Pepsi Vies For Attention in Emerging Markets

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In the last few months of 2012, PepsiCo’s drive toward emerging markets gained momentum making it more of a competitor with Coca Cola, an already established contender in the developing world’s beverage market. Trefis, a stock analysis services, expects PepsiCo’s vying for sales to result in organic sales growth after its quarter 4 results are released.

A strong foothold in emerging markets should help PepsiCo offset the decline in beverage sales in the U.S. over the course of 2012. Sales volumes of soda in the U.S. dropped 1.8% over the course of 2012. Widespread obesity concerns have decreased soda consumption in the U.S. and Europe, which has led PepsiCo and Coke to list calorie information on vending machines and to increase output of their healthy-product lines.

The health craze in the developed world is hitting all of the main competitors in the soda market hard, and is drastically raising the competition. Dr. Pepper Snapple and Coca Cola are edging Pepsi Cola out of the market, and PepsiCo is searching for a comeback in the fast-growing markets of Asia, Africa and the Middle East.

But PepsiCo can’t seem to outsell its age-old competitor Coca Cola, which is already dominating the emerging markets. Coca-Cola’s performance has been strong due to its high sales in emerging markets and improvement in the company’s operating margin. Coca Cola’s quarter 4 in 2012 was $11.5 billion, a 4% increase from quarter 4 in 2011.

PepsiCo’s stats will be released at some point during the week of February 11th. Yahoo! Finance estimates that PepsiCo’s quarter 4 2012 revenue will be $19.7 billion, a 0.9% increase from a year ago. If correct, Coca Cola’s 2012 stats illustrate a significantly higher profit increase than Pepsi Co’s.

Several factors hurt PepsiCo’s profit margins including expensive operational changes like their new patnership with Tingyi, a Chinese beverage company and their exit from Mexican bottling operations. Advertising expenditures also skyrocketed with PepsiCo’s ‘Live For Now’ campaign and sponsorship of the Superbowl halftime show.

PepsiCo did its best to bounce back with its attempts to gain favor in the emerging markets of China and India in its third quarter. New research and development facilities, which create products with regard to regional tastes, were built. PepsiCo also tried to gain popularity through its sponsorship of several major sporting events, and hopes to maximize its operations in China with the help of Tingyi.

Western soda consumers desiring more attention from their beverage companies should move to the emerging markets of the developing world, and watch PepsiCo and CocaCola compete with each other in their attempts to serve you their fizzy beverage first.

– Kasey Beduhn

Source: NASDAQ, Trefis, Insider Monkey
Photo: WSJ

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