Pepsi 2008 Annual Report Download - page 47

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45PepsiCo, Inc. 2008 Annual Report
OUR CUSTOMERS
Our customers include authorized bottlers and independent
distributors, including foodservice distributors and retailers. We
normally grant our bottlers exclusive contracts to sell and manu-
facture certain beverage products bearing our trademarks within
a specic geographic area. These arrangements provide us with
the right to charge our bottlers for concentrate, nished goods
and Aquana royalties and specify the manufacturing process
required for product quality.
Since we do not sell directly to the consumer, we rely on
and provide nancial incentives to our customers to assist in the
distribution and promotion of our products. For our independent
distributors 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 annually 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 cou-
pons, 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 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.
Retail consolidation and the current economic environment
continue to increase the importance of major customers. In 2008,
sales to Wal-Mart Stores, Inc. (Wal-Mart), including Sam’s Club
(Sam’s), represented approximately 12% of our total net revenue.
Our top ve retail customers represented approximately 32%
of our 2008 North American net revenue, with Wal-Mart (includ-
ing Sam’s) representing approximately 18%. These percentages
include concentrate sales to our bottlers which are used in
nished goods sold by them to these retailers. In addition, sales
to PBG represented approximately 8% of our total net revenue
in 2008. See “Our Related Party Bottlers” and Note 8 for more
information on our anchor bottlers.
Retail consolidation and the current economic environment
continue to increase the importance of major customers.
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 have designated
three related party bottlers, PBG, PepsiAmericas, Inc. (PAS) and
Pepsi Bottling Ventures LLC (PBV), as our anchor bottlers. We
include our share of their net income based on our percentage of
economic ownership in our income statement as bottling equity
income. Our anchor bottlers distribute approximately 60% of our
North American beverage volume and approximately 17% of our
beverage volume outside of North America. Our anchor bottlers
participate in the bottler funding programs described above.
Approximately 6% of our total 2008 sales incentives were related
to these bottlers. See Note 8 for additional information on these
related parties and related party commitments and guarantees.
Our share of net income from other noncontrolled afliates
is recorded as a component of selling, general and administra-
tive expenses.
OUR DISTRIBUTION NETWORK
Our products are brought to market through direct-store-delivery
(DSD), customer warehouse and foodservice and vending distri-
bution networks. The distribution system used depends on cus-
tomer 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.
Customer 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 distributors
and operators. Our foodservice and vending sales force also dis-
tributes certain beverages through our bottlers. This distribution
system supplies our products to schools, businesses, stadiums,
restaurants and similar locations.