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Pepsi is a brand that needs no introduction. Originally created and developed in 1893 by Caleb Bradham and introduced as Brad’s Drink, it was renamed Pepsi-Cola in 1898 and then shortened to Pepsi in 1961.
Pepsi was incorporated in Delaware in 1919 and reincorporated in North Carolina in 1986. Pepsi is a leading global beverage and convenient food company with a complementary portfolio of brands, including Lays, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream.
Through its operations, authorized bottlers, contract manufacturers, and other third parties, Pepsi makes, markets, distributes, and sells various beverages and convenient foods, serving customers and consumers in more than 200 countries and territories. In this strategy story, we decided to analyze the business model, marketing strategy, and distribution channel of Pepsi. Let’s begin.
Business Model of Pepsi
The business model of Pepsi is organized into seven divisions, as follows:
- Frito-Lay North America (FLNA), which includes Pepsi’s branded convenient food businesses in the United States and Canada;
- Quaker Foods North America (QFNA), which includes Pepsi’s branded convenient food businesses, such as cereal, rice, pasta, and other branded food, in the United States and Canada;
- PepsiCo Beverages North America (PBNA), which includes Pepsi’s beverage businesses in the United States and Canada;
- Latin America (LatAm), which includes all of Pepsi’s beverage and convenient food businesses in Latin America;
- Europe, which includes all of our beverage and convenient food businesses in Europe;
- Africa, Middle East, and South Asia (AMESA), which includes all of our beverage and convenient food businesses in Africa, the Middle East, and South Asia; and
- Asia Pacific, Australia, New Zealand, and China Region (APAC) includes all of our beverage and convenient food businesses in Asia Pacific, Australia, New Zealand, and China region.
Pepsi’s customers include wholesale and other distributors, food service customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers, and authorized independent bottlers.
Pepsi grants its independent bottlers exclusive contracts to manufacture, distribute and sell certain beverage products bearing its trademarks within a specific geographic area. These arrangements give Pepsi the right to charge those independent bottlers for concentrate, finished goods, and Aquafina royalties and specify the manufacturing process required for product quality.
Pepsi’s business model relies on providing financial incentives to customers to assist in distributing and promoting its products to the end consumer. These incentives include volume-based rebates, product placement fees, promotions and displays, and bottler funding. Consumer incentives include 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.
Physical or unit volume is one of the key metrics Pepsi uses internally to make operating and strategic decisions. Volume helps Pepsi evaluate its business model growth because it measures demand for its products at the consumer level. Pepsi generated $79.8 billion in revenue in 2021, a 13% growth from 2020.
- Beverage volume includes the volume of concentrate sold to independent bottlers and the volume of finished products bearing company-owned sold by company-owned bottling operations. Beverage contributes 45% to Pepsi’s revenue.
- Convenient food volume includes the volume sold of convenient food products bearing company-owned or licensed trademarks. Convenient food contributes 55% to Pepsi’s revenue.
Marketing Strategy of Pepsi
Pepsi’s beverage and convenient food products compete primarily based on brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, advertising, marketing strategy and promotional activity (including digital), packaging, convenience, and service.
Pepsi also customizes its marketing strategy to anticipate and effectively respond to consumer preferences and trends, including increased consumer focus on health and wellness and sustainability, the continued acceleration of e-commerce, and other methods of distributing and purchasing products.
Success in this competitive environment is dependent on a robust marketing strategy of existing products, the effective introduction of new products and reformulations of existing products, increased efficiency in production techniques, effective incorporation of technology and digital tools across all areas of our business, the effectiveness of advertising campaigns, marketing programs, product packaging and pricing, new vending and dispensing equipment and brand development of Pepsi.
The strength of Pepsi brands lies in innovation and marketing strategy, coupled with the flexibility of its distribution network. Pepsi created a Global Marketing function to elevate consumer centricity across the company, continue delivering best-in-class brand growth, and build on our successes to take marketing capabilities and strategy to a new level.
As part of its marketing strategy, Pepsi has become one of the most significant event sponsors in the world. Pepsi has official sponsorship deals with the National Football League, National Hockey League, and National Basketball Association. Pepsi also sponsors drivers in NASCAR by putting its logo on their cars. Pepsi has the first global sponsorship deals with the UEFA Champions League and the UEFA Women’s Champions League.
Distribution Channel of Pepsi
Pepsi’s products are primarily brought to market through direct store delivery (DSD), customer warehouse, and distributor networks and are also sold directly to consumers through e-commerce platforms and retailers. The distribution channel of Pepsi depends on customer needs, product characteristics, and local trade practices.
Direct-Store-Delivery: Pepsi, its independent bottlers, and distributors operate DSD systems that deliver beverages and convenient foods directly to retail stores where Pepsi or its independent bottlers merchandise the products. DSD enables Pepsi to merchandise with maximum visibility and appeal. DSD is especially well-suited to products that are restocked often and respond to the in-store promotion and merchandising.
Customer Warehouse: Some of Pepsi’s products are delivered from its manufacturing plants and distribution centers, both company and third-party-operated, to customer warehouses. These less costly systems generally work best for less fragile and perishable products with lower turnover.
Distributor Networks: Pepsi distributes many of its products through third-party distributors. 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 example, Pepsi’s food service and vending business distribute beverages and convenient foods to restaurants, businesses, schools, and stadiums through third-party food service and vending distributors and operators.
E-commerce: Pepsi’s products are also available and sold directly to consumers on many company-owned and third-party e-commerce websites and mobile commerce applications.
Most of Pepsi’s plants are owned or leased on a long-term basis. In addition to company-owned or leased properties, Pepsi also utilizes a highly distributed network and channel of plants, warehouses, and distribution centers owned or leased by its contract manufacturers, co-packers, strategic alliances, or joint ventures in which Pepsi has an equity interest.
To electrify its distribution network & channel, Pepsi has ordered electric trucks from Tesla.
Information Source: Pepsi’s Annual Report 2021