On the Street -- Pepsi in Peru
April 24/BMI Western Europe Food and Drinks Insights -- Soft drink and snack food giant PepsiCo has announced the acquisition of Peru-based snack producer Karinto and its manufacturing partner Bocaditos Nacionales. The Peruvian businesses were founded together in the capital of Lima in 1968 and market Los Cuates corn chips, Fripapas potato crisps and other snacks such as seeds, raisins, mixed nuts. The acquisition includes two manufacturing plants in Lima, and PepsiCo has suggested the associated brands are a "perfect complement" to its portfolio in the region. PepsiCo has recently made a number of acquisitions in emerging markets but is still much more highly reliant on the mature domestic U.S. market than its chief rival, The Coca Cola Company.
Coca-Cola generates around 70% of its total sales outside of North America, whereas for Pepsi the figure is less than 50%. This gives Coca-Cola a cushion when the U.S. market is underperforming and also means that Coca-Cola has benefited more from the weakening of the U.S. dollar. Over the last 12 months, Coca-Cola's profits have remained steady, while PepsiCo has been forced to announce a profit warning and begin a period of restructuring. The answer would seem to be more expansion in emerging markets. However, in the soft drinks sector, PepsiCo is playing catch-up with Coca-Cola in the majority of global markets. It can, therefore, be suggested that Pepsi's future emerging market growth should be focused on the area of snacks, rather than from soft drinks.
In 2009, PepsiCo's snack division recorded strong growth in most regions, and this has continued in 2009, despite the global economic downturn. In the first quarter of 2009, revenues at PepsiCo's Latin America Foods (LAF) division grew by 11%, while its Asia/Middle East/Africa (AMEA) division grew snack volumes by 8%. This was driven by high single-digit growth in India and China, as well as low double-digit growth in emerging markets, including the Middle East.
These figures support a move to focus international expansion in the areas of snacks, as part of a wider strategy to replicate Coca-Cola's international success in the soft drink business, so that Pepsi effectively becomes the "Coke of snacks." As the largest global player in the sector, PepsiCo has an advantage in this area that it is never likely to achieve in the soft drinks sector. While the drinks business is likely to continue to be an important part of the business, the snacks business should gradually gain in importance and eventually usurp the drinks business to eventually become the firm's most important driver of sales.
From the April 27, 2009, Prepared Foods E-dition