PepsiCo to Repurchase Bottlers
This story appears in the Aug. 10 print edition of Transport Topics.
Soft drink and snack food maker PepsiCo Inc. said it will reacquire two bottling companies it spun off 10 years ago, spending $7.8 billion in cash and stock to create the largest private fleet in the United States and Canada, in an effort to make its supply chains more efficient.
PepsiCo, Purchase, N.Y., said Aug. 4 it will buy back the shares of publicly traded PepsiAmericas Inc. and Pepsi Bottling Group it does not already own in order to concentrate 80% of North American distribution in the parent corporation.
Completion of the deal is expected at the end of this year or in
early 2010, and once that happens, PepsiCo’s in-house fleet would be the largest of the Transport Topics Top 100 Private Carriers, surpassing Coca-Cola Enterprises — one of the Coca-Cola Co.’s independent bottlers. PepsiCo would have
9,123 Class 8 tractors, compared with CCE’s 7,900 (8-3, supplement, p. 6).
“The steps we are taking to consolidate our anchor bottlers back into PepsiCo will allow us to vertically integrate our business, reduce costs and focus our system re-sources on driving growth and innovation, enabling us to provide better value and service to our consumers and customers globally, while delivering value to our shareholders,” said Indra Nooyi, PepsiCo’s chairwoman and CEO.
“The operating model that exists right now makes it very difficult for any participant in the [beverage] business to deliver sustainable top line growth and profitability over the long term, because the profit pool for any system is not growing enough in total to reinvest in the business and feed the appetites of multiple growth companies,” Nooyi said during an Aug. 4 conference call.
“At PBG, we sell over 85 billion beverage servings each year. When you’re making, selling and delivering such a large volume of product, being able to optimize efficiencies across the go-to-market system is critical for success,” said PBG spokesman Jeff Dahncke.
PepsiCo spun off PBG in 1999 — and PepsiAmericas before that — as independent, publicly traded companies. However, PepsiCo did keep a stake in the two companies — 33% of PBG and 43% of PepsiAmericas, according to Bloomberg News.
PepsiCo estimates the merger can generate savings of $300 million a year by 2012. In 2008, PepsiCo earned $5.14 billion, or $3.21 a share, on total sales of $43.25 billion.
In contrast, the Coca-Cola Co. earned $5.81 billion, or $2.49 a share, on 2008 sales of $31.94 billion.
In addition to Coca-Cola Enterprises, the current No. 1, the TT Private 100 also includes Coca-Cola Bottling Co. Consolidated at No. 20.
“There are a lot of moving parts in a beverage network,” said Mark McEntire, a vice president of third-party logistics provider Transplace Inc.
McEntire, who has worked with beverage companies Sunny D and Cott Beverages for Transplace, said giant retailers such as Wal-Mart, Cosco and Kroger’s make stringent demands of their suppliers.
“They want at least 98% on-time service performance, or maybe your brand stops getting promotional opportunities or placement in Sunday [advertising] tabs. That’s the way it is throughout consumer package goods, including beverages,” McEntire said.
Retailers are very demanding of technological visibility for shipping, McEntire said, so 3PLs will offer exception notification to mitigate failures. McEntire said such an approach means the technology looks for the few problems that pop up and highlights them so they stand out from goods moving properly.
In addition to taking the No. 1 spot on the TT Private 100, PepsiCo will move up to No. 4 on the list of the Top 100 Commercial Fleets, as measured by Light & Medium Truck.
The three combined Pepsi companies have about 22,980 straight trucks, behind UPS Inc., FedEx Corp. and utility services company Quanta Services.
PepsiCo’s Nooyi said newer products such as water and sports drinks must be distributed better.
PepsiCo also owns Frito-Lay, the snack food company, and Nooyi said she envisions using her fleet to help produce “compelling bundled offers across our beverage and food portfolio.”
