Pepsi 2006 Annual Report Download - page 31

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Our customers include authorized
bottlers and independent distributors,
including foodservice distributors, and
retailers. We normally grant our bot-
tlers exclusive contracts to sell and
manufacture certain beverage products
bearing our trademarks within a spe-
cific geographic area. These
arrangements specify the amount to be
paid by our bottlers for concentrate,
finished goods and Aquafina royalties,
as well as the manufacturing process
required for product quality.
Since we do not sell directly to the
consumer, we rely on and provide
financial incentives to our customers to
assist in the distribution and promotion
of our products. For our independent
distributors and retailers, these incen-
tives include volume-based rebates,
product placement fees, promotions
and displays. For our bottlers, these
incentives are referred to as bottler
funding and are negotiated annually
with each bottler to support a variety of
trade and consumer programs, such as
consumer incentives, advertising sup-
port, new product support, and
vending and cooler equipment place-
ment. Consumer incentives include
coupons, pricing discounts and promo-
tions, such as sweepstakes 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 mar-
ketplace support, such as
point-of-purchase materials, product
placement fees, media and advertising.
Vending and cooler equipment place-
ment programs support the acquisition
and placement of vending machines
and cooler equipment. The nature and
type of programs vary annually. The
level of bottler funding is at our
discretion because these incentives
are not required by the terms of our
bottling contracts.
Retail consolidation continues to
increase the importance of major cus-
tomers. In 2006, sales to Wal-Mart
represented approximately 9% of our
total net revenue; and our top five retail
customers represented approximately
26% of our 2006 North American net
revenue, with Wal-Mart representing
approximately 13%. These percentages
include concentrate sales to our bottlers
which are used in finished goods sold
by them to these retailers. In addition,
sales to The Pepsi Bottling Group (PBG)
represented approximately 10% of our
total net revenue. See “Our Related
Party Bottlers” and Note 8 for more
information on our anchor bottlers.
Our Related Party Bottlers
We have ownership interests in certain
of our bottlers. Our ownership is less
than 50%, and since we do not control
these bottlers, we do not consolidate
their results. We include our share of
their net income based on our percent-
age of economic ownership in our
income statement as bottling equity
income. We have designated three
related party bottlers, PBG,
PepsiAmericas, Inc. (PAS) and Pepsi
Bottling Ventures LLC (PBV), as our
anchor bottlers. Our anchor bottlers
distribute approximately 60% of our
North American beverage volume and
approximately 18% of our international
beverage volume. Our anchor bottlers
participate in the bottler funding pro-
grams described above. Approximately
8% of our total 2006 sales incentives are
related to these bottlers. See Note 8 for
additional information on these related
parties and related party commitments
and guarantees.
Our Customers
29
Since we do not sell directly to
the consumer, we rely on and
provide financial incentives to
our customers to assist in the
distribution and promotion of
our products.
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