Pepsi 2010 Annual Report Download - page 53

Management’s Discussion and Analysis
52 PepsiCo, Inc. 2010 Annual Report
health and wellness, obesity, product attributes and ingredients,
and to expand into adjacent categories. For example, if we are
unable to grow our core salty snack brands while expanding into
adjacent categories like crackers, bread bites and baked snacks,
our growth rate may be adversely aected. In addition, changes
in product category consumption or consumer demographics
could result in reduced demand for our products. Consumer
preferences may shift due to a variety of factors, including the
aging of the general population, changes in social trends, changes
in travel, vacation or leisure activity patterns, weather, seasonal
consumption cycles, negative publicity resulting from regula-
tory action or litigation against companies in our industry, a
downturn in economic conditions or taxes specifically target-
ing the consumption of our products. Any of these changes may
reduce consumers’ willingness to purchase our products. See
also “Any damage to our reputation could have an adverse eect
on our business, financial condition and results of operations.”,
“Changes in the legal and regulatory environment could limit our
business activities, increase our operating costs, reduce demand
for our products or result in litigation.”, “Unfavorable economic
conditions in the countries in which we operate may have an
adverse impact on our business results or financial condition.”
and “Our financial performance could suer if we are unable to
compete eectively.”
Our continued success is also dependent on our product inno-
vation, including maintaining a robust pipeline of new products
and improving the quality of existing products, and the eective-
ness of our advertising campaigns, marketing programs and
product packaging. Although we devote significant resources to
meet this goal, including the development of our Global Nutrition
Group, there can be no assurance as to our continued ability to
develop and launch successful new products or variants of exist-
ing products, to grow our nutrition business or to eectively
execute advertising campaigns and marketing programs. In
addition, both the launch and ongoing success of new products
and advertising campaigns are inherently uncertain, especially
as to their appeal to consumers. Our failure to successfully
launch new products could decrease demand for our existing
products by negatively aecting consumer perception of existing
brands, as well as result in inventory write-os and other costs.
Any damage to our reputation could have an adverse eect on
our business, financial condition and results of operations.
Maintaining a good reputation globally is critical to selling our
branded products. Product contamination or tampering or the
failure to maintain high standards for product quality, safety and
integrity, including with respect to raw materials obtained from
suppliers, may reduce demand for our products or cause produc-
tion and delivery disruptions. If any of our products becomes
unfit for consumption, misbranded or causes injury, we may
have to engage in a product recall and/or be subject to liability. A
widespread product recall or a significant product liability judg-
ment could cause our products to be unavailable for a period of
time, which could further reduce consumer demand and brand
equity. Our reputation could also be adversely impacted by any
of the following, or by adverse publicity (whether or not valid)
relating thereto: the failure to maintain high ethical, social and
environmental standards for all of our operations and activi-
ties; the failure to achieve our human, environmental and talent
sustainability goals, including our goals with respect to sodium,
saturated fat and sugar reduction and the development of our
nutrition business; or our environmental impact, including
use of agricultural materials, packaging, energy use and waste
management, or our responses to any of the foregoing. In addi-
tion, water is a limited resource in many parts of the world. Our
reputation could be damaged if we do not act responsibly with
respect to water use. Failure to comply with local laws and regu-
lations, to maintain an eective system of internal controls or
to provide accurate and timely financial statement information
could also hurt our reputation. Damage to our reputation or loss
of consumer confidence in our products for any of these or other
reasons could result in decreased demand for our products and
could have a material adverse eect on our business, financial
condition and results of operations, as well as require additional
resources to rebuild our reputation.
Our financial performance could be adversely aected if we
are unable to grow our business in developing and emerging
markets or as a result of unstable political conditions, civil
unrest or other developments and risks in the markets where
weoperate.
Our operations outside of the United States contribute signifi-
cantly to our revenue and profitability, and we believe that our
businesses in developing and emerging markets, particularly
China, present an important future growth opportunity for us.
However, there can be no assurance that our existing products,
variants of our existing products or new products that we develop
will be accepted or successful in any particular developing or
emerging market, due to local competition, cultural dierences
or otherwise. If we are unable to expand our businesses in emerg-
ing and developing markets as a result of economic and political
conditions, increased competition, an inability to acquire or form
strategic business alliances or to make necessary infrastructure
investments or for any other reason, our financial performance
could be adversely aected. Unstable political conditions, civil
unrest or other developments and risks in the markets where we
operate, including in the Middle East and Egypt, could also have
an adverse impact on our business results or financial condi-
tion. Factors that could adversely aect our business results in
these markets include: import and export restrictions; foreign
ownership restrictions; nationalization of our assets; regulations
on the repatriation of funds which, from time to time, result in
significant cash balances in countries such as Venezuela; and
currency hyperinflation or devaluation. In addition, disruption
in these markets due to political instability or civil unrest could
result in a decline in consumer purchasing power, thereby reduc-
ing demand for our products. See also “Demand for our products
may be adversely aected by changes in consumer preferences
and tastes or if we are unable to innovate or market our products
eectively.” and “Our financial performance could suer if we are
unable to compete eectively.”