Pepsi 2007 Annual Report Download - page 36

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goods sold by them to these retailers.
In addition, sales to The Pepsi Bottling
Group (PBG) represented approximately
9% 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 percentage
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 58% 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
6% of our total 2007 sales incentives are
related to these bottlers. See Note 8 for
additional information on these related
parties and related party commitments
and guarantees.
Our Distribution Network
Our Competition
Our products are brought to market
through direct-store-delivery (DSD),
broker-warehouse and foodservice and
vending distribution networks. The distri-
bution system used depends on customer
needs, product characteristics and local
trade practices.
Direct-Store-Delivery
We, our bottlers and our distributors
operate DSD systems that deliver snacks
and beverages directly to retail stores
where the products are merchandised
by our employees or our bottlers. DSD
enables us to merchandise with maximum
visibility and appeal. DSD is especially
well-suited to products that are restocked
often and respond to in-store promotion
and merchandising.
Broker-Warehouse
Some of our products are delivered from
our manufacturing plants and warehouses
to customer warehouses and retail stores.
These less costly systems generally work
best for products that are less fragile and
perishable, have lower turnover, and are
less likely to be impulse purchases.
Foodservice and Vending
Our foodservice and vending sales force
distributes snacks, foods and beverages to
third-party foodservice and vending dis-
tributors and operators. Our foodservice
and vending sales force also distributes
certain beverages through our bottlers.
This distribution system supplies our
products to schools, businesses, stadiums,
restaurants and similar locations.
Our businesses operate in highly com-
petitive markets. We compete against
global, regional, local and private label
manufacturers on the basis of price,
quality, product variety and distribution.
In U.S. measured channels, we have a
similar share of CSD consumption and a
larger share of liquid refreshment bever-
ages consumption, as compared to our
chief beverage competitor, The Coca-
Cola Company. However, The Coca-Cola
Company has a signifi cant CSD share
advantage in many markets outside the
U.S. Further, our snack brands hold sig-
nifi cant leadership positions in the snack
industry worldwide. Our snack brands
face local and regional competitors, as
well as national and global snack competi-
tors, and compete on the basis of price,
quality, product variety and distribution.
Success in this competitive environment
is dependent on effective promotion of
existing products and the introduction
of new products. We believe that the
strength of our brands, innovation and
marketing, coupled with the quality of our
products and fl exibility of our distribution
network, allow us to compete effectively.
DSD enables us to merchandise
with maximum visibility and appeal.
Our anchor bottlers distribute
approximately 58% of our North
American beverage volume
and approximately 18% of our
international beverage volume.
34