Pepsi 2009 Annual Report Download - page 50

38 PepsiCo, Inc. 2009 Annual Report
Management’s Discussion and Analysis
willingness to purchase our products. See also the discussions
under “The global economic downturn has resulted in
unfavorable economic conditions and increased volatility in
foreign exchange rates and may have an adverse impact on our
business results or financial condition.” and “Changes in the legal
and regulatory environment could limit our business activities,
increase our operating costs, reduce demand for our products
or result in litigation.”
Our continued success is also dependent on our product
innovation, including maintaining a robust pipeline of new products,
and the effectiveness of our advertising campaigns, marketing
programs and product packaging. Although we devote significant
resources to meet this goal, 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 products 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, financial 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, including with respect to raw materials
obtained from our suppliers, 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
disruptions. If any of our products becomes unfit 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 significant 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 use and waste management, or other
sustainability issues, could jeopardize our reputation. In addition, water
is a limited resource in many parts of the world. Our reputation
could be damaged if we do not act responsibly with respect to water
use. Failure to comply with local laws and regulations, to maintain
an effective system of internal controls or to provide accurate and
timely financial statement information could also hurt our reputa-
tion. Damage to our reputation or loss of consumer confidence in
our products for any of these reasons could result in decreased
demand for our products and could have a material adverse effect
on our business, financial condition and results of operations, as
well as require additional resources to rebuild our reputation.
Trade consolidation, the loss of any key customer, or
failure to maintain good relationships with our bottling
partners could adversely affect our financial performance.
We must maintain mutually beneficial relationships with our
key customers, including Wal-Mart, as well as other retailers and
our bottling partners, to effectively compete. There is a greater
concentration of our customer base around the world generally
due to the continued consolidation of retail trade. As retail
ownership becomes more concentrated, retailers demand lower
pricing and increased promotional programs. Further, as larger
retailers increase utilization of their own distribution networks and
private label brands, the competitive advantages we derive from
our go-to-market systems and brand equity may be eroded. Failure
to appropriately respond to these trends or to offer effective sales
incentives and marketing programs to our customers could reduce
our ability to secure adequate shelf space at our retailers and
adversely affect our financial performance.
Retail consolidation and the current economic environment
continue to increase the importance of major customers. Loss of any
of our key customers, including Wal-Mart, could have an adverse
effect on our business, financial condition and results of operations.
Furthermore, if we are unable to provide an appropriate mix
of incentives to our bottlers through a combination of advertising
and marketing support, they may take actions that, while
maximizing their own short-term profit, may be detrimental to
us or our brands. Such actions could have an adverse effect on
our profitability. In addition, any deterioration of our relationships
with our bottlers could adversely affect our business or financial
performance. See “Our Customers,” “Our Related Party Bottlers”
and Note 8 to our consolidated financial statements for more
information on our customers, including our anchor bottlers.
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