PepsiCo Inc.: Globalization Next

Sept. 24, 2008
Beverage and snack food maker invests abroad to strengthen foreign markets.

Some material prices might be coming down, but the last year's worth of hikes are sure to have a lasting effect on how many manufacturers run their business. Beverage and snack food maker PepsiCo Inc., for one, has seen its soda sales decline in the United States, as costs for potatoes, corn and other commodities have led to its own price increases.

As a result, the IW 50 Best Manufacturer has made a couple of significant investments over the last few months that it hopes will help boost business outside the U.S. and bulk up its resources in other parts of the world. Most recently, the company decided to make a $500 investment to expand its operation in India.

Over the next three years, PepsiCo plans to increase manufacturing capacity, marketing and research and development in India with the goal of tripling revenue in the South Asian nation in the next five years, CEO Indra Nooyi told Bloomberg.

"We have sustained double-digit growth both in volume and revenue and become the fourth-largest consumer products company in India," Nooyi said. "We are making important gains in market share."

PepsiCo and its partners have invested $700 million so far in India since the company started operations in 1989. The company directly employs 4,000 people and provides indirect jobs to 60,000. The new investment will add another 50,000 new direct and indirect jobs, according to Nooyi.

Back in August, Bloomberg reported that PepsiCo made similar plans for Brazil, where it said it will invest $300 million to open at least three new food production plants between 2009 and 2012. The new plants will be located in Bahia, Brasilia, along with a third in the northern part of the country. A fourth facility was said to be under consideration.

Finally, this summer also saw Pepsi stake a claim in the Russian juice market. In August, PepsiCo and the Pepsi Bottling Group paid $1.4 billion for a 75% holding in JSC Lebedyansky, which is reported to be the world's sixth-largest juice manufacturer and the largest in Russia.

"We're looking forward to building Lebedyansky's portfolio of strong, popular brands in one of the world's fastest-growing juice markets," said Michael White, PepsiCo International CEO and vice chairman of PepsiCo. "It's yet another way we're transforming our product lineup to include more beverages and foods that address the growing consumer interest in health and wellness."

PepsiCo Inc.
At A Glance

PepsiCo Inc.
Purchase, New York
Primary Industry: Beverages
Number of Employees: 185,000
2007 In Review
Revenue: $39.47 billion
Profit Margin: 14.33%
Sales Turnover: 1.14
Inventory Turnover: 8.56
Revenue Growth: 12.34%
Return On Assets: 18.90%
Return On Equity: 36.82%

PepsiCo's own financial health was last reported in July, showing strong second-quarter operating results that included 14% net revenue and 12% growth in operating profit. Its Frito-Lay brands enabled 2% volume growth in spite of net price increases, while revenue and operating profit grew 4% for its Quaker Foods division. Flooding temporarily shut down its Cedar Rapids, Iowa-based Quaker manufacturing facility in July, but full production levels were expected to return by mid-August.

According to Nooyi, the strength and breadth of the company's global portfolio and geographic footprint delivered another quarter of solid results. "PepsiCo continued to drive growth across its worldwide snacks and beverage businesses primarily through strong product innovation, well-executed pricing actions and focus on expense control and productivity," she said.

PepsiCo's third quarter 2008 earnings conference call will be webcast live over the internet on Oct. 14, at 11 a.m. ET.

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