pepsico-business-model

The Business Model Of The PepsiCo Food and Beverage Empire

With 53% of revenues coming from food, and the remaining 47% coming from the beverage. PepsiCo is a Food and Beverage Empire that in 2017 made over $63 billion in revenues. North America Beverage segment represented 33% of those revenues. 58% of its revenues were in the US. The company distributes its products via direct-store-delivery, customer warehouses, and other distribution networks.

PepsiCo key segments

With a multi-billion dollar empire, PepsiCo has refined its business model to make it as agile as possible. With reduced management layers and by leveraging on digitalization the food and beverage empire has managed its logic costs to capture as much growth from the world’s market. The company offers a vast range of products in food and beverage. In addition to that PepsiCo, through licensing agreements manufactures and distributes an even broader set of products by organizing joint ventures with other brands.

PepsiCo is organized in six main operating segments:

  • Frito-Lay North America (FLNA) (comprising branded food and snack businesses in the United States and Canada): this segment distributes and sells branded snack foods including Cheetos, Doritos, Fritos, Lay, Ruffles
  • Quaker Foods North America (QFNA), includes cereal, rice, pasta and other branded food in the United States and Canada. QFNA makes, markets, distributes and sells cereals, rice, pasta, and other branded products. This segment comprises Aunt Jemima, Cap’n Crunch, Life, Quaker Chewy, Quaker grits, Quaker oat squares, Quaker oatmeal, Quaker rice cakes, Quaker simply granola and Rice-A-Roni side dishes.
  • North America Beverages (NAB) comprises beverage businesses in the United States and Canada such as Aquafina, Diet Mountain Dew, Diet Pepsi, Gatorade, Mist Twst, Mountain Dew, Pepsi, Propel and Tropicana. Other products (such as Lipton from Unilever) are offered via joint ventures.
  • Latin America includes all of the beverage, food and snack businesses in Latin America. This comprises the manufacturing and distribution of Cheetos, Doritos, Emperador, Lay’s, Marias Gamesa, Rosquinhas Mabel, Ruffles, Sabritas, Saladitas and Tostitos, and many Quaker-branded bowls of cereal and snacks.
  • Europe Sub-Saharan Africa (ESSA), which includes all of beverage, food and snack businesses in Europe and Sub-Saharan Africa included in the other segments.
  • Asia, the Middle East and North Africa (AMENA), comprises includes beverages, food and snack businesses in Asia, the Middle East and North Africa.

Distribution strategy of PepsiCo

The company distributes its products via three primary channels:

  • direct-store-delivery
  • customer warehouse
  • distributor networks

The distribution strategy varies to cover several customer needs, segments, and local business practices.

Direct-Store-Delivery

It comprises independent bottlers and distributors operating direct-store-delivery systems for beverages, foods, and snacks to retail stores. This distribution strategy works well with products where in-store promotion and merchandising affect their commercial success.

Customer Warehouse

Other products are delivered to customer warehouses. This system works with products that are less fragile and have a longer life, compared to perishable items.

Distributor Networks

Through third-party distributors, a wide range of products can have a broader reach on the delivery vehicles. Those distribution networks are particularly effective as they serve restaurants, schools, stadiums and all the places where consumers hang out. Part of this distribution also goes through e-commerce websites.

PepsiCo key customers

PepsiCo key customers include:

  • wholesale and other distributors
  • foodservice customers
  • grocery stores
  • drugstores
  • convenience stores
  • discount/dollar stores
  • mass merchandisers
  • membership stores
  • hard discounters
  • e-commerce retailers
  • and authorized independent bottlers

Marketing campaigns 

Incentives and discounts through various programs to customers and consumers which comprise sales incentives, rebates, advertising, and other marketing activities played a key role. Advertising and other marketing activities amounted to $4.1 billion.

PepsiCo key financial metrics

pepsico-financial-metrics

Source: PepsiCo Annual Report 2017

With 53% of revenues coming from food, and the remaining 47% coming from the beverage, PepsiCo is an empire that in 2017 made over $63 billion in revenues. North America Beverage segment represented 33% of those revenues. While 58% of its revenues were in the US.

pepsico-key-financial-metrics

Source: PepsiCo Annual Report 2017

The company also generated over $10.5 billion in 2017, which represented a 16.5% operating margin.

Reference for data: PepsiCo Annual Report 2017

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Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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