Pepsi 2007 Annual Report Download - page 35

Our customers include authorized bottlers
and independent distributors, including
foodservice distributors, and retailers.
We normally grant our bottlers exclusive
contracts to sell and manufacture certain
beverage products bearing our trade-
marks within a specifi c geographic area.
These arrangements provide the Company
with the right to charge our bottlers for
concentrate, fi nished goods and Aquafi na
royalties and specify the manufacturing
process required for product quality.
Since we do not sell directly to the con-
sumer, we rely on and provide fi nancial
incentives to our customers to assist in
the distribution and promotion of our
products. For our independent distribu-
tors and retailers, these incentives include
volume-based rebates, product placement
fees, promotions and displays. For our
bottlers, these incentives are referred to as
bottler funding and are negotiated annu-
ally with each bottler to support a variety
of trade and consumer programs, such as
consumer incentives, advertising support,
new product support, and vending and
cooler equipment placement. Consumer
incentives include coupons, pricing
discounts and promotions, and other
promotional offers. Advertising support
is directed at advertising programs and
supporting bottler media. New product
support includes targeted consumer and
retailer incentives and direct marketplace
support, such as point-of-purchase mate-
rials, product placement fees, media and
advertising. Vending and cooler
equipment placement programs
support the acquisition and placement
of vending machines and cooler equip-
ment. The nature and type of programs
vary annually.
Retail consolidation continues to
increase the importance of major custom-
ers. In 2007, sales to Wal-Mart Stores, Inc.
(Wal-Mart), including Sam’s Club (Sam’s),
represented approximately 12% of our
total net revenue. Our top fi ve retail
customers represented approximately
31% of our 2007 North American net
revenue, with Wal-Mart (including Sam’s)
representing approximately 18%. These
percentages include concentrate sales to
our bottlers which are used in fi nished
Quaker brand cereals and snacks. PI also
manufactures, markets and sells bever-
age concentrates, fountain syrups and
fi nished goods under the brands Pepsi,
7UP, Mirinda, Mountain Dew, Gatorade
and Tropicana. These brands are sold to
authorized bottlers, independent distribu-
tors and retailers. However, in certain
markets, PI operates its own bottling
plants and distribution facilities. PI also
manufactures or uses contract manufac-
turers, markets and sells ready-to-drink
tea products through a joint venture with
Unilever (under the Lipton brand name).
In addition, PI licenses the Aquafi na water
brand to certain of its authorized bottlers.
PI reports two measures of volume. Snack
volume is reported on a system-wide
basis, which includes our own sales and
the sales by our noncontrolled affi liates
of snacks bearing Company-owned or
licensed trademarks. Beverage volume
refl ects Company-owned or autho-
rized bottler sales of beverages bearing
Company-owned or licensed trademarks to
independent distributors and retailers. BCS
and CSE are not necessarily equal during
any given period due to seasonality, timing
of product launches, product mix, bottler
inventory practices and other factors. While
our revenues are not based on BCS volume,
we believe that BCS is a valuable measure as
it measures the sell-through of our products
at the consumer level.
Quaker Foods North America
Quaker Foods North America (QFNA)
manufactures or uses contract manu-
facturers, markets and sells cereals, rice,
pasta and other branded products. QFNA’s
products include Quaker oatmeal, Aunt
Jemima mixes and syrups, Life cereal,
Cap’n Crunch cereal, Quaker grits, Rice-
A-Roni, Pasta Roni and Near East side
dishes. These branded products are sold
to independent distributors and retailers.
New Organizational Structure
In the fourth quarter of 2007, we
announced a strategic realignment of our
organizational structure into three new
business units, as follows:
(1) PepsiCo Americas Foods (PAF),
which includes FLNA, QFNA and all of our
Latin American food and snack businesses
(LAF), including our Sabritas and Gamesa
businesses in Mexico;
(2) PepsiCo Americas Beverages (PAB),
which includes PBNA and all of our Latin
American beverage businesses; and
(3) PepsiCo International (PI), which
includes all PepsiCo businesses in the
United Kingdom, Europe, Asia, Middle
East and Africa.
In 2008, our three business units will
be comprised of six reportable segments,
as follows:
FLNA,
•
QFNA,•
LAF,•
PAB,•
United Kingdom & Europe, and •
Middle East, Africa & Asia. •
In the fi rst quarter of 2008, our historical
segment reporting will be restated to refl ect
the new structure. The segment amounts
and discussions refl ected in this annual
report refl ect the management reporting
that existed through fi scal year-end 2007.
In the fourth quarter of 2007, we
announced a strategic realignment
of our organizational structure
into three new business units:
PAF, PAB and PI.
Our Customers
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