Replies to post #4813 on The Rising Influence of Rising Affluence

[DewDiligence]

PEP—Having a woman from India as CEO, Indra Nooyi, can't hurt in Asia either.

PEP’s BoD presumably was thinking along these lines when they promoted Nooyi to CEO in 2007 after she had performed well in stints as CFO and various positions in operations (http://en.wikipedia.org/wiki/Indra_Nooyi#PepsiCo_executive ). Whether Nooyi actually makes it easier for PEP to grow its businesses in emerging markets is debatable, however.

p.s. Will post later on PEP's 1Q12 results unless someone else does first.

[DewDiligence]

PEP has encountered many of the same problems as PG, particularly
the sharp price increases of raw materials. The key difference that
explains the disparate performances of the stock prices following
the most recent quarterly results is that PEP gave its mea culpa
three months ago (#msg-72324630), but PG didn’t.

http://online.wsj.com/article/SB10001424052702304811304577367623168044462.html

›PepsiCo Slips Despite New Ads

April 26, 2012, 1:28 p.m. ET
By MIKE ESTERL

PepsiCo Inc.'s snack business is going strong but the company continues to struggle to halt rival Coca-Cola Co., which has been taking away U.S. soda market share.

World-wide snack revenue grew 7% in the first quarter from the year-earlier period, PepsiCo said, but beverage sales expanded just 2%. Commodity costs continued to weigh on results, it added.

The maker of Lay's potato chips, Quaker oatmeal and its namesake Pepsi-Cola said many consumers are agreeing to pay higher prices for its big retail brands, which also include Doritos corn chips, Tropicana orange juice and Gatorade sports drinks. It raised prices 5.5% globally, including 6% at its Frito-Lay North America snack unit, where revenue rose a more modest 4%.

Those price increased helped overall first-quarter sales rise 4.1% from a year earlier to $12.43 billion but net income slid 1.4% to $1.13 billion, weighed down by higher commodity costs and ramped-up marketing efforts.

PepsiCo has 22 brands that each generate annual retail sales of at least $1 billion.

Food and drink companies are performing a juggling act as they try to pass along rising commodity costs for items such as corn, potatoes, aluminum and plastic without losing customers. PepsiCo said its commodity inflation totaled $300 million in the first quarter and that it expects commodity costs to increase this year by about $1.5 billion, or roughly 7%. [But these price increases in raw materials should moderate heading into 2013, according to PG (#msg-75125839).]

U.S. advertising expenditures increased 25% in the first quarter, PepsiCo said, part of a planned marketing budget increase of as much as $600 million globally in 2012 to breathe new life into its brands. It warned in February that its profit will fall 5% this year as it targets $1.5 billion in new cost savings by 2014, including 8,700 job cuts.

Beverages remain a work in progress after Diet Coke surpassed Pepsi-Cola in 2010 to become the No. 2 selling soda in the U.S. behind regular Coke. PepsiCo said Americas-wide beverages volume and revenue slipped 1% and 2%, respectively, in the first quarter, as operating profit slumped 6% from the year-earlier period. Soda volumes dropped 2% but non-carbonated beverages rose 1% at the regional unit, which generates more than a third of company revenue.

PepsiCo said its Americas beverage results were affected by accounting changes following the refranchising of its Mexican drinks business, which reduced net revenue by 4 percentage points. But it pointed to signs of improvement in the U.S., where convenience-store sales remain strong despite high gas prices.

Some investors suggested last year that PepsiCo should split up the company so that its snacks aren't dragged down by the underperforming beverage business. The company has rejected such calls, arguing the two businesses provide much-needed scale.

Chairman and Chief Executive Indra Nooyi told investors Thursday that PepsiCo's U.S. beverage market share in stores rose 0.1 percentage point in dollar terms in the first quarter. That doesn't include sales at fountain-service accounts such as restaurants, where Coke is the market leader. Coke said last week it gained U.S. beverage market share in dollar and volume terms in the first three months of 2012.

PepsiCo said its mid-calorie cola, Pepsi Next, which was launched in March with roughly half the calories of a regular cola, has quickly captured about 1% market share in the U.S. in dollar terms.

"It's really bringing back lapsed cola users,'' said Mrs. Nooyi on a conference call, although she cautioned it is still too early to gauge Next's long-term impact.

PepsiCo, based in Purchase, N.Y., said its [color=red]snack and beverage revenue grew 13% in emerging markets in constant-currency terms[/color=red]. Mexican beverage volumes rose 11% after restructuring its bottling business there. Global revenue from the company's expanding nutrition portfolio surged 10%.

But its Quaker Foods North America unit underperformed, with revenue dropping 3% to $623 million and operating profit falling 12% to $187 million from the year-earlier quarter. PepsiCo attributed most of the profit decline to an inventory accounting change that boosted last year's numbers.‹

[DewDiligence]

WSJ muses on how Mondelez (the planned KFT spinoff) will compete in China with the likes of PEP’s Frito Lay:

http://online.wsj.com/article/SB10001424052702303395604577434071750952662.html

One thing we can say is that it won’t be easy.

[DewDiligence]

KO is investing $5B for expansion in India:

http://online.wsj.com/article/SB10001424052702304870304577490092413939410.html

India, a country of 1.2 billion people, remains one of the last big frontiers for the Atlanta-based beverage giant… Indians on average consume only 12 eight-ounce bottles of Coke a year compared with 240 in Brazil and 90 bottles globally.

…Coca-Cola for years trailed rival PepsiCo Inc. in the Indian market. PepsiCo began selling its cola in India a few years before Coca-Cola returned in 1993, giving it an edge… On its return, Coca-Cola bought Parle's four leading soft drinks brands—Thums Up, Limca, Gold Spot and Maaza—giving the company an instant 60% share of the Indian soft drinks market. At the time, PepsiCo had less than 30%.

…Now, Coca-Cola and PepsiCo together dominate the market for carbonated soft drinks in India, where soda sales overall are estimated to total 60 billion rupees ($1.05 billion). Coke accounted for 60% of retail value sales of carbonated soft drinks in India in 2011 versus PepsiCo's 37%...

PEP’s CEO, Indra Nooyi, probably takes these numbers personally, LOL.

[DewDiligence]

PEP’s Quaker division pursues yogurt market:

http://www.nytimes.com/2012/07/09/business/pepsico-with-muller-by-quaker-yogurt-aims-at-a-surging-market.html

Brace for the yogurt wars, as PepsiCo, long focused on battling its archrival, Coca-Cola, takes on the likes of Dannon and General Mills, not to mention Fage and Chobani.

In the most visible sign yet of its efforts to curb its reliance on soda sales, PepsiCo this month will start selling yogurt in the Northeast and mid-Atlantic states. The products will initially be manufactured in Europe by Theo Müller, a large privately held German dairy company that has formed a joint venture with PepsiCo to capitalize on the growing yogurt market in the United States… So confident are the two companies that they are investing $206 million in a 363,000-square-foot plant in Batavia, N.Y.

…Americans on average consumed 12 pounds of yogurt a year, or half as much as Canadians and a third the amount of Europeans.

…Müller by Quaker will try to change that with what Mr. Lteif calls “mainstream premium” products that fill a gap between mass brands like Dannon and Yoplait and niche Greek yogurts like Fage and Chobani.

I happen to be a fan of Fage 0%, FWIW.

[DewDiligence]

PepsiCo Chips Away at China

[PEP isn’t generally thought of as a play on China, but it ought to be, IMO.]

http://online.wsj.com/article/SB10001424052702303292204577518464208380158.html

›July 10, 2012
By LAURIE BURKITT

WUHAN, China—PepsiCo Inc. is expanding its business in China, where executives hope consumers will devour hot-and-sour fish soup potato chips, white fungus oatmeal and blueberry Gatorade, propelling the company toward its goal of becoming the biggest snack and beverage maker in the world's second-largest economy.

Chief Executive Indra Nooyi cut the red ribbon of a new Lay's potato-chip plant in China's landlocked city of Wuhan on Tuesday, its sixth snack plant there and the latest sign of its three-year, $2.5 billion commitment to the fast-growing market. Company executives said it illustrates PepsiCo's increasing focus on China's hinterland, where consumers are spending more on food as their incomes rise. Many of them have yet to even try a potato chip, PepsiCo executives say.

"China will be the largest consumer market in the next decade, and PepsiCo aims to be the largest food and beverage company in the market," said Ms. Nooyi in an interview, without specifying a timeframe.

Other efforts include a planned new research and development plant in Shanghai that could better tailor products to local tastes, potentially adding new products to a current lineup that includes hot-and-sour fish-soup potato chips, white fungus oatmeal and blueberry Gatorade. PepsiCo also plans to increase ad spending in the country. Executives declined to disclose details but said they will increase spending on Lay's by 25%.

The company has high hopes for a deal completed earlier this year that transferred its local bottling operations to a local joint venture with significant market share. The sale will free Pepsi to concentrate on more food, marketing and research efforts, said Tim Minges, PepsiCo.'s chairman for Greater China.

The effort comes as the Purchase, N.Y., company—which makes Doritos corn chips, Tropicana juices and Quaker oatmeal—looks for ways to pump up its profits and satisfy investors disappointed by its U.S. market share loss in soda to rival Coca-Cola Co. Many have called for the company to split its lagging beverage business from its stronger snacks division.

PepsiCo's executives say they are only making a dent in the country's food and beverage markets so far. Consumption of potato chips in China is around one small bag every two to four weeks, compared with 15 bags in the same time period in the U.S., according to Mr. Minges. The average Chinese buys a beverage 230 times per year, while the average American buys 1,500 in the same period, Mr. Minges said.

"The growth potential is massive," said Mr. Minges, noting that while many companies are concerned about a potential slowdown in China, PepsiCo is still eyeing the country as one of its booming markets.

Revenue from Pepsi's emerging markets reached $22 billion in 2011, representing 34% of total revenue and nearly tripling from $8 billion in 2008. Much of that growth came from China, a company spokeswoman said. PepsiCo doesn't break out its China revenue.

Offering the same Cool Ranch Doritos PepsiCo sells to U.S. consumers isn't an option for China, said Mr. Minges. The company plans to open a new research and development center in Shanghai this fall, enabling it to create chip, drink, and oatmeal flavors and new textures that span beyond its current portfolio of such flavors as pork and ketchup, little tomato, cola-grilled chicken, and cucumber.

Mr. Minges said PepsiCo will also expand its oatmeal offerings, exploring more flavors that are inspired by traditional Chinese medicine, such as its current wolfberry flavor. Quaker launched in China two years ago and is beginning to take hold with consumers who are accustomed to eating rice porridge for breakfast.

PepsiCo is boosting its agricultural projects in China, attempting to improve potato yields and cut costs by improving its irrigation systems, Mr. Minges said.

China's snack-food market is expected to reach an estimated 77 billion yuan (about $12 billion) by year-end, up 44% from 2008, according to research firm Euromonitor International. Its soda market is poised to reach 71 billion liters this year, nearly doubling from five years earlier, the firm projects.

PepsiCo was the fifth-largest seller of savory and sweet snacks in China in 2010, according to Euromonitor's most-recent data. In beverages, PepsiCo has a 4.4% market share, compared with Coke's 15%. But its sale this year of its China bottling operations to a beverage joint venture including Tingyi (Cayman Islands) Holding Corp. and Asahi Group Holdings Ltd. will give it a lift there, analysts say. Tingyi itself has a 14% market share in China, according to Euromonitor International.‹