Pepsi 2012 Annual Report Download - page 41

with Tingyi under the House of Tropicana brand name. AMEA
reports two measures of volume (see Europe above).
See Note 15 to our consolidated financial statements for
additional information about our transaction with Tingyi
in 2012.
Our Customers
Our primary customers include wholesale distributors, food-
service distributors, grocery stores, convenience stores, mass
merchandisers, membership stores and authorized indepen-
dent bottlers. We normally grant our independent bottlers
exclusive contracts to sell and manufacture certain beverage
products bearing our trademarks within a specific geographic
area. These arrangements provide us with the right to charge
our independent bottlers for concentrate, finished goods and
Aquafina royalties and specify the manufacturing process
required for product quality.
Since we do not sell directly to the consumer, we rely on
and provide financial incentives to our customers to assist in
the distribution and promotion of our products. For our inde-
pendent distributors and retailers, these incentives include
volume-based rebates, product placement fees, promotions
and displays. For our independent 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 coupons, pricing
discounts and promotions, and other promotional offers.
Advertising support is directed at advertising programs and
supporting independent 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 placement 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 2012, sales to Wal-Mart Stores, Inc. (Wal-Mart) including
Sam’s Club (Sam’s), represented approximately 11% of our
total net revenue. Our top five retail customers represented
approximately 30% of our 2012 North American (United
States and Canada) net revenue, with Wal-Mart (including
Sam’s) representing approximately 17%. These percentages
include concentrate sales to our independent bottlers which
were used in finished goods sold by them to these retailers.
Our Distribution Network
Our products are brought to market through direct-store-
delivery (DSD), customer warehouse and distributor networks.
The distribution system used depends on customer needs,
product characteristics and local trade practices.
Direct-Store-Delivery
We, our independent 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 prod-
ucts that are less fragile and perishable, have lower turnover,
and are less likely to be impulse purchases.
Distributor Networks
We distribute many of our products through third-party dis-
tributors. Third-party distributors are particularly effective
when greater distribution reach can be achieved by including
a wide range of products on the delivery vehicles. For exam-
ple, our foodservice and vending business distributes snacks,
foods and beverages to restaurants, businesses, schools and
stadiums through third-party foodservice and vending dis-
tributors and operators.
Our Competition
Our businesses operate in highly competitive markets. Our
beverage, snack and food brands compete against global,
regional, local and private label manufacturers and other value
competitors. In many countries in which we do business, The
Coca-Cola Company is our primary beverage competitor.
Other food and beverage competitors include, but are not lim-
ited to, Nestlé S.A., Danone, DPSG, Kellogg Company, General
Mills, Inc. and Mondelēz International, Inc. In many markets,
we compete against numerous regional and local companies.
Many of our snack and food brands hold significant lead-
ership positions in the snack and food industry worldwide.
However, The Coca-Cola Company has significant CSD share
advantage in many markets outside the United States.
Our beverage, snack and food brands compete on the basis
of price, quality, product variety and distribution. Success in
this competitive environment is dependent on effective pro-
motion of existing products, the introduction of new products
Management’s Discussion and Analysis
2012 PEPSICO ANNUAL REPORT 39