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PepsiCo’s Diversification Strategy in 2018: Will the Company’ s New Businesses Restore Its Growth?

John E. Gamble Texas A&M University–Corpus Christi

PepsiCo was the world’s largest snack and bever-age company, with 2017 net revenues of approxi-mately $63.5 billion. The company’s portfolio of businesses in 2018 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft-drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, Bubly, Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complemen- tary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, Stacy’s pita chips and Sabra hummus might make a nice snack, and Doritos and a Mountain Dew might be part of someone’s lunch. In 2018, PepsiCo’s busi- ness lineup included 22 $1 billion global brands.

The company’s top managers were focused on sustaining the impressive performance through strat- egies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. Newly introduced prod- ucts such as Bubly sparkling water, Mountain Dew Ice, Doritos Blaze tortilla chips, Sweet Potato Sun Chips, LIFEWTR functional waters, Lemon Lemon sparkling lemonade, and the 1893 premium line of flavored colas accounted for 15 to 20 percent of all new growth in recent years. New product innovations that addressed consumer health and wellness con- cerns were important contributors to the company’s growth, with PepsiCo’s better-for-you and good-for- you products becoming focal points in the company’s new product development initiatives.

In addition to focusing on strategies designed to deliver revenue and earnings growth, the company maintained an aggressive share repurchase and divi- dend policy, with a planned $7 billion returned to shareholders in 2018 through share repurchases of $2 billion and dividends of approximately $5 billion. The company bolstered its cash returns through care- fully considered capital expenditures and acquisitions and a focus on operational excellence. Its Performance with Purpose plan utilized investments in manufactur- ing automation, a rationalized global manufacturing plan, and reengineered distribution systems to drive efficiency. In addition, the company’s Performance with Purpose plan was focused on minimizing the company’s impact on the environment by lowering energy and water consumption and reducing its use of packaging material, providing a safe and inclusive workplace for employees, and supporting and invest- ing in the local communities in which it operated. For example, PepsiCo had expanded access to safe water to nearly 16 million people in water-stressed parts of the world between 2006 and 2018. In addition, Performance with Purpose planned to reduce average sugars, saturated fat, and sodium in its food and bever- age portfolio each year through 2025 and saved more than $600 million in operating expenses by 2016.

Even though the company had recorded a number of impressive achievements over the past decade, its growth had slowed since 2011. In fact, the spikes in the company’s revenue growth since 2000 had resulted from major acquisitions such as


Copyright ©2018 by John E. Gamble. All rights reserved.

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the $13.6 billion acquisition of Quaker Oats in 2001, the 2010 acquisition of the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion, and the acquisition of Russia’s lead- ing food-and-beverage company, Wimm-Bill-Dann (WBD) Foods for $3.8 billion in 2011. Since 2011, the company had favored targeted “tuck-in” acquisi- tions of leading brands in popular new healthy food categories. Nevertheless, PepsiCo’s revenues contin- ued to decline as annual consumption of carbonated soft drinks fell each year and its international busi- ness units struggled. A summary of PepsiCo’s finan- cial performance between 2013 and 2017 is shown in Exhibit 1. Exhibit 2 tracks PepsiCo’s market perfor- mance between 2013 and June 2018.

COMPANY HISTORY PepsiCo, Inc., was established in 1965 when Pepsi- Cola and Frito-Lay shareholders agreed to a merger between the salty-snack icon and soft-drink giant. The new company was founded with annual revenues of $510 million and such well-known brands as Pepsi- Cola, Mountain Dew, Fritos, Lay’s, Cheetos, Ruffles, and Rold Gold. PepsiCo’s roots can be traced to 1898 when New Bern, North Carolina, pharmacist Caleb Bradham created the formula for a carbonated

beverage he named Pepsi-Cola. The company’s salty- snack business began in 1932 when Elmer Doolin, of San Antonio, Texas, began manufacturing and market- ing Fritos corn chips and Herman Lay started a potato chip distribution business in Nashville, Tennessee. In 1961, Doolin and Lay agreed to a merger between their businesses to establish the Frito-Lay Company.

During PepsiCo’s first five years as a snack and beverage company, it introduced new products such as Doritos and Funyuns, entered markets in Japan and eastern Europe, and opened, on average, one new snack-food plant per year. By 1971, PepsiCo had more than doubled its revenues to reach $1 billion. The company began to pursue growth through acqui- sitions outside snacks and beverages as early as 1968, but its 1977 acquisition of Pizza Hut significantly shaped the strategic direction of PepsiCo for the next 20 years. The acquisitions of Taco Bell in 1978 and Kentucky Fried Chicken in 1986 created a business portfolio described by Wayne Calloway (PepsiCo’s CEO between 1986 and 1996) as a balanced three- legged stool. Calloway believed the combination of snack foods, soft drinks, and fast food offered consid- erable cost sharing and skill transfer opportunities, and he routinely shifted managers among the com- pany’s three divisions as part of the company’s man- agement development efforts.

EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2013–2017 (in millions, except per share amounts)

2017 2016 2015 2014 2013

Net revenue $ 63,525 $ 62,799 $ 63,056 $ 66,683 $ 66,415

Operating profit 10,509 9,785 8,353 9,581 9,705

Provision for income taxes 4,694 2,174 1,941 2,199 2,104

Net income attributable to PepsiCo 4,857 6,329 5,452 6,513 6,740

Net income attributable to PepsiCo per common share - basic

$3.40 $4.39 $3.71 $4.31 $4.37

Net income attributable to PepsiCo per common share - diluted

$3.38 $4.36 $3.67 $4.27 $4.32

Cash dividends declared per common share $3.17 $2.96 $2.76 $2.53 $2.24

Total assets 79,804 73,490 68,976 69,634 76,762

Long-term debt 33,796 30,053 29,213 23,821 24,333

Source: PepsiCo 2017 10-K.

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CASe 23 PepsiCo’s Diversification Strategy in 2018: Will the Company’ s New Businesses Restore Its Growth? C-267

By 1996 it had become clear to PepsiCo manage- ment that the potential strategic-fit benefits existing between restaurants and PepsiCo’s core beverage and snack businesses were difficult to capture. In addi- tion, any synergistic benefits achieved were more than offset by the fast-food industry’s fierce price competition and low profit margins. In 1997, CEO Roger Enrico spun off the company’s restaurants as an independent, publicly traded company to focus PepsiCo on food and beverages. Soon after the spin- off of PepsiCo’s fast-food restaurants was completed, Enrico acquired Cracker Jack, Tropicana, Smith’s Snackfood Company in Australia, SoBe teas and alternative beverages, Tasali Snack Foods (the leader in the Saudi Arabian salty-snack market), and the Quaker Oats Company.

PepsiCo strengthened its portfolio of snack foods and beverages during the 1980s and 1990s with the acquisitions of Mug Root Beer, 7-Up International, Smartfood ready-to-eat popcorn, Walker’s Crisps (United Kingdom), Smith’s Crisps (United Kingdom), Mexican cookie company Gamesa, and Sunchips. Calloway added quick- service restaurants Hot-n-Now in 1990; California Pizza Kitchens in 1992; and East Side Mario’s, D’Angelo Sandwich Shops, and Chevy’s Mexican Restaurants in 1993. The company expanded beyond carbonated bever- ages through a 1992 agreement with Ocean Spray to distribute single-serving juices, the introduction of Lipton ready-to-drink (RTD) teas in 1993, and the introduction of Aquafina bottled water and Frappuccino ready-to-drink coffees in 1994.

EXHIBIT 2 Monthly Performance of PepsiCo, Inc.’s Stock Price, June 2013– June 2018


(a) Trend in PepsiCo, Inc.’s Common Stock Price

Year ˜°˛˙ ˜°˛ˆ ˜°˛ˇ ˜°˛˘

St oc

k pr

ic e

ˇ˙ ˘° ˘˙ 90 95

˛°° ˛°˙ ˛˛° ˛˛˙ ˛˜° $˛˜˙

(b) Performance of PepsiCo, Inc.’s Stock Price versus the S&P ˙°° Index

Year ˜°˛˝ ˜°˛˙ ˜°˛ˆ ˜°˛ˇ ˜°˛˘

Pe rc

en t c

ha ng

e (J

ul y

2 0

1 3

= °


+˘°% +ˇ°% +ˆ°% +˙°% +˝°% +30%

+˜°% +˛°% +°% -˛°%

PepsiCo’s Stock Price

S&P ˙° °

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Russian beverage producer Lebedyansky in 2008 for $1.8 billion, and in 2010 it acquired Marbo, a potato chip production operation in Serbia.

In 2010 and 2011, the company executed its larg- est acquisitions since the 2001 acquisition of Quaker Oats. In 2010, PepsiCo acquired the previously inde- pendent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion in cash and PepsiCo common shares. The acquisition was designed to better inte- grate its global distribution system for its beverage business. In 2011, it acquired Russia’s leading food and beverage company, Wimm-Bill-Dann Foods, for $3.8 billion. The combination of acquisitions and the strength of PepsiCo’s core snacks and beverages business allowed the company’s revenues to increase from approximately $29 billion in 2004 to more than $66 billion in 2013.

PepsiCo made small “tuck-in” acquisitions total- ing less than $500 million annually after its acqui- sition of Wimm-Bill-Dann Foods. The company’s $200 million acquisition of sparkling probiotic bever- age brand, Kevita, in 2016 and its 2018 acquisition of Bare Foods for an undisclosed amount were its most noteworthy acquisitions made after 2010. Both acqui- sitions were intended to expand its lineup of lower cal- orie and lower sodium “Guilt-Free Products.” Global sales of health foods were estimated at $1 trillion in 2017. The sales of Better for You (BFY) and Good for You (GFY) brands accounted for approximately 50 percent of PepsiCo’s annual sales in that year. Exhibit 3 presents PepsiCo’s consolidated statements of income for 2015 to 2017, while the company’s balance sheets for 2016 and 2017 are presented in Exhibit 4. The company’s calculation of free cash flow for 2015 through 2017 is shown in Exhibit 5.

PePSICO’S BUSINeSS UNIT PeRFORMANCe PepsiCo’s corporate strategy had diversified the com- pany into salty and sweet snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and coffees, purified and functional waters, isotonic beverages, hot and ready-to-eat breakfast cereals, grain-based products, and breakfast condiments. Most PepsiCo brands had achieved number-one or number-two posi- tions in their respective food and beverage categories through strategies keyed to product innovation, close relationships with distribution allies, international

PepsiCo’s Better for You and Good for You Acquisitions PepsiCo’s $13.9 billion acquisition of Quaker Oats in 2001 was the company’s largest ever acquisition and gave it the number-one brand of oatmeal in the United States, with more than a 60 percent category share; the leading brand of rice cakes and granola snack bars; and other well-known grocery brands such as Cap’n Crunch, Rice-A-Roni, and Aunt Jemima. However, Quaker’s most valuable asset in its arsenal of brands was Gatorade.

Gatorade was developed by University of Florida researchers in 1965, but it was not marketed commercially until the formula was sold to Stokley- Van Camp in 1967. When Quaker Oats acquired the brand from Stokely-Van Camp in 1983, Gatorade gradually made a transformation from a regionally distributed product with annual sales of $90 million to a $2 billion powerhouse. Gatorade was able to increase sales by more than 10 percent annually dur- ing the 1990s, with no new entrant to the sports bev- erage category posing a serious threat to the brand’s dominance. PepsiCo, Coca-Cola, France’s Danone Group, and Swiss food giant Nestlé all were attracted to Gatorade because of its commanding market share and because of the expected growth in the isotonic sports beverage category.

PepsiCo’s Focus on “Tuck-In” Acquisitions (2002 to 2018) After the completion of the Quaker Oats acquisition in 2001, the company focused on integration of Quaker Oats’ food, snack, and beverage brands into the PepsiCo portfolio. The company made a number of “tuck-in” acquisitions of small, fast-growing food and beverage companies in the United States and inter- nationally to broaden its portfolio of brands. Tuck-in acquisitions in 2006 included Stacey’s bagel and pita chips, Izze carbonated beverages, Netherlands-based Duyvis nuts, and Star Foods (Poland). Acquisitions made during 2007 included Naked Juice fruit bever- ages, Sandora juices in the Ukraine, New Zealand’s Bluebird snacks, Penelopa nuts and seeds in Bulgaria, and Brazilian snack producer Lucky. The company also entered into a joint venture with the Strauss Group in 2007 to market Sabra—the top-selling and fastest-growing brand of hummus in the United States and Canada. The company acquired the

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EXHIBIT 4 PepsiCo, Inc.’s Consolidated Balance Sheets, 2016–2017 (in millions, except per share data)

2017 2016


Current Assets

Cash and cash equivalents $ 10,610 $ 9,158

Short-term investments 8,900 6,967

Accounts and notes receivable, net 7,024 6,694

Inventories 2,947 2,723

EXHIBIT 3 PepsiCo, Inc.’s Consolidated Statements of Income, 2015–2017 (in millions, except per share data)

2017 2016 2015

Net Revenue $ 63,525 $ 62,799 $ 63,056

Cost of sales 28,785 28,209 28,731

Gross profit 34,740 34,590 34,325

Selling, general and administrative expenses 24,231 24,805 24,613

Venezuela impairment charges — — 1,359

Operating Profit 10,509 9,785 8,353

Interest expense (1,151) (1,342) (970)

Interest income and other 244 110 59

Income before income taxes 9,602 8,553 7,442

Provision for income taxes 4,694 2,174 1,941

Net income 4,908 6,379 5,501

Less: Net income attributable to noncontrolling interests 51 50 49

Net Income Attributable to PepsiCo $ 4,857 $ 6,329 $ 5,452

Net Income Attributable to PepsiCo per common share

Basic $3.40 $4.39 $3.71

Diluted $3.38 $4.36 $3.67

Weighted-average common shares outstanding

Basic 1,425 1,439 1,469

Diluted 1,438 1,452 1,485

Cash dividends declared per common share $3.17 $2.96 $2.76

Source: PepsiCo, Inc. 2017 10-K.


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2017 2016

Prepaid expenses and other current assets 1,546 908

Total Current Assets 31,027 26,450

Property, Plant and Equipment, net 17,240 16,591

Amortizable Intangible Assets, net 1,268 1,237

Goodwill 14,744 14,430

Other nonamortizable intangible assets 12,570 12,196

Nonamortizable Intangible Assets 27,314 26,626

Investments in Noncontrolled Affiliates 2,042 1,950

Other Assets 913 636

Total Assets $ 79,804 $ 73,490


Current Liabilities

Short-term debt obligations $ 5,485 $ 6,892

Accounts payable and other current liabilities 15,017 14,243

Total Current Liabilities 20,502 21,135

Long-Term Debt Obligations 33,796 30,053

Other Liabilities 11,283 6,669

Deferred Income Taxes 3,242 4,434

Total Liabilities 68,823 62,291

Commitments and contingencies

Preferred Stock, no par value 41 41

Repurchased Preferred Stock (197) (192)

PepsiCo Common Shareholders’ Equity

Common stock, par value 1 2/3 cents per share (authorized 3,600 shares, issued, net of repurchased common stock at par value: 1,420 and 1,428

shares, respectively)

24 24

Capital in excess of par value 3,996 4,091

Retained earnings 52,839 52,518

Accumulated other comprehensive loss (13,057) (13,919)

Repurchased common stock, in excess of par value (446 and 438 shares, respectively)

(32,757) (31,468)

Total PepsiCo Common Shareholders Equity 11,045 11,246

Noncontrolling interests 92 104

Total Equity 10,981 11,199

Total Liabilities and Equity $ 79,804 $ 73,490

Source: PepsiCo, Inc. 2017 10-K.

EXHIBIT 4 (Continued)

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Frito-Lay North America As of 2018, key trends that were shaping the indus- try were a growing awareness of the nutritional con- tent of snack foods and product innovation. Most manufacturers had developed new flavors of salty snacks such as nacho cheese tortilla chips and sea salt and vinegar potato chips to attract the interest of snackers. PepsiCo continued to innovate to increase its share of snack foods with new varieties of chips like Lay’s Poppables, Simply Organic Doritos, and Himalayan Pink Salt Red Rock Deli chips.

In 2018, Frito-Lay owned the top-selling chip brand in each U.S. salty-snack category and held more than a 2-to-1 lead over the next-largest snack- food maker in the United States. Frito-Lay’s market share of convenience foods sold in the United States was more than five times greater than runner-up Kellogg’s market share. Convenience foods included both salty and sweet snacks such as chips, pretzels, ready-to-eat popcorn, crackers, dips, snack nuts and seeds, candy bars, and cookies.

Innovations were also directed at making increas- ing the percentage of sales of BFY and GFY products. By 2025, Frito Lay North America (FLNA) expected that 75 percent of its global foods portfolio volume would not exceed 1.3 milligrams of sodium per calo- ries and 1.1 grams of saturated fat per 100 calories. Good-for-you (GFY) snacks, such as Bare Foods baked fruit and vegetable snacks acquired in 2018, offered an opportunity for the company to exploit consumers’ desires for healthier snacks and address a deficiency in most diets. Americans, on average, con- sumed only about 50 percent of the U.S. Department of Agriculture’s recommended daily diet of fruits and vegetables. Other GFY snacks included Stacy’s Pita

expansion, and strategic acquisitions. The company was committed to producing the highest-quality products in each category and was working diligently on product reformulations to make snack foods and beverages less unhealthy. The company believed that its efforts to develop good-for-you and better-for-you products would create growth opportunities from the intersection of business and public interests.

PepsiCo was organized into six business divi- sions, which all followed the corporation’s general strategic approach. Frito-Lay North America manu- factured, marketed, and distributed such snack foods as Lay’s potato chips, Doritos tortilla chips, Cheetos cheese snacks, Fritos corn chips, Grandma’s cook- ies, and Smartfood popcorn. Quaker Foods North America manufactured and marketed cereals, rice and pasta dishes, granola bars, and other food items that were sold in supermarkets. North America Beverages manufactured, marketed, and sold beverage concen- trates, fountain syrups, and finished goods under such brands as Pepsi, Gatorade, Aquafina, Tropicana, Lipton, Dole, and Propel throughout North America. Latin America manufactured, marketed, and distrib- uted snack foods and many Quaker-branded cereals and snacks in Latin America. The division also pro- duced, marketed, distributed and sold PepsiCo bev- erage brands in Latin America. Europe Sub-Saharan Africa manufactured, marketed, and sold snacks and beverages throughout Europe and the lower portion of the African continent, while the company’s Asia, Middle East, and North Africa division produced, marketed, and distributed snack brands and bever- ages in more than 150 countries in those regions. A listing of PepsiCo’s leading brands is presented in Exhibit 6. Select financial information for PepsiCo’s six reporting units is presented in Exhibit 7.

EXHIBIT 5 Net Cash Provided by PepsiCo’s Operating Activities, 2015–2017

2017 2016 2015

Net cash provided by operating activities $ 9,994 $ 10,673 $ 10,864

Capital spending (2,969) (3,040) (2,758)

Sales of property, plant, and equipment 180 99 86

Free cash flow $ 7,205 $ 7,732 $ 8,192

Source: PepsiCo, Inc. 2017 10-K.

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EXHIBIT 6 PepsiCo, Inc.’s Leading Brands by Category, 2018

Top Global Brands Good for You Brands Better for You Brands Fun for You Brands

• Pepsi • Lays • Mountain Dew • Gatorade • Tropicana • Diet Pepsi • 7-Up • Doritos • Quaker Oats • Cheetos • Mirinda • Lipton • Ruffles • Tostitos • Aquafina • Pepsi MAX • Brisk • Mist TWST • Fritos • Diet Mountain Dew • Starbucks Ready-to-

Drink Beverages • Walkers Chips

• Bubly Sparkling Water • Quaker Oats • KeVita Probiotic

Beverages • Aquafina • Tropicana • Naked Juice • Sun Bites Whole Grain

Snacks • Sabra Hummus • Gatorade • LIFEWTR

• Lemon Lemon Sparkling Lemonade

• Stacy’s Chips • Alvalle Fruit Juices • H2OH! • Smartfood Snacks • Lay’s Baked • Grain Waves • Propel • Pure Leaf • Duyvis Oven Roasted

Snacks • Pepsi Zero Sugar

• Fritos • Lay’s • Starbucks Ready-to-

Drink Beverages • Mountain Dew • Cheetos • Yedigun Soft Drinks • Sabritas Chips • Walkers Chips • Mirinda Soft Drinks • Pepsi • Doritos • Kurkure Chips • Tostitos


EXHIBIT 7 Select Financial Data for PepsiCo, Inc.’s Business Segments, 2015–2017 (in millions)

2017 2016 2015

Frito-Lay North America

Net revenue $ 15,798 $ 15,549 $ 14,782

Operating profit 4,823 4,659 4,304

Capital spending 665 801 608

Amortization of intangible assets 7 7 7

Depreciation and other amortization 449 435 427

Quaker Foods North America

Net revenue $ 2,503 $ 2,564 $ 2,543

Operating profit 642 653 560

Capital spending 44 41 40

Amortization of intangible assets — — —

Depreciation and other amortization 47 50 51

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2017 2016 2015

North America Beverages

Net revenue $ 20,936 $ 21,312 $ 20,618

Operating profit 2,707 2,959 2,785

Capital spending 904 769 695

Amortization of intangible assets 31 37 38

Depreciation and other amortization 780 809 813

Latin America

Net revenue $ 7,208 $ 6,820 $ 8,228

Operating profit/(loss) 908 887 (206)

Capital spending 481 507 368

Amortization of intangible assets 5 5 7

Depreciation and other amortization 245 211 238

Europe Sub-Saharan Africa

Net revenue $ 11,050 $ 10,216 $ 10,510

Operating profit 1,354 1,108 1,081

Capital spending 481 439 404

Amortization of intangible assets 22 18 20

Depreciation and other amortization 329 321 353

Asia, Middle East and North Africa

Net revenue $ 6,030 $ 6,338 $ 6,375

Operating profit 1,073 619 941

Capital spending 308 381 441

Amortization of intangible assets 3 3 3

Depreciation and other amortization 257 294 293

Source: PepsiCo, Inc. 2017 10-K.

Chips, Sabra hummus, salsas and dips, and Quaker Chewy granola bars. In 2018, FLNA manufactured and marketed baked versions of its most popular products, such as Cheetos, Lay’s potato chips, Ruffles potato chips, and Tostitos tortilla chips.

PepsiCo’s Performance with Purpose goals applied to all of its business units. Frito-Lay North America’s revenues were unchanged after correcting

for the effect of a 53rd reporting week in 2017 and its volume declined by 1 percent between 2016 and 2017. The decline in volume and flat revenues were reflective of the growing emphasis of consumers on healthy snacking. However, the division was able to boost operating profit by 3.5 percent between 2016 and 2017 through its focus on Performance with Purpose cost reduction strategies and operating practices.

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seller of juice and juice drinks globally; and NAB was the second-largest seller of carbonated soft drinks worldwide, with an approximate 27 percent market share in 2017. Market leader Coca-Cola held approximately 42 percent share of the carbonated soft-drink (CSD) industry in 2017. Carbonated soft drinks were the most consumed type of beverage in the United States, but the industry had declined by 1 to 2 percent annually for more than a decade. The overall decline in CSD consumption was a result of consumers’ interest in healthier food and bever- age choices. In contrast, functional beverages, fla- vored water, energy drinks, ready-to-drink teas, and bottled water were growing beverage categories that were capturing a larger share of the stomachs in the United States and internationally.

PepsiCo’s Carbonated Soft-Drink Business. PepsiCo’s CSD business had focused on product innovations to sustain sales and market share, including new formula- tions to lower the calorie content of non-diet drinks. The strategy had produced some successes as the com- pany had maintained its premium pricing differential because of differentiation through innovations such as higher-priced 7.5-ounce cans and the 1893 line of spe- cialty sodas. However, the company’s CSD business could not escape the overall decline in soft drink con- sumption. While the decline in sales of CSDs in North America had been an ongoing industry trend for more than a decade, the decline was accelerating with indus- try sales falling to a 31 year low in 2016. In addition, bottled water sales in North America surpassed that of soft drinks for the first time ever in 2017.

PepsiCo’s Noncarbonated Beverage Brands.  Although carbonated beverages made up the largest percentage of NAB’s total beverage volume, much of the division’s growth was attributable to the suc- cess of its noncarbonated beverages. Aquafina was the number-one brand of bottled water in the United States. Gatorade, Tropicana, Aquafina, Starbucks Frappuccino, Lipton RTD teas, and Propel were all leading BFY and GFY beverages in the markets where they were sold. PepsiCo broadened its lineup of functional beverages in 2016 with the acquisition of KeVita sparkling probiotic drink with flavors such as Mango Coconut, Mojito Lime Mint Coconut, Lemon Ginger, and Blueberry Acai Coconut. Also, the NAB division introduced LIFEWTR in 2017, a purified water fortified with electrolytes as a response to the increasing popularity of Coca-Cola’s

The division produced 25 percent of PepsiCo’s net rev- enues in 2017 and 46 percent of its operating profit.

Quaker Foods North …