INSTITUTE OF PROFESSIONAL EDUCATION AND

RESEARCH (IPER)

ASSIGNMENT OF INTERNATIONAL BUSINESS ENVIRONEMENT ON

PEPSI CO.

SUBMITTED TO- SUBMITTED BY-

PROF. UDDEEPAN CHATTERJEE MBA SEC-1, GROUP-6

RAHUL GUPTA

RANJIT RAGHUWANSHI

RENU SAINI

SANDEEP PATEL

What is FMCG ????

Fast Moving Consumer Goods (FMCG) goods are all consumable items (other than groceries/pulses) that one needs to buy at regular intervals. These are items which are used daily, and so have a quick rate of consumption, and a high return.  FMCG can broadly be categorized into three segments which are:

1. Household items as soaps, detergents, household accessories, etc,2. Personal care items as shampoos, toothpaste, shaving products, etc and finally3. Food and Beverages as snacks, processed foods, tea, coffee, edible oils, soft drinks etc.

Global leaders in the FMCG segment are Nestlé, ITC, Hindustan Unilever Limited, Reckitt Benckiser, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi, Gillette etc.FMCG, otherwise known as CPG, is one of the biggest industries in the world and there are a lot of facts that stand the FMCG industry apart as a career choice:

FMCG companies are behind the biggest brands in the world. FMCG is all about names, the products which everyone recognises from trips to the supermarket or from ads on television. The brands that make up this sector are the high profile ones, the ones everybody knows and loves. Think Coca-Cola, Dettoland Dove. This is an industry that puts you in living rooms,kitchens and bathrooms across the globe.

The FMCG industry changes fast and is constantly evolving. It's fair to say there is never a dull moment in FMCG. From the pace at which goods leave the shelves to the rate of product innovation and career progression, things move quickly. And it doesn't end there. The brands themselves are changing just as quickly. 40% of brands on the top 100 list twenty years ago have already been replaced by new names today.

FMCG firms thrive on employee and customer retention. Employee investment is a big part of the ethos of the FMCG world. Perhaps it's because we understand the importance of loyalty. Customer loyalty can make or break a brand. Take Twinings, for example – a century after they entered the top 100 brand list, they are still there and going strong. So it makes sense for FMCG companies to encourage the loyalty of their employees too.

FMCG companies can beat the recession.This is an industry that has proved itself very resilient to recession – with the majority of companies in the sector weathering the financial storm in a way that very few others have managed. Why? Well, consumers will always need to buy the products created by FMCG companies. They may not buy big items like refrigerators or cars in a recession, but floors still need to be cleaned, clothes need to be laundered and aches and pains still need to be soothed.

The FMCG industry thinks bigger – and better. This is an industry that offers things on a whole new scale. Where else could you find yourself handling $150 million accounts? Working in FMCG gives you the chance to be a part of some global success stories and influence the way consumers shop for products. FMCG firms are always thinking of the next great discovery or innovation – always developing and ever-changing to meet consumer's needs.

CPMPANY PROFILE

PepsiCo Inc. is an American multinational 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 Pepsi-Cola 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 2011. 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

Divisions

Report of operations results as follows, by six segments:

PepsiCo Americas Beverages (PAB)

Frito-Lay North America (FLNA)

Quaker Foods North America (QFNA)

Latin America Foods (LAF)

Europe

Asia, Middle East &Africa

PEPSICO LOGO OVER THE YEARS

PEPSICO BRANDS

PepsiCo's product mix as of 2012 (based on worldwide net revenue) consists of 63 percent foods, and 37 percent beveragesOn 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, 19 PepsiCo brands met that mark: Pepsi-Cola, Mountain Dew, Lay's, Gatorade, Tropicana, 7Up, Doritos, Lipton Teas, Quaker Foods, Cheetos, Mirinda, Ruffles, Aquafina, Pepsi Max, Tostitos, Sierra Mist, Fritos, andWalker's.

Mission

Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

Vision"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today."

Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

Performance with Purpose

At PepsiCo, we're committed to achieving business and financial success while leaving a positive imprint on society - delivering what we call Performance with Purpose.

Our approach to superior financial performance is straightforward - drive shareholder value. By addressing social and environmental issues, we also deliver on our purpose agenda, which consists of human, environmental, and talent sustainability.

FINANCIAL STATUS OF THE PEPSICO

Operating and Marketplace Highlights

Grew net revenue in three of our four business units on a reported basis and grew net revenue in all four business units on an organic basis.

Achieved 5.5 points of effective net pricing globally.

Grew both global snacks and global beverage revenue. Grew global nutrition revenue 10 percent.

Grew net revenue 9 percent in emerging markets. Emerging market net revenue grew 13 percent on a constant currency basis.

Held LRB value share to maintain our leadership in measured channels relative to primary competitor in the U.S., the largest global beverage market.

Increased media spending in the U.S. by 25 percent in the first quarter.

Ranked No. 1for contribution to revenue growth in U.S. convenience stores.

Gained Family Dollar, a leading retailer with more than 7,000 outlets in North America, as a new beverage customer.

Net capital spending declined by $122 million in the quarter and was 4.7 percent of net sales over the last four quarters, an improvement of 80 basis points over the comparable prior four quarters.

Summary of First Quarter Financial Performance

Reported net revenue increased 4 percent and constant currency net revenue increased 5 percent, led by double-digit growth in the Europe and AMEA divisions and mid-single-digit growth in PepsiCo Americas Foods.

Net revenue benefited from 5.5 percentage points of effective net pricing, offset by negative foreign currency translation of 1 percentage point. Acquisitions contributed less than 1 percentage point to net revenue growth.

Reported operating profit was flat and core operating profit declined 6 percent. Operating profit performance was in line with management's expectations and reflected the impact of division operating profit performance and higher corporate unallocated expenses. Reported operating profit included $84 million in mark-to-market gains on commodity hedges and $35 million of restructuring, impairment and integration charges.

Reported EPS of $0.71 was even with the prior year quarter and core EPS was $0.69, a decline of 7 percent, in line with management's expectations. Reported EPS includes a $0.04 per share benefit from mark-to-market net gains on commodity hedges, and a negative $0.01 per share impact of restructuring, impairment and integration charges.

Summary First Quarter 2012 Performance (Percent Growth)

Core(a)

Constant Currency(a)

Volume(b)

Net

Revenue

Operating

Profit(d)

Net

Revenue

Operating

Profit

Operating

Profit

PAF 2 5 (1) 6 2 1

FLNA (2) 4 1 4 2 2

LAF 15 11 7 17 18 10

QFNA (5) (3) (12) (2) (10) (10)

PAB (1) (2) (6) (2) (9) (9)

Europe 17/10(c) 13 29 18 4 2.5

AMEA 16/2(c) 12 2 12 6 7

Total Divisions 5/1(c) 4 (1) 5 (1) (2)

Total PepsiCo - (6)

PAST PERFORMANCE OF COMPANY

Pepsico (PEP) is a leading international beverage and snack-food company.

-Seven Year Revenue Growth Rate: 12.5%-Seven Year EPS Growth Rate: 7.4%-Seven Year Dividend Growth Rate: 13.2%-Current Dividend Yield: 3.05%-Balance Sheet: leveraged but solid

RatiosPrice to Earnings: 17.4Price to Free Cash Flow: 23Price to Book: 4.8Return on Equity: 28%

Revenue

(Chart Source: DividendMonk.com)

Revenue growth was almost 12.5% per year over this period, which is quite high for a large

company. That’s not the whole story, though. In 2009 the company announced that it would

acquire its two largest North American bottlers. These were rather large operations with rather

low profit margins, meaning they were buying quite a bit of revenue compared to how much they

were buying in terms of income. So as the chart shows, while Pepsico has indeed had decent

“normal” revenue growth, the large 2010 and 2011 bump is due to the bottler acquisitions.

Revenue for Pepsico jumped 34% in 2010 compared to 2009, while net income only jumped

6.3% over the same period.

Coca Cola went onto copy the same move, and bought their own North American bottler as

well. 

EPS and Dividends

(Chart Source: DividendMonk.com)

FUTURE PLANS OF THE PEPSICO

PepsiCo to cut 8,700 jobs globally, eyes $1.5 bn saving by 2014

NEW YORK: Global food and beverages giant PepsiCo will cut 8,700 jobs across 30 countries as part of a programme to save up to USD 1.5 billion by 2014 to offset high commodity costs and increased spending on advertising and marketing.The firm plans to increase advertising and marketing support behind its global brands by USD 500-600 million in 2012, with particular focus on North America.

PepsiCo plans snacking future around chickpea-based products with billion dollar investmentPepsiCo is betting the farm on the chickpea.While potato and corn tortilla-based snack foods have long dominated supermarket snack shelves, the food giant is hoping to transform the industry with a new, billion-dollar investment that may produce a raft of foods from the legume.

The underlying message is buried in a feel-good announcement touting the three-way partnership between PepsiCo's Foundation, the United Nations World Food Programme and the United States for International Development USAID, a project the partners say will "address malnutrition in Ethiopia."

PepsiCo to Invest $2.5 Billion in China Over Next Three Years

The new investment will be allocated to a variety of projects, including new manufacturing facilities, a significant scaling up of the company's research and development operations, expanded agricultural development and brand-building initiatives.

PepsiCo plans to open 10-12 new plants in China to manufacture soft drinks, non-carbonated beverages and snacks and will install additional production lines in existing facilities.  Consistent with the company's strategy to expand in interior and western China, PepsiCo will open plants in the provinces of Fujian, Gansu, Henan and Yunnan in the next two years.  All new plants will meet LEED standards for environmental design, following the model of the company's Chongqing beverage plant, which opened last year.  That plant - the first "green" beverage plant ever built in China and the first of its kind to receive LEED certification - uses 22% less water and 23% less energy than the average PepsiCo plant in China.

FUTURE OF FMCG SECTORFast moving consumer goods will become aRs 400,000-crore industry by 2020. A Booz & Company study finds out the trends that will shape its future.

The report estimates the FMCG sector witnessed robust year-on-year growth of approximately 11 per cent in the last decade, almost tripling in size from Rs 47,000 crore in 2000-01 to Rs 130,000 crore now (it accounts for 2.2 per cent of the country’s GDP). Growth was even faster in the past five years — almost 17 per cent annually since 2005. It identifies robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyle.

As modern life accelerates and technology continues to advance, people expect everyday products to keep up too. That's why FMCG companies are always on the lookout for the next great innovation.New product launches, new schemes, new brands, new brand extensions, and new marketing activity are springing up across the sector. But that doesn't automatically mean that they'll all survive. It's innovative thinking and smart working that will ensure individual companies in FMCG succeed. As Andrew Grove, founder of Intel Corporation, says, "Success breeds complacency. Complacency breeds failure. Only the paranoid survive."

The thinking behind new products is becoming increasingly innovative and the products themselves are being marketed to highlight the value they offer. Top companies are beginning to change the way they work already. As RakeshKapoor, CEO at Reckitt Benckiser (one of the leading names in world health and personal care products) says, "At RB, it's all about letting people have ownership of the idea and delivery and not putting too many decision layers in their way. It's attitude, not process, that drives our innovation."

They're adapting their traditional customer relationships as well, with a move away from large scale surveys to focus groups and social media research - bringing the business closer to their customers. Rakesh Kapoor points out that "being close to the consumer doesn't only mean being reactive. It means listening, watching and then creating ways to meet a need that the consumer has, but may not have articulated yet. If you're in touch with consumers' lives, you're very aware of the life changes they experience over time."les and buying be,"you have to focus on the basic relationship with the consumer."

 This kind of thinking means that blogs, social media and other digital. The Indian consumer market will remain buoyant, given favorable demographics, rising disposable income and rapid urbanization.

The sector is seeing rapid change in customer tastes and preferences- be it food & beverage sector or personal durables.The coming year will see specialized and niche products driven by product innovation. More and more brands will be seen adopting strategy of globalization.

THANK YOU !