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PepsiCo's Post Millennial Revolution

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DOI: 10.13140/RG.2.2.29343.71845

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PepsiCo's Post Millennial Revolution
Consumer, Financial and Market analysis

STUDENT N° (18028765)

FOR
ESERP Business School Barcelona
AND
Staffordshire University

Marketing Metrics
Instructor: Ramses Gallego
Due date: January 15, 2019
Word count: 3500 (3615)
Table of content:

1-Introduction ..................................................................................... 3

2-PepsiCo in the packaged food and beverage industry ..................... 4

3-Soda & bottled water cross-road ..................................................... 7

4-Impacts of the decline in soda consumption.................................... 8

5-The giant Frito-Lay ......................................................................... 10

5-Average prices in grocery shops ..................................................... 12

6- PepsiCo soft drink product portfolio. ............................................ 13

7- Decrease of profit margins? .......................................................... 15

8- PepsiCo short-term liquidity ratios................................................ 17

9- PepsiCo debt ................................................................................. 19

10- Conclusion ................................................................................... 22

11- Recommendations ...................................................................... 24

Page | 2
1-Introduction
PepsiCo is an American company founded in 1965, operating in the food, snacks and beverage
industry. PepsiCo owns a broad portfolio of more than 22 iconic million-dollar brands such as
Lays, Pepsi Cola, Aquafina, Lipton, and Doritos to cite a few. PepsiCo is the second biggest food
and beverage business in the world and the biggest in the USA. These brands currently operate
in over 200 countries and territories.

This analysis will concentrate on PepsiCo packaged foods and beverages with a specific focus
on their distribution in the USA. This study will focus primarily on these three main topics:

Firstly, an investigation of the market and consumption of PepsiCo products. How Pep-
siCo conducts their major brands (Pepsi-Cola and Lays) in the USA soft beverage, packaged
food, and snack market. In this chapter, the research will demonstrate a considerable change
in the US consumers’ behaviour.

Secondly, this analysis will go through PepsiCo’s distribution to determine how they
position their brand and products in the US. In this part, we will further examine the under-
standing of PepsiCo’s preparation to face the post-millennial consumers’ revolution.

Thirdly, we will investigate PepsiCo’s global finance. We will point out potential long-
term debt obstacles the organisation will have to confront. This third study will allow us to
conduct a root cause analysis enabling us to hypothesise the nature of the challenges at hand
and attain a better level of understanding of the financial dynamics of PepsiCo. Having defined
the fundamental concept and established the groundwork for our critical thinking, we will
conclude on the original causes of PepsiCo’s financial risks.

Researcher note:

This research is focused on the years 2015 to 2017 in the USA. Due to the complexity of the
data collection and the lack of free public information on PepsiCo, sometimes the period of
the study will be anterior, and the territories expanded. However, the data remains relevant
and valuable to this study.

Page | 3
2-PepsiCo in the packaged food and
beverage industry

PepsiCo operates mostly in the packaged food and beverage market. To better comprehend
the following analysis, the understanding of how PepsiCo’s brands are detached in the differ-
ent branches of the market is essential. In the following chart (See chart N°1) we can view
PepsiCo’s operating markets and sectors. PepsiCo’s operating markets are ticked with a green
check; the market in which PepsiCo is not engaged in are marked with a red cross.

PepsiCo operating markets

Chart N°1. Source: (own elaboration)

Page | 4
PepsiCo will be compared to three of its direct competitors in the US in this chapter. This will
help us draft a better representation of the situation while providing the necessary elements
of comparison. Coca-Cola Co, Nestle, and Danone have been chosen due to their portfolio
similarities. Those companies are operating in the same market sectors as PepsiCo.

We can now have a look at the Soft drink and packaged food market value in the US and by
adding those two reach an overview of PepsiCo’s global market size (see table N°1).

Packaged Food & soft drink market value/sales in US (Bill$)

Year Soft drink Packaged Food TOTAL:
2015 186,894 368,718 555,612
2016 191,741 373,23 564,971
2017 194,743 377,553 572,296
Average 3 years 191,126 373,167 564,293
Table N°1. Sources: (BRANDONGAILLE.COM, 2018) and (STATISTA.COM, 2018).

Those numbers can be compared to the net sales of PepsiCo and their competitors (see table
N°2). It is from these two tables that we can draw the adequate calculation allowing us to
evaluate each company’s respective share in the US.

Net Sales/Revenues by companies in US (Bill$)

2013 2014 2015 2016 2017 Average 3 years:
PepsiCo 66,42 66,68 63,06 62,80 63,53 63,13
Nesle 28,70 26,93 27,66 28,78 26,96 27,80
Coca-Cola Co 46,85 46,00 44,29 41,86 35,41 40,52
Dannon Co Inc 2,31 2,56 2,10 2,10 6,00 3,40
Rest of company / / 418,50 429,43 440,40 429,44
Table N°2. Source: (FOODPROCESSING.COM, 2017).

Page | 5
 𝑪𝒐𝒎𝒑𝒂𝒏𝒚 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $
𝐂𝐨𝐦𝐩𝐚𝐧𝐲 𝐌𝐚𝐫𝐤𝐞𝐭 𝐬𝐡𝐚𝐫𝐞 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒎𝒂𝒓𝒌𝒆𝒕 𝒗𝒂𝒍𝒖𝒆 $

20,0%
Companies' shares in the packaged food & soft drink market USA (%)
11,3%

11,2%

11,2%
11,1%
8,0%

7,4%

7,2%
6,2%
5,1%
5,0%

4,9%
4,7%
0,38%

0,37%

1,0%

0,6%
0,0%
2015 2016 2017 Average 3 years
PepsiCo 11,3% 11,1% 11,2% 11,2%
Nestle 5,0% 5,1% 4,7% 4,9%
Coca-Cola Co 8,0% 7,4% 6,2% 7,2%
Dannon Co inc 0,38% 0,37% 1,0% 0,6%
Rest of companies 75,3% 75,0% 77,0% 75,8%
Graph N°1. Source: (own elaboration).

Conclusion: The packaged food and beverage market is fully emerging, as we can see on (Table
N°1) the market value is growing from year to year. However, we notice from Graph N°1 the
strong competitivity of the packaged food and beverage industry. As the market is growing,
the industry key players are fighting over the control of market shares. Within this rivalry,
PepsiCo remains at a relatively stable and high level of market share possession between 2015
and 2017.

Page | 6
3-Soda & bottled water cross-road

PepsiCo’s leading force in the soft drink industry is their soda and bottled water brands (Pepsi-
Cola, Mountain Dew, Aquafina, LifeWTR). These market strongholds dictate the next part of
our work. We will investigate both of these categories to better understand the impacts of the
market on PepsiCo and the opportunities the company could seize and benefit from.

Bottled water consumption per capita in Soda consumption per capita in US (liter)
US (liter) Liters Year
Liters Year 159 2013
121 2013 155 2014
129 2014 151 2015
139 2015 149 2016
150 2016 147 2017
159 2017

Table N°2 & 3. Sources: (PAUL, Kari, 2017), (HOLODNY, Elena, 2016) and (STATISTA.COM, 2018)

By multiplying the US per capita consumption of bottled water and soda by their population
within the same year, we find the total consumption in liters.

US Consumption per capita (liter)*US population=Total consumption in US (liter)

US total consumption of Soda & Bottled water per year (Mill liter)
Year USA Population (million) Soda consumption Bottled water consumption
2013 316,23 50 280,57 38 263,83
2014 318,62 49 386,10 41 101,98
2015 321,04 48 477,04 44 624,56
2016 323,41 48 188,09 48 511,50
2017 325,72 47 880,84 51 789,48
Table N°4. Population source: (MULTPL.COM).

Page | 7
 U.S TOTAL CONSUMPTION BEVERAGE PER
YEAR (MILL LITER)
Soda consumption Bottled water consumption

53 000,00
50 280,57
49 386,10 47 880,84
50 000,00 48 477,04 48 188,09
51 789,48
MILLION LITERS

47 000,00 48 511,50

44 000,00
44 624,56

41 000,00
41 101,98
38 000,00
38 263,83
35 000,00
2013 2014 2015 2016 2017
YEAR

Graph N°2. Source: (own elaboration).

Conclusion: Table N°2, 3, 4 and Graph N°2 provides a great view of what happened in the US
beverage market. Soda consumption is decreasing, and bottled water consumption is increas-
ing. During the year 2016, for the first time in the history of the US, bottled water consumption
surpassed soda consumption.

4- Impacts of the decline in soda

consumption

To understand the reaction of the industry to this historic change, the logical continuation of
this research lies in the observation of the respective consumptions of the two soda market
leaders and eternal competitors in the US: Pepsi Cola and Coca-Cola.

US Pepsi cola consumption (Mill liters) US Coca-Cola consumption (Mill liter)

year liter
2016 7 036,70 Year Liter
2017 6 702,83 2016 14 888,02
2017 14 640,08

Table N°5 and 6. Sources: (PRATAP, Abhijeet, 2018), (WWW.PRNEWSWIRE.COM, 2018).

Page | 8
By comparing the number of liters consumed by those brands (see Table N°5 and 6) with the
total consumption of soda in 2016 and 2017, we can have an overview of the repercussions
due to the decrease of soda consumption on those two major brands.

𝑩𝒓𝒂𝒏𝒅 𝒗𝒐𝒍𝒖𝒎𝒆 𝒄𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 (𝒍𝒊𝒕𝒆𝒓)

𝐁𝐫𝐚𝐧𝐝 𝐬𝐡𝐚𝐫𝐞 𝐛𝐲 𝐯𝐨𝐥𝐮𝐦𝐞 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒗𝒐𝒍𝒖𝒎𝒆 𝒄𝒐𝒏𝒔𝒖𝒎𝒕𝒊𝒐𝒏 (𝒍𝒊𝒕𝒆𝒓)

𝑹𝒆𝒄𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝒃𝒓𝒂𝒏𝒅 𝒔𝒉𝒂𝒓𝒆 %

𝐘𝐞𝐚𝐫 𝐨𝐧 𝐲𝐞𝐚𝐫 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐜𝐞 𝐢𝐧 % 𝐩𝐨𝐢𝐧𝐭𝐬 = ∗ 𝟏𝟎𝟎
𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒚𝒆𝒂𝒓 𝒃𝒓𝒂𝒏𝒅 𝒔𝒉𝒂𝒓𝒆 %

𝑩𝒓𝒂𝒏𝒅 𝒗𝒐𝒍𝒖𝒎𝒆 𝒄𝒐𝒏𝒔𝒖𝒎𝒕𝒊𝒐𝒏 𝒓𝒆𝒄𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 (𝒍𝒊𝒕𝒆𝒓)

𝐘𝐞𝐚𝐫 𝐨𝐧 𝐲𝐞𝐚𝐫 𝐦𝐚𝐫𝐤𝐞𝐭 𝐭𝐫𝐞𝐧𝐝 % = ∗ 𝟏𝟎𝟎
𝑩𝒓𝒂𝒏𝒅 𝒗𝒐𝒍𝒖𝒎𝒆 𝒄𝒐𝒏𝒔𝒖𝒎𝒕𝒊𝒐𝒏 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒚𝒆𝒂𝒓 (𝒍𝒊𝒕𝒆𝒓)

US Soda Brand Share, Year on year difference in % point & Market trend %
2016 2017
Soda brand Brand Share Brand Share YoY diff in % points YoY % of market trend
by volume by volume
Pepsi-Cola 14,60% 14,00% -0,60 -1,7%
Coca-Cola 30,90% 30,58% -0,32 -4,7%
Others 54,50% 55,42% 0,92 10,00%
Table N°6. Source: (own elaboration).

Conclusion: Table N°6 shows a decrease in PepsiCo’s and Coca-Cola’s brand share by volume.
This is undoubtedly a result of the decline in global soda liter consumption in the US (See
afore-listed tables and charts on volume consumption). We can note that the decrease in
shares does not necessarily have a direct influence on the market trend. Pepsi-Cola has lost
more brand shares than Coca-Cola between 2016 and 2017, but the reduction of Pepsi-Cola’s
market trend is less significant than Coca-Cola’s. Regarding the other brands, they are taking
advantage of this decline and do not seem to be directly impacted. We can presume from
Table N°6 that brands with the most significant share in the soda market are the first ones to
be affected by the soda consumption decline.

Page | 9
5-The giant Frito-Lay

Frito-Lay is a subsidiary of Pepsi-Co, specialised in the potato chips and snack market (See
chart N°1). This subsidiary generates significant revenues every year. In this section dedicated
to Frito-Lay, we will deepen our understanding of the importance of Frito-Lays for PepsiCo
and the impact of this brand in the snack market in the US.

US Frito-Lay Net revenues/sales (bill$) US PepsiCo beverage revenues/sales (bill$)

2013 14,13 2013 20,08
2014 14,50 2014 20,17
2015 14,78 2015 20,62
2016 15,55 2016 21,31
2017 15,80 2017 20,94
Table N°7 & 8. Sources: (PEPSI-CO, 2017), 2015, 2013.

𝑺𝒆𝒄𝒕𝒊𝒐𝒏 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $
𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐬𝐡𝐚𝐫𝐞 𝐛𝐲 𝐬𝐞𝐜𝐭𝐢𝐨𝐧 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $
𝑺𝒖𝒎 𝒐𝒇 𝒂𝒍𝒍 𝒚𝒆𝒂𝒓
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 =
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒚𝒆𝒂𝒓

U.S.A Pepsico Revenues by sections

(average from 2013 to 2015)

23,22%
Frito-Lay
44,77%
Pepsico beverage
32,02%
Other pepsico sections

Chart N°2. Source: (own elaboration).

Chart N°2 shows the value of the Frito-Lay sector in the total revenue of PepsiCo. In this chart,
we can gauge the importance of Frito-Lay in the PepsiCo portfolio. This subsidiary generates
23, 22% of PepsiCo’s total revenues in the US.

Page | 10
Now, we compare Frito-Lay and their competitors to give us a better notion of how the sub-
sidiary of PepsiCo is operating in the US industry of potato chips and snacks.

US Market share of Potato chips & snacks by brand in 2015

% of total chips
Brand Owner Sale (Mill$) % of entire snacks market
market
Lays Frito-lay (pepsico) 2 161,70 28,10% 4,88%
Ruffles Frito-lay (pepsico) 739,50 9,61% 1,67%
Pringles Kelloggs 701,10 9,11% 1,58%
Tostitos Frito-lay (pepsico) 643,30 8,36% 1,45%
Wavy Lays Frito-lay (pepsico) 566,10 7,36% 1,28%
Lays Kettle
Frito-lay (pepsico) 376,40 4,89% 0,85%
Cooked
Utz Utz Quality Foods 340,90 4,43% 0,77%
Cape Cod Cape Cod 235,90 3,07% 0,53%
Kettle Kettle food 188,70 2,45% 0,43%
Baked Lays Frito-lay (pepsico) 91,00 1,18% 0,21%
Rest of brands / 1 648,40 21,43% 3,72%
Total / 7 693,00 / 17,36%
Total (pepsico) / 4 578,00 59,51% 10,33%

Other snacks
Cheetos Frito-lay (pepsico) 1 459,30 / 3,29%
Doritos Frito-lay (pepsico) 1 986,80 / 4,48%
Tostitos Scoops Frito-lay (pepsico) 460,00 / 1,04%
Snyder's Of Ha-
/ 0,98%
nover Snyder's-Lance 434,50
Santitas Frito-lay (pepsico) 251,00 / 0,57%
Rold Gold Frito-lay (pepsico) 180,60 / 0,41%
Barcel Barcel USA 175,10 / 0,40%
Combos Mars 133,80 / 0,30%
Bugles General Mills 133,60 / 0,30%
Fritos Frito-lay (pepsico) 127,60 / 0,29%
Chesters Frito-lay (pepsico) 106,60 / 0,24%
others snacks / 38 854,80 / 87,70%
Total 44 303,70 / /
Total (PepsiCo) 4 140,30 9,35%
Table N°10. Sources: (BAMFORD, Vince, 2016) (www.agr.gc.ca, 2016)

US Snack market size (Mill$)

2014 2015 2016 2017
43 007,80 44 303,70 44 540,06 46 403,20
US chips market size (Mill$)
2014 2015 2016 2017
7 200,00 7 693,00 8 155,80 8 285,20
Table N°11. Source: (Grandviewresearch, 2018)

Page | 11
 𝑪𝒐𝒎𝒑𝒂𝒏𝒚 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $
𝐂𝐨𝐦𝐩𝐚𝐧𝐲 𝐌𝐚𝐫𝐤𝐞𝐭 𝐬𝐡𝐚𝐫𝐞 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒎𝒂𝒓𝒌𝒆𝒕 𝒗𝒂𝒍𝒖𝒆 $

Conclusion: As we can see from Chart N°2, Frito-Lay account for 23,22% of the total PepsiCo
revenue. Frito-Lay is an essential contributor for the financial stability of PepsiCo. Further-
more, Frito-Lay has a large number of brands operating mostly in the Potato chips market but
also the snacks market. As we can see from Table N°10, Frito-Lay is dominating the Potato-
Chips market In the USA with 59,51% of shares. Moreover, the strength of the Frito-Lay port-
folio lies in the major brand: Lays (4,88%), but also in their other snack brands (Doritos, Chee-
tos, Chester’s) which allow Frito-Lay to diversify their portfolio and reach a maximum of snack
consumers. With this diversification of snacks, Frito-Lay accounts for 9,35% of shares in the
market. Added to their essential share of the potato chips market, Frito-Lay reaches 19,68%
shares of the Total snacks market in the USA.

5-Average prices in grocery shops

Average retailer price unit can help us understand the brand product in terms of market posi-
tion (mass, classic, and premium). In this case, major US retailers have been used to conduct
this research (Walmart, Wegmans, Kroger, Target, and Harris Teeter). An average price of two
major PepsiCo products, Lays potato chips classic pack and Pepsi-Cola classic can, have been
calculated and compared to their direct competitors, Coca-Cola, Utz and Cape Cod.

𝒔𝒖𝒎 𝒐𝒇 𝒔𝒖𝒑𝒆𝒓𝒎𝒂𝒓𝒌𝒆𝒕 𝒑𝒓𝒐𝒅𝒖𝒄𝒕 𝒑𝒓𝒊𝒄𝒆 $

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐫𝐞𝐭𝐚𝐢𝐥𝐞𝐫 𝐩𝐫𝐢𝐜𝐞 𝐮𝐧𝐢𝐭 $ = ∗ 𝟏𝟎𝟎
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒔𝒖𝒑𝒆𝒎𝒂𝒓𝒌𝒆𝒕

𝑰𝒏𝒄𝒓𝒆𝒂𝒔𝒆/𝒅𝒆𝒄𝒓𝒆𝒂𝒔𝒆 $
% 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞/𝐝𝐞𝐜𝐫𝐞𝐚𝐬𝐞 = ∗ 𝟏𝟎𝟎
𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝒑𝒓𝒐𝒅𝒖𝒄𝒕 𝒑𝒓𝒊𝒄𝒆 $

Page | 12
 Average prices of Products in US grocery shops
Average
Walmart Wegmans Kroger Target Harris Teeter % change Price difference $
price
One 33cl can of Pepsi-cola $
0,61 0,50 0,45 0,30 0,62 0,50
One 33cl can of Coca-Cola $ 4,13% 0,02
0,39 0,51 0,45 0,45 0,62 0,48
Lays Original potato chips 226,8g pack $
2,48 2,50 2,69 3,19 3,49 2,37
Utz Original potato chips 226,8g pack $ -36,23% -0,86
3,00 2,79 2,99 3,09 4,29 3,23
Cape Cod Original potato chips 226,8 g pack $ -40,86% -0,97
2,88 2,99 3,79 3,29 3,79 3,35
Table N°12. Sources: (Walmart.com, 2018), (Harristeeter.com, 2018), (Wegmans.com, 2018),
(Kroger.com, 2018) (intl.target.com, 2018)

Conclusion: We can see from this analysis the contrast between these two PepsiCo sectors. In
the case of soda, we can observe a small increase of 4,13% by Pepsi-Cola compared to their
direct competitors. It shows the brand's willingness to position itself in the average market
price range, but just above (0,02$) their direct competitor. On another hand, we can observe
a decrease of -36,23% and -40,86% on Lays Original potato chips compared to a similar prod-
uct from direct competitors Utz and Cape Cod. Thus, we conclude that Lays’s selling prices to
the wholesaler/retailer are lower than their competitors’ prices. Frito-Lay is targeting the mass
market by setting such a low price. This leads us to believe that it is a strategy to maintain
their market leadership (see table N°11)

6- PepsiCo soft drink product portfolio

Over the years, PepsiCo has significantly expanded their soft drink portfolio. They now hold
more than 20 different brands. It is interesting to look at the diversity of these brands and
especially their nutritional orientations (see chart N°3).

Page | 13
 Evolution of PepsiCo soft drinks

Chart N°3. Source: (own elaboration) based on (A BRIEF HISTORY OF PEPSICO'S BEVERAGES, 2018).

In chart N°3 the PepsiCo soft drink portfolio has been divided into two categories: healthy
products and unhealthy products. These two categories allow us to observe the diversification
of PepsiCo’s portfolio over the years. We can also calculate the percentage of the evolution
from healthy to unhealthy products by using the following metric.

𝑷𝒓𝒐𝒅𝒖𝒄𝒕 𝑶𝒓𝒊𝒆𝒏𝒕𝒂𝒕𝒊𝒐𝒏
𝐏𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐨𝐫𝐞𝐧𝐭𝐚𝐭𝐢𝐨𝐧 = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒑𝒓𝒐𝒅𝒖𝒄𝒕

Page | 14
 Pepsico Soft Drink Portfolio Orientation
70% 25
23
60%
20
50% 18

40% 15 15
12
30% 10
9
20% 7
6
5
10%
50%
50%

57%
43%

56%
44%

58%
42%

60%
40%

61%
39%

70%
30%
0% 0
1994 1998 2002 2006 2010 2014 2018

Healthy Non healthy N° of product

Graph N°3. Source: (own elaboration).

Conclusion: In graph N°3 we can see PepsiCo's desire to expand their portfolio. Since 1994,
PepsiCo added 17 soft drink brands to their portfolio. Moreover, within a 24 year period, we
notice that the evolution of the brand is mainly focused on healthy products. Over the years
the company added four unhealthy oriented products compared to fourteen healthy prod-
ucts. In 1994, PepsiCo had an equal ratio of healthy to unhealthy products. The gap between
these two categories is getting wider every year. Today PepsiCo’s portfolio accounts for 30%
of unhealthy products contrasted with 70% healthy products.

7- Decrease of profit margins?

Net profit margin shows PepsiCo’s ratio of profitability. It is crucial to examine the profit of a
company, and how the company can turn their sales into profit. Gross profit margin is the ratio
of gross profit over net revenue. These metrics illustrate the company’s sales while consider-
ing the costs. Gross profit margin is also an indicator of PepsiCo’s profits and how they manage
their cost of goods sold. This metric is usually expressed as a percentage. The higher the
percentage, the better PepsiCo is managing their sales.

Page | 15
 PepsiCo Gross profit (Bill$) PepsiCo Net income (Bill$)
2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017
34,33 34,59 34,74 6,31 6,44 6,17 6,74 6,50 5,45 6,33 4,86

PepsiCo Total revenue (Bill$)

2014 2015 2016 2017
66,68 63,06 62,80 63,53 Table N°12, 13 and 14. Sources: (www.nasdaq.com, 2018).
𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 $
𝐍𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 𝐦𝐚𝐫𝐠𝐢𝐧 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $
𝑮𝒓𝒐𝒔𝒔 𝒑𝒓𝒐𝒇𝒊𝒕 $
𝐆𝐫𝐨𝐬𝐬 𝐩𝐫𝐨𝐟𝐢𝐭 𝐦𝐚𝐫𝐠𝐢𝐧 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 $

PEPISCO NET & GROSSS PROFIT MARGIN

%
Pepsico Net profit margin % Pepsico Gross profit Margin Bill$

2017 7,6% 54,7%

2016 10,1% 55,1%

2015 8,6% 54,4%

2015 2016 2017

Pepsico Net profit margin % 8,6% 10,1% 7,6%
Pepsico Gross profit Margin Bill$ 54,4% 55,1% 54,7%

Graph N°4. Source: (own elaboration).

Conclusion: In graph N°4 gross profit margins remain relatively stable from the years 2015 to
2017. We can assume that PepsiCo is managing their profits and costs well. However, in 2016,
their margins increased. Therefore we can presume that they might have negotiated a better
price with their supplier. Another explanation could be that PepsiCo increased their product
prices or sales of high margin products.

In graph N°4, the net profit margin in 2016 and 2017 appear to be interesting. Despite the
increase of PepsiCo’s revenues from 2016 to 2017 (see table N°14), the net profit margin and
gross profit margin decreased in 2017. From this analysis, we can speculate that PepsiCo had
to pay more debts, production costs or faced some difficulties turning their sales into profit
during the year 2017.

Page | 16
In chapters 8 and 9 of this analysis, the goal is to understand why PepsiCo decreased their
profit margins in 2017, while their revenues were increasing.

8- PepsiCo short-term liquidity ratios.

The quick ratio can determine the company’s abilities to meet short-term necessities using
their current assets. Quick ratio excludes PepsiCo's inventories which are considered as assets
that can potentially be transformed into profit. The ratio of this metric allows us to see how
PepsiCo can payoff short-term debts by selling all the company’s liquidity in a short period. If
the ratio is high (1 is considered an adequate ratio), it means that the company has a well-
balanced ratio and will be able to pay back their current liabilities (SU, KeYu, 2012).

The current ratio demonstrates if a company can afford eventual short-term financial con-
straint. With this metric, we can see if PepsiCo has enough capital to pay its short-term debts
or not in the 12 following months. The current ratio also shows PepsiCo’s capability to convert
goods into money. In comparison to the quick ratio, the current ratio includes inventories and
receivable. If the ratio is high, it means that PepsiCo is well prepared and have enough re-
sources to face an eventual crisis (SU, KeYu, 2012). An adequate current ratio would be at
minimum 1,35. If the ratio is lower than 1,35; it can reveal some complication to deal with
eventual constraints and restrictions.

(𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔 − 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒊𝒆𝒔) $

𝐐𝐮𝐢𝐜𝐤 𝐑𝐚𝐭𝐢𝐨 = ∗ 𝟏𝟎𝟎
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $

𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕 $
𝐂𝐮𝐫𝐞𝐧𝐭 𝐑𝐚𝐭𝐢𝐨 = ∗ 𝟏𝟎𝟎
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $

Page | 17
 PepsiCo Current Liabilities (Bill$) PepsiCo Current Assets (Bill$)
2014 2015 2016 2017 2014 2015 2016 2017
18,09 17,58 21,14 20,50 20,66 23,03 26,45 31,03

PepsiCo Inventory (Bill$)

2014 2015 2016 2017
3,14 2,72 2,72 2,95
Table N°15, 16 and 17. Sources: (www.nasdaq.com, 2018).

PepsiCo Curent ratio PepsiCo Quick ratio

2014 2015 2016 2017 2014 2015 2016 2017
1,14 1,31 1,25 1,51 0,97 1,16 1,12 1,37

Table N°18 and 19. Sources: (own elaboration)

Conclusion: In table N°19 we can see that the average quick ratio is close or superior to 1 from
the year 2014 to 2017, this means PepsiCo has sufficient assets that can be quickly sold to pay
their current liabilities. The quick ratio increased from 2014 to 2017; it is due to the rise (see
table N°16) of their current assets which allow them to have a reasonable balance between
their assets and liabilities.

In table N°18 the current ratio is under the adequate average (1,35 cited before) from the year
2014 to the year 2017. If the company is in trouble, PepsiCo would perhaps face difficulties to
refund their short-term debts. Nevertheless, PepsiCo can comfort themselves with their stable
inventories asset which allows them to have enough available funds on the assumptions of a
lousy year regarding sales and economic instability.

That is to say, global PepsiCo short terms liquidity ratios and inventories (see table N°16) re-
main relatively stable over the year and they are indeed not the reason of the decrease of
PepsiCo profit margins evocated in chapter 7.

Page | 18
9- PepsiCo debt

Long-term debt is any debts or liabilities that are due in more than one year. Long-term debt
is accounted in the liabilities section of the company’s balance sheet. The types of debt that
are usually considered as long-term are loans and leasing obligations. Long-term debt is es-
sential to determine company solvency.

PepsiCo Long-term debt (Bill$)

2010 2011 2012 2013 2014 2015 2016 2017
20,00 20,57 23,54 24,33 23,82 29,21 30,05 33,80
Table N°20. Sources: (MACROTRENDS.NET, 2018) and (www.nasdaq.com, 2018).

PepsiCo’s net worth illustrates the difference between total assets and total liabilities. It is
also known as shareholder equity. Net worth represents the amount of money that has been
initially invested in PepsiCo, along with any additional investment made thereafter. This met-
ric also shows the amount of money the company has been able to retain through their sales
over the years.
Total Assets $ – Total Liabilities $ = Net worth $

PepsiCo total assets (Bill$)

2010 2011 2012 2013 2014 2015 2016 2017
68,15 72,88 74,64 77,48 70,51 69,67 73,49 79,80
PepsiCo total Liabilities (Bill$)
2010 2011 2012 2013 2014 2015 2016 2017
46,68 51,98 52,24 53,09 52,96 57,64 62,93 68,82
Table N°21 and 22. Sources: (MACROTRENDS.NET, 2018) and (www.nasdaq.com, 2018).

PepsiCo Net Worth (Bill$)

2010 2011 2012 2013 2014 2015 2016 2017
21,59 21,02 22,52 24,52 17,69 12,18 11,35 11,14
Table N°23. Source: (MACROTRENDS.NET, 2018).

In table N°21 we can see that the shareholder equity/net worth decreased significantly over
the years. We can presume that this money has been used to payoff PepsiCo's long-term
debts.

To confirm this hypothesis, we calculate the long-term debt to total asset ratio. This metric
shows the percentage of assets financed with long-term debt. The ratio reveals the

Page | 19
company’s financial status. If the ratio is low, it means the company is performing well and
not dependent on debts. A higher ratio means PepsiCo must maintain high revenues to pay
their expenses.

𝑳𝒐𝒏𝒈 𝒕𝒆𝒓𝒎 𝒅𝒆𝒃𝒕 $

𝐋𝐨𝐧𝐠 𝐭𝐞𝐫𝐦 𝐝𝐞𝐛𝐭 𝐭𝐨 𝐭𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬 % = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔 $

PepsiCo Long-term debt to total assets Ratio %

2010 2011 2012 2013 2014 2015 2016 2017
29,35% 28,22% 31,54% 31,40% 33,78% 41,93% 40,89% 42,35%
Table N°24. Source: (own elaboration).

𝑻𝒐𝒕𝒂𝒍 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $
𝐃𝐞𝐛𝐭 𝐭𝐨 𝐞𝐪𝐮𝐢𝐭𝐲 𝐫𝐚𝐭𝐢𝐨 = ∗ 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝒏𝒆𝒕 𝒘𝒐𝒓𝒕𝒉 $

The debt to equity metric is a measure of the total net worth of PepsiCo by their total debt. It
is expressed as a ratio and allows us to evaluate the PepsiCo leverage. A high debt to equity
ratio represents a high risk for the company’s finances. In the case of 2017 (see table N°25), it
shows that PepsiCo has 6,18 dollars of debt for every dollar of net worth.

PepsiCo Debt to net worth ratio

2010 2011 2012 2013 2014 2015 2016 2017
2,16 2,47 2,32 2,17 2,99 4,73 5,54 6,18
Table N°25. Source: (own elaboration).

Page | 20
 $ 40,00 Pepsico Net Worth & Long Term Dept
Pepsico Long term dept Bill$ Pepsico Net worth Bill$
$ 35,00

$ 30,00
Billion dollar

$ 25,00

$ 20,00

$ 15,00

$ 10,00
Years
$ 5,00

$-
2010 2011 2012 2013 2014 2015 2016 2017

Graph N°5. Source: (own elaboration).

Conclusion: In table N°24 we can distinctly see that the ratio has significantly increased from
the year 2010 to 2015. This is is due to the long-term debt of PepsiCo, which grew every year.
This debt could explain why PepsiCo had stable revenues and improved their ability to meet
short-term necessities (see table 18 and 19) but is always caught up by their long-term debt
which is growing every year. The long-term debt could potentially be the cause of the decrease
in net profit margin expressed in chapter 7.

Table N°25 confirms our hypothesis. PepsiCo is financed mostly by debt instead of available
resources. It is not a sign of good financial balance. In Graph N°5 we can notice that the gap
between long-term debt and net worth is increasing every year. PepsiCo will probably be in
trouble if obliged to repay their long-term obligation.

Page | 21
10- Conclusion

Picture N°1. Source: (WUERKER, Matt , 2014)

The US has always been associ-

ated with media expressing cli-
ches of high sugary drink con-
sumption (see picture N°1), due
to their high obesity ratio com-
pared to the rest of the world
(MCCARTHY, Niall , 2017). How-
ever, in the 1990s the US
government decided to fix their
obesity problems by setting up a
program to reduce their obesity
ratio (SWINBURN, Boyd, 2008). The program included a prevention advertising campaign on
TV, more physical activities in schools and new regulations. Some states adopted a tax on sug-
ary drinks. Prices of soda rose from 0,05$ to 0,30$ per liter (TAXING SUGARY DRINKS, 2018).
Elena Holodny writes “the decrease of soda consumption begin in the late 1990s and signifi-
cantly decreased with the awareness of the USA obesity crisis in the late 2000’s” (HOLODNY,
Elena, 2016).

Even though the obesity ratio is still high in the US, we can perceive the direct impact of this
program in graph N°2. Americans are consuming less soda and more bottled water than ever
before in history. PepsiCo anticipated this post-millennial change in the 90s and adapted their
portfolio to their customers (see chart N°3) by buying more health-oriented brands (coconut
water, bottled water, natural iced tea). This anticipation allowed PepsiCo to maintain high

Page | 22
revenues on their major operating sectors(beverage) accounting for 32,02% of PepsiCo reve-
nues (see chart N°2).

On the other hand, the snack industry (See table N°11) doesn’t seem to be affected by these
changes. The market is growing, and Frito-Lay is taking advantage of it (table N°10) with their
domination in market shares. By positioning themselves under the average market prices (See
table N°12) in the potato chips and other snack market, Frito-Lay can ensure the financial sus-
tainability of PepsiCo, accounting for 23,22% of total company sales(see chart N°2).

In chapter N°8 and 9, the short and long-term debts of PepsiCo has been analysed. PepsiCo
short-term debts are stable, and the company could be able to refund their short-term obli-
gations within a year if needed. That being said, PepsiCo is (see table N°24) using credits to
keep the company working, which results in an increase of long-term debt over the years (see
table N°20). This means PepsiCo is expanding their financial risk as debt must be paid even if
sales decline.

All things considered, PepsiCo owns many well-known brands, and their portfolio operates in
different sectors (chart N°1) of the packaged food and beverage market. PepsiCo has a broad
portfolio of multi-billion dollar brands which allows them to reduce their risks and ensure
profitability every year.

Page | 23
11- Recommendations

 PepsiCo should focus their investments on promoting the sales of their bottled water
brands (Aquafina, Lifewtr, Bubbly) to gain a maximum of shares in the emerging mar-
ket of bottled water (see table N°4).

 As cited in chapter 10, the new generations want healthier products. In other words,
PepsiCo should try to surf on the healthy product trend to launch or acquire non-snack
brands in the packaged food market such as quinoa, hummus, coconut oil, or vegan
products.

 PepsiCo should reproduce what they have successfully achieved with their soft drink
portfolio along with Frito-Lay (see chart N°3). They should acquire or launch new snack
brands that are different from chips and crackers. This would help PepsiCo gain market
share in the snack market ( 9,35% in 2015). For example, dried fruits, popcorn or salty
seeds/nuts would be a good investment. This would be a way to diversify the snack
portfolio of Frito-Lay. Additionally, PepsiCo could launch a new kind of healthier chips
made from fried vegetables such as beets, carrots or sweet potato.

 PepsiCo should always be aware of any new political, social and legal changes in the
US beverage and packaged food industry. This would better prepare them for possible
innovations. For example, the sugary drink tax evocated in chapter 10 and the soda &
bottled water crossroad evocated in chapter 3.

 PepsiCo should increase their assets and avoid financing their needs by borrowing
money (see table N°24). Instead, they could buy their products at a better price or
reduce their production costs to sell with more profit margin. This would decrease
their debt ratios.

Page | 24
List of abbreviations:
US: United States of America
YoY: Year on Year
Bill: Billion
Mill: Million
Diff: Difference

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