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37PepsiCo, Inc. 2009 Annual Report
these related parties and related party commitments and guaran-
tees. Our share of income or loss from other noncontrolled affiliates
is recorded as a component of selling, general and administrative
expenses. See “Acquisition of Common Stock of PBG and PAS” for
more information on our related party bottlers.
OUR DISTRIBUTION NETWORK
Our products are brought to market through DSD, customer
warehouse and foodservice and vending distribution networks.
The distribution 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.
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
distributes certain beverages through our bottlers. This distribution
system supplies our products to restaurants, businesses, schools,
stadiums and similar locations.
OUR COMPETITION
Our businesses operate in highly competitive 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, our chief beverage competitor, The Coca-Cola
Company, has a larger share of CSD consumption, while we have
a larger share of liquid refreshment beverages consumption. In
addition, The Coca-Cola Company has a significant CSD share
advantage in many markets outside the United States. Further,
our snack brands hold significant leadership positions in the snack
industry worldwide. Our snack brands face local, regional and
private label competitors, as well as national and global snack
competitors, 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, the
introduction of new products and the effectiveness of our advertis-
ing campaigns, marketing programs and product packaging. We
believe that the strength of our brands, innovation and marketing,
coupled with the quality of our products and flexibility of our
distribution network, allow us to compete effectively.
OTHER RELATIONSHIPS
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 transactions 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 affiliated companies and do not receive
incremental compensation for their Board services.
OUR BUSINESS RISKS
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 profits, we must sell products
that appeal to our customers and to consumers. Any significant
changes in consumer preferences or any inability on our part to
anticipate or react to such changes could result in reduced demand
for our products and erosion of our competitive and financial
position. Our success depends on our ability to respond to con-
sumer trends, including concerns of consumers regarding health
and wellness, 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 patterns, weather,
negative publicity resulting from regulatory action or litigation
against companies in our industry, a downturn in economic
conditions or taxes specifically targeting the consumption of
our products. Any of these changes may reduce consumers’
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