi (the soft drink), was first developed in the 1880s by a pharmacist and industrialist from New Bern, North Carolina, named Caleb Bradham who called it "Pepsi-Cola" in As the cola developed in popularity, he created the Pepsi-Cola Company in 1902 and registered a patent for his recipe in The Pepsi-Cola Company was first incorporated in the state of Delaware in 1919.[5] The company went bankrupt in 1931 and on June 8 of that year the trademark and syrup recipe was bought by Charles Guth who owned a syrup manufacturing business in Baltimore, Maryland. Guth was also the president of Loft, Incorporated, a leading candy manufacturer and used the company's labs and chemists to reformulate the syrup. He further contracted to stock the soda in Loft's large chain of candy shops and restaurants, which were known for their soda fountains, used Loft resources to promote Pepsi, and moved the soda company to a location close by Loft's own facilities in New York City. In 1935 the shareholders of Loft sued Guth for his 91% stake of PepsiCo in the landmark Guth v. Loft Inc.. Loft won the suit and on May 29, 1941 formally absorbed Pepsi into Loft, which was then rebranded as Pepsi Cola Company that same year. (Loft restaurants and candy stores were spun off at this time.) In the early 1960s the company product line expanded with the creation of Diet Pepsi and purchase of Mountain Dew. In 1965, the Pepsi-Cola Company merged with Frito-Lay, Inc. to become PepsiCo, Inc., the company it is known as at present. At the time of its foundation, PepsiCo was incorporated in the state of Delaware and headquartered in Manhattan, New York. The company's headquarters were relocated to its still-current location of Purchase, New York in 1970, and in 1986 PepsiCo was reincorporated in the state of North Carolina. PepsiCo was the first company to stamp expiration dates, starting in March

3 2.3 Acquisitions and divestments Between the late-1970s and the mid-1990s, PepsiCo expanded via acquisition of businesses outside of its core focus of packaged food and beverage brands; however it exited these non-core business lines largely in 1997, selling some, and spinning off others into a new company named Tricon Global Restaurants, which later became known as Yum! Brands, Inc.. PepsiCo also previously owned several other brands that it later sold so it could focus on its primary snack food and beverage lines, according to investment analysts reporting on the divestments in Brands formerly owned by PepsiCo include: Pizza Hut, Taco Bell, KFC, Hot 'n Now, East Side Mario's, D'Angelo Sandwich Shops, Chevys Fresh Mex, California Pizza Kitchen, Stolichnaya (via licensed agreement), Wilson Sporting Goods and North American Van Lines. The divestments concluding in 1997 were followed by multiple large-scale acquisitions, as PepsiCo began to extend its operations beyond soft drinks and snack foods into other lines of foods and beverages. PepsiCo purchased the orange juice company Tropicana Products in 1998, and merged with Quaker Oats Company in 2001, adding with it the Gatorade sports drink line and other Quaker Oats brands such as Chewy Granola Bars and Aunt Jemima, among others. In August 2009, PepsiCo made a $7 billion offer to acquire the two largest bottlers of its products in North America: Pepsi Bottling Group and PepsiAmericas. In 2010 this acquisition was completed, resulting in the formation of a new wholly owned subsidiary of PepsiCo, Pepsi Beverages Company. In February 2011, the company made its largest international acquisition by purchasing a two-thirds (majority) stake in Wimm-Bill-Dann Foods, a Russian food company that produces milk, yogurt, fruit juices, and dairy products. When it acquired the remaining 23% stake of Wimm-Bill-Dann Foods in October 2011, PepsiCo became the largest food and beverage company in Russia. 52

4 2.4 Restructuring In February 2012 ahead, CEO of PepsiCo Inc. plans to cut 8,700 jobs or about 3 percent of the PepsiCo's global workforce and boost marketing spending for its brand by as much as $600 million. It may save about $1.5 billion by Competition The Coca-Cola Company has historically been considered PepsiCo's primary competitor in the beverage market, and in December 2005, PepsiCo surpassed The Coca-Cola Company in market value for the first time in 112 years since both companies began to compete. In 2009, the Coca-Cola Company held a higher market share in carbonated soft drink sales within the U.S. In the same year, PepsiCo maintained a higher share of the U.S. refreshment beverage market, however, reflecting the differences in product lines between the two companies. As a result of mergers, acquisitions and partnerships pursued by PepsiCo in the 1990s and 2000s, its business has shifted to include a broader product base, including foods, snacks and beverages. The majority of PepsiCo's revenues no longer come from the production and sale of carbonated soft drinks. Beverages accounted for less than 50 percent of its total revenue in In the same year, slightly more than 60 percent of PepsiCo's beverage sales came from its primary non-carbonated brands, namely Gatorade and Tropicana. PepsiCo's Frito-Lay and Quaker Oats brands hold a significant share of the U.S. snack food market, accounting for approximately 39 percent of U.S. snack food sales in One of PepsiCo's primary competitors in the snack food market overall is Kraft Foods, which in the same year held 11 percent of the U.S. snack market share. 53

5 2.6 Products and brands Pepsi, Mountain Dew, Lay's potato chips, Gatorade, Diet Pepsi, Tropicana beverages, 7UP (outside U.S.), Doritos tortilla chips, Lipton teas (PepsiCo/Unilever partnership), Quaker foods and snacks, Cheetos, Mirinda, Ruffles potato chips, Aquafina bottled water, Pepsi Max, Tostitos tortilla chips, Sierra Mist, Fritos corn chips, Walkers potato crisps. PepsiCo's product mix as of 2012 (based on worldwide net revenue) consists of 63 percent foods, and 37 percent beverages. On a worldwide basis, the company's current products lines include several hundred brands that in 2009 were estimated to have generated approximately $108 billion in cumulative annual retail sales. The primary identifier of a food and beverage industry main brand is annual sales over $1 billion. As of 2009, 21 PepsiCo brands met that mark: PepsiCola, Mountain Dew, Lay's, Gatorade, Tropicana, 7Up, Doritos, Lipton Tea, Quaker Foods, Cheetos, Mirinda, Ruffles, Aquafina, Pepsi Max, Tostitos, Sierra Mist, Fritos, and Walker's. 2.7 Areas of business The structure of PepsiCo's global operations has shifted multiple times in its history as a result of international expansion, and as of 2010 it is separated into four main divisions: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe, and PepsiCo Asia, Middle East and Africa. As of 2009, 71 percent of the company's net revenues came from North and South America, 16 percent from Europe and 13 percent from Asia, the Middle East and Africa. Approximately 285,000 people are employed by PepsiCo worldwide as of

6 2.8 PepsiCo India Region: Leadership through Performance with Purpose PepsiCo entered India in 1989 and in a short period, has grown into one of the largest and fastest growing food and beverage businesses in the country. PepsiCo India s growth has been guided by PepsiCo s global vision of Performance with Purpose. This means that while businesses maximize shareholder value, they have a responsibility to all the stakeholders, including the communities in which they operate, the consumers they serve and the environment whose resources they use. a) One of the largest food and beverage businesses in India: PepsiCo India s diverse portfolio includes iconic brands like Pepsi, Lay s, Kurkure, Tropicana 100%, Gatorade and Quaker. PepsiCo India has not only grown to become one of the country s largest food and beverage businesses but has also become a powerful and consistent driver of PepsiCo s global growth. Within 2 decades, the company has been able to organically grow eight INR 1000 crore plus brands in India, which are household names trusted across the country. b) A growing portfolio of enjoyable and wholesome snacks and beverages PepsiCo s portfolio reflects its commitment to nourish consumers with a diverse range of fun and healthier products. The portfolio includes several healthier treats like Quaker Oats, Tropicana juices, multigrain Aliva range which is baked, rehydrator Gatorade, Tata Water plus, Lay s baked range and Lehar Iron Chusti fortified extruded snack with superior quality iron & B-vitamins. c) Model partnership with over 24,000 farmers: PepsiCo has pioneered and established a model of partnership with farmers and now works with over 24,000 happy farmers across nine states. More than 45 percent of these are small and marginal farmers with a land holding of one acre or less. PepsiCo 55

7 provides 360-degree support to the farmer through assured buy back of their produce at pre-agreed prices, quality seeds, extension services, disease control packages, bank loans, weather insurance, and the latest technological practices. d) Global leader in water conservation: In 2009, PepsiCo India achieved a significant milestone, by becoming the first business to achieve Positive Water Balance in the beverage world, a fact verified by Deloitte Touché Tohmatsu India Pvt. Ltd and has been Water Positive since then. The company made this possible through innovative irrigation practices like direct seeding, water recharging, and by reducing the consumption of water in its manufacturing facilities. PepsiCo is lauded for its efforts for water conservation. e) Care for the environment: PepsiCo is focused on reducing its carbon footprint. Nearly 30 percent of its energy is today generated from renewable sources such as rice husk boilers and wind turbines. Initiatives such as reduction of use of chemicals, eco-friendly packaging initiatives and efficient waste management help reduce load on the environment. PepsiCo India s award-winning Waste to Wealth recycling program reaches 465,000 families. f) Exemplary employment practices: PepsiCo India presently employs 6,400 people and provides indirect employment to almost 2,00,000 people. The company believes in providing employment and growth opportunities to local talent. Its College of Leadership, ensures early identification of talent, and employees focused development through critical experiences. The company emphasizes Winning with Diversity and Inclusion and has a significant number of women in the leadership team in India. PepsiCo India has won the prestigious Hellen Keller Award from the National Centre for Promotion of Employment for Disabled People (NCPEDP). 56

8 2.9 The Journey of PepsiCo Today PepsiCo India s potato farming programme reaches out to more than 12,000 farmer families across six states. We provide farmers with superior seeds, timely agricultural inputs and supply of agricultural implements free of charge. We have an assured buy-back mechanism at a prefixed rate with farmers. This insulates them from market price fluctuations. Through our tie-up with State Bank of India, we help farmers get credit at a lower rate of interest. We have arranged weather insurance for farmers through our tie-up with ICICI Lombard. We have a retention ratio of over 90%, which reveals the depth and success of our partnership. In 2010, our contract farmers in West Bengal registered a phenomenal 100% growth in crop output, creating in a huge increase in farm income. The remarkable growth has resulted in farmers receiving a profit between Rs. 20,000 40,000 per acre, as compared to Rs ,000 per acre in