Pepsi 2007 Annual Report Download - page 37

Other Relationships
Our Business Risks
Certain members of our Board of
Directors also serve on the boards of
certain vendors and customers. Those
Board members do not participate in our
vendor selection and negotiations nor in
our customer negotiations. Our transac-
tions with these vendors and customers
are in the normal course of business and
are consistent with terms negotiated with
other vendors and customers. In addition,
certain of our employees serve on the
boards of our anchor bottlers and other
affi liated companies and do not receive
incremental compensation for their
Board services.
Demand for our products may be
adversely affected by changes in
consumer preferences and tastes
or if we are unable to innovate or
market our products effectively.
We are a consumer products company
operating in highly competitive markets
and rely on continued demand for our
products. To generate revenues and
profi ts, we must sell products that appeal
to our customers and to consumers. Any
signifi cant changes in consumer prefer-
ences and any inability on our part to
anticipate and react to such changes
could result in reduced demand for our
products and erosion of our competi-
tive and fi nancial position. Our success
depends on our ability to respond to con-
sumer trends, such as consumer health
concerns about obesity, product attributes
and ingredients. 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 pat-
terns, weather, negative publicity result-
ing from regulatory action or litigation
against companies in the industry, or a
downturn in economic conditions. Any
of these changes may reduce consumers’
willingness to purchase our products. See
also “Changes in the legal and regula-
tory environment could limit our business
activities, increase our operating costs,
reduce demand for our products or result
in litigation” below.
Our continued success is also depen-
dent on our product innovation, including
maintaining a robust pipeline of new
products, and the effectiveness of our
advertising campaigns and marketing
programs. There can be no assurance as
to our continued ability either to develop
and launch successful new products
or variants of existing products, or to
effectively 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 prod-
ucts by negatively affecting consumer
perception of existing brands, as well
as result in inventory write-offs and
other costs.
Any damage to our reputation
could have an adverse effect on
our business, fi nancial condition
and results of operations.
Maintaining a good reputation globally
is critical to selling our branded products.
If we fail to maintain high standards for
product quality, safety and integrity, our
reputation could be jeopardized. Adverse
publicity about these types of concerns or
the incidence of product contamination
or tampering, whether or not valid,
may reduce demand for our products or
cause production and delivery disrup-
tions. If any of our products becomes
unfi t 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 sig-
nifi cant product liability judgment could
cause our products to be unavailable for
a period of time, which could further
reduce consumer demand and brand
equity. Failure to maintain high ethical,
social and environmental standards for
all of our operations and activities or
adverse publicity regarding our responses
to health concerns, our environmental
impacts, including agricultural materials,
packaging, energy and water use and
waste management, or other sustainabil-
ity issues, could jeopardize our reputa-
tion. Failure to comply with local laws
and regulations, to maintain an effective
system of internal controls or to provide
accurate and timely fi nancial statement
information could also hurt our reputa-
tion. Damage to our reputation or loss of
consumer confi dence in our products for
any of these reasons could have a material
adverse effect on our business, fi nancial
condition and results of operations, as
well as require additional resources to
rebuild our reputation.
Our success depends on our ability to
respond to consumer trends, such as
consumer health concerns about obesity,
product attributes and ingredients.
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