CONTENTS

  CONTENTS  II

1.  Introduction  1

1.1  PepsiCo invests in Europe  1

1.2  Goals and Approach of This Study  1

2.  The Boundary of the Market of PepsiCo  1

2.1  The Company PepsiCo  1

2.1.1  Overview  1

2.1.2  The Subsidiaries and its Products  2

2.2  Different Views of the Market of PepsiCo  3

2.2.1  Local View of the Market  3

2.2.2  Global View of the Market  3

2.3  Competitors  4

2.3.1  Coca-Cola Company  4

2.3.2  Nestlé  4

2.3.3  Cadbury Schweppes  5

2.3.4  Altria Group  5

2.3.5  Others  5

3.  Structure of the Market of PepsiCo  6

3.1  Measurement of the Market Structure  6

3.2  Non-alcoholic Beverage Sector  6

3.3  Convenient Food Sector  8

3.4  Local View of the Non-alcoholic Beverage Sector using Official Market Definition  8

4.  Conclusion  9

APPENDIX III   

  REFERENCES  V

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1. Introduction

1.1 PepsiCo invests in Europe

PepsiCo, one of the world’s largest beverage and food companies, is presently focused on widen its business in Europe through the subsidiary PepsiCo International. In 2004, international sales accounted for $ 9,949 million - that is about one third of its group revenues. ¹ Recently, the company has negotiated and realized several acquisitions in Europe. In May 2005, PepsiCo bought the leading German juice maker Punica Getraenke. ² In November 2005, it has reached agreement on the principal terms and conditions for the purchase of Sara Lee Corporation’s European nuts business in the Netherlands, Belgium and France. ³ With these investments, PepsiCo is driving an international expansion strategy. It aims growth outside the United States (U.S.) by adding local products to their global brands, until its traditional carbonated soft drink portfolio suffers from slower growth, and even some decline. ⁴ Using this situation as a background, it is interesting to analyze the market of PepsiCo. Who are the global competitors? What structure has the market, as the firm is seeking for growth?

1.2 Goals and Approach of This Study

The goals of this research are to deduct the market of PepsiCo and to measure its structure by using significant ratios.

First, PepsiCo will be briefly described and the contrast of a global and local view of the market will be compared. Afterwards the competitors of the firm will be named. The market will be split into the non-alcoholic beverage sector and the convenient food sector. Finally, the structure of these sectors will be measured by the concentration ratio and Hirschmann-Herfindahl-Index.

2. The Boundary of the Market of PepsiCo

2.1 The Company PepsiCo

2.1.1 Overview

The company PepsiCo was borne in 1965, when the Pepsi-Cola Company acquired the snack food company Frito-Lay. In the nineties it started to expand its overseas operations. PepsiCo

¹ Clark (European takeover targets), p. 31.

² Mercer (Europe’s juice sector), p. 1.

³ PepsiCo International (Sara Lee Nuts Business), p. 1.

⁴ Mercer (Europe’s juice sector), p. 1.

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announced its IPO in 1999 - after it bought Tropicana juices from Seagram in 1998. Its purchase of the Quaker Oats Company in 2001 added the dominant Gatorade sports drink to its lineup. 5

Within the next years, PepsiCo found opportunities for growth overseas. In 2005, the company bought General Mills’s stake of the largest European snack food firm Snack Ventures Europe. ⁶ In addition, PepsiCo acquired the German juice maker Punica Getraenke. 7

Today, PepsiCo operates through its four subsidiaries PepsiCo Beverages North America (PBNA), PepsiCo International (PI), Quaker Foods North America (QFNA) and Frito-Lay North America (FLNA) in nearly 200 countries. With 153,000 employees, the company had total net revenue 2004 of $ 29,261 million. ⁸ In 2004, PepsiCo was ranked at place 62 of the Fortune 500 Ranking of the largest companies in the United States. 9

2.1.2 The Subsidiaries and its Products

PBNA operates in North America and generated 28% of the firm’s revenue in 2004. ¹⁰ It owns the

traditional brand Pepsi as a part of a portfolio of beverage brands that includes carbonated soft drinks, juices, tea and coffee drinks, isotonic sports drinks as well as bottled water. 11

PI sells its product outside North America. In 2004 it had 34% of the firm’s net revenue. Additional to the brands marketed in the U.S., PI brands includes many local brands. It also markets PepsiCo’s snack food products. 12

FLNA offers PepsiCo’s snack food in North America. It covers 33% of PepsiCo’s net revenue. Major Frito-Lay products include chips, nuts and crackers. 13

The youngest division QFNA has 5 % of the revenue. ¹⁴ It mainly sells cereals, rice and pasta. 15

⁵ Hoover’s (Online Report PepsiCo), p. 23.

⁶ PepsiCo (SVE Transaction), p. 1.

⁷ Mercer (Europe’s juice sector), p. 1.

⁸ PepsiCo (Overview), p. 1.

⁹ Fortune (Fortune 500 Ranking), p. 3.

¹⁰ PepsiCo (Annual Report 2004), p. 1.

¹¹ PepsiCo (Overview), p. 1.

¹² PepsiCo (Annual Report 2004), p. 1 - 14.

¹³ PepsiCo (Annual Report 2004), p. 1 - 13.

¹⁴ This division will not be covered by the research, as it just generates a small part of the revenue of PepsiCo.

¹⁵ PepsiCo (Annual Report 2004), p. 1 - 16.

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2.2 Different Views of the Market of PepsiCo

2.2.1 Local View of the Market

PepsiCo has hundreds of brands in different industries all over the world. ¹⁶ (Local) competitors differ by region and industries. For example, PepsiCo competes with the firm Poore Brothers in the domestic U.S. snack food market, but not in Latin America, Asia, Europe or Africa nor in the beverage industry, as this firm only sells products like chips and cookies in North America. ¹⁷ The local view of the market of PepsiCo deals with this fact. Bounding the market by the region North America - with the argument that it is its primary market with 66% of the total revenuethe market can be circumscribed precisely, including all international and local competitors. 18

2.2.2 Global View of the Market

Taking a global view of the market of PepsiCo, the firm’s competition focuses the international acting beverage and food companies. This has the advantage, that all regions are captured. My further research will base on this view of the market and will define its boundary. Since 2004, PI is the largest division of PepsiCo with a rate of 34% of total revenue. ¹⁹ The CEO of PepsiCo Mike White sees a lot of growth opportunities in Europe. ²⁰ With broad product portfolios and large capital stock, international firms have large influence on their industries. Local competitors often are acquired by international firms, e.g. the German juice maker Punica Getraenke by PepsiCo. ²¹ A few smaller companies try to complement rather than to compete with the large firms. ²² Thus, in the case of PepsiCo it is better to prefer a global view of the market. The following figure shows the global competitors of PepsiCo, dividing its market into the nonalcoholic beverage sector - which covers all beverage products - and convenient food sectorwhich covers all snack foods and substitutes as chocolate or candies (confectionary food):

¹⁶ PepsiCo (Brands), p. 1.

¹⁷ Poore Brothers (Investor Relations), p. 1.

¹⁸ PepsiCo (Annual Report 2004), p. 1.

¹⁹ PepsiCo (Annual Report 2004), p. 14.

²⁰ Clark (European takeover targets), p. 31.

²¹ Mercer (Europe’s juice sector), p. 1.

²² Poore Brothers (Investor Relations), p. 1.

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