PepsiCo Supply chain Essay

For the entire document (with exhibits and important disclosures associated with its content, if applicable), sop up original document (PDF) The changing beverage foodstuff has resulted in some major(ip) transformations amongst the industrys chief competitors. The Coca-Cola ph 1r and PepsiCo Inc. chip in both recognized the changes and direct taken action to preserve their succeeder with their all-important systems of feeding bottlers. We foresee these changes to be beneficial including the opportunity to focus on innovation and to improve the cost effectiveness of bringing the output to merchandise. In 1899, cardinal lawyers from Tennessee secured exclusive rights to bottle and sell Coca-Cola for only 1 dollar (www.coke.com). Asa Candler, then President of The Coca-Cola Company, was not persuade that selling the crossing in bottles was the way to go. No superstar could have predicted how popular Coca-Cola and its main competitor, Pepsi-Cola, would become.The alli ance between company and bottler has always been very important. Today, 54 billion beverages of all types atomic number 18 served every day.1 Products from PepsiCo Inc. (PEP) and The Coca-Cola Company (KO) account for more than than(prenominal) than two thirds of the deals in the change blue drink (CSD) category.2 These companies have battled with each other for many courses and in the suffice have had to adapt to consumer shifts and increasing complexity concerning product distribution. Once again, the marketplace for non-alcoholic drinks in North the States has evolved forward from the current model. To achieve longer call profitability and evolution, PepsiCo and The Coca-Cola Company have both refractory to buy the majority of their North Ameri undersurface bottling operations. In this report, we will explain how the market has changed and why we foreknow PepsiCo and The Coca-Cola Company to be better off in the future.To begin, we pauperization to explain the tr aditional role of the enkindle company and its system of bottlers. The p bent company (The Coca-Cola Company, PepsiCo), in any case called the revolve rough company, is basically in charge of producing the boil down or syrup that is used in a manufacturing process which ends up as a bottle or can of Coke or Pepsi on a shelf in a store. more(prenominal) importantly, it is the boil down companys job to create demand through advertising, marketing, and strategical planning. The bottlers buy the concentrate and then manufacture the product so that it can be distributed to a network of sellers and dealers. One major change that has taken place has been theconsolidation of the retail industry. In particular, the discount retailers (Walmart & Target) have allocated a large portion of squ are footage to intellectual nourishment.For example, about half of 2009 revenues for Walmart (WMT) was attributed to grocery. This compares to 28% of revenues only five years ago. For Target (T GT), food accounts for 16% of sales. Currently, Walmart is the largest grocer in the U.S. with about double the market share of the next largest competitor, Kroger (KR). In 2001, Walmart and Kroger were neck and neck. In 2007, the top fifteen food retailers accounted for 64.4% of U.S. sales compared to 50.1% in 2001. Exhibit 1 in the original PDF shows the evolution of market share from 2001-2007.3 The growth of Walmart is especially impressive. In North America, 19% of revenues for PepsiCo were allocated to Walmart (including Sams Club) up from 13% in 2006.3 In short, the food retail segment has become more concentrated and more powerful.The demands for better service from The Coca-Cola Company and PepsiCo have increased. Retailers beseech more flexibility, innovation, and speed. Consumer beverage choices have shifted production outside from the bottlers. Consumers have become more health conscious. Consumers are now more concerned about calories and are interested in drinks that are convenient and healthy. Consumers are buying less carbonate soft drinks and more in new beverage categories. These new categories of beverages overwhelm sports drinks, liquid tea, liquid coffee, energy drinks, and bottled water. Exhibit 2 in the original PDF illustrates the change in market share over a five year time frame.4 Overall, The Coca-Cola Company and PepsiCo have maintained their fit share of the non-alcoholic beverage industry through product expansions, innovation, and scholarships, including legal proceeding such as PepsiCos acquisition of Gatorade and the Coca-Cola Companys acquisition of Odwalla.The manufacturing process to capture a can of Coke is different from producing a bottle of Powerade. The added complexity of certain products has shifted the manufacturing process away from the bottler. Generally, most sports drinks, teas, juices, and dairy based drinks are construct at the concentrate company while carbonated drinks and bottled water are manufactur ed by the bottler. Those drinks produced at the concentrate company are called, undone goods. These changes have resulted in less profit for the bottlers. The bottlers did not pull in from the growth and higher profitability in finished goods. Capacity utilization hasbeen down with lack of growth in carbonated soft drinks. Also, bottled water, which was able to graduation exercise some of the lower growth in carbonated soft drinks, has been slowing over the last catch of years. In the future, most analysts in this sector insure that higher growth products will require a more complex manufacturing process.Under the old model, this would have been bad for bottlers. Years ago, most large bottlers make a significant capital investment which counted on sustained growth in carbonated soft drinks. Profit strained, the bottlers were less willing this time around to invest in new beverage categories. This was one of the reasons why the bottlers missed out on the popularity of uncarbonat ed soft drinks. The confederacy of concentrate company and bottler should establish cost savings and efficiencies allowing for additional reinvestment. Overcapacity and redundant distribution will be rationalized. One example is the sale of both fountain and bottled products to the same location by two different distribution channels. Going forward, one channel will service that particular customer. The combination should lead to a greater use of store distribution versus the current direct-store-delivery system, which is used by the bottlers.The storage warehouse delivery system (product gets delivered to the retailers distribution center and the retailer ships the product to the store) is one that is in demand from large retailers given the lower cost, expiration the retailer with the opportunity to extract more remuneration from the customer without raising prices. In addition, a more efficient distribution system and less dialogue between organizations (pricing/volume dec isions) should allow the product to egest the market more quickly. Despite the ownership structure, the concentrate company and bottler relationship has always been strong. Both entities need each other to survive.We believe the recent proceeding are a positive strategic die for both The Coca-Cola Company and PepsiCo and for the industry. The Coca-Cola Company and PepsiCo are clearly protecting their investment in their key bottlers and securing their strategic position given changes in the consumer and retailers. Going forward, we expect that these companies will continue to adapt to succeed. These particular transactions make sense and should allow these companies to remain free-enterprise(a) and innovative.