The Business Of

Fast Food | PepsiCo | What Do They Do?

Morning All!

Hope you had a great weekend! In the first 2 weeks of The Business Of Fast Food series, we analysed a US giant (McDonald’s) and a UK upstart (Huel). And today, we start the third and final part of our series. And I’m incredibly excited…

… because for part 3 we’re going to be looking at a company that we’ve all heard of. We all know the name very, very well. But most people will have absolutely no idea just how much the company do! So you’re in for a treat. This week, we’re going to be diving into The Business Of PepsiCo!

Now, some of you may be wondering why there’s a ‘co’ at the end of ‘Pepsi’. We are talking about the fizzy drink company, Pepsi, right? Well, yes, PepsiCo own Pepsi. But as we’ll see today - there’s a little more to it than just that.

So, without further ado, let’s dive into what PepsiCo does!

PepsiCo = Pepsi… Right? Hmm, Not Quite!

Okay, so they say that nothing in life is ever 100% certain. But if I were to ask everyone - how do PepsiCo make most of their money? I’m pretty certain 100% of people would say ‘Pepsi’. I mean it’s in the name!

But would you believe it. Despite the name, Pepsi doesn’t make up even 30% of PepsiCo’s revenues! And to take it one step further. PepsiCo actually make more money from food than they do drinks! With Lay’s (the crisps company) the biggest food brand sold by PepsiCo.

Fair play to anyone who already knew that! But that absolutely shocked me. And the shocks don’t stop there. Because PepsiCo actually have one of the most diverse portfolios of any company in the world. In fact, the company own >20 brands that make more than $1 billion each in retail sales!

The graphic below shows us some of the most famous brands that are owned by the PepsiCo company…

Doritos. Quaker Oats. Gatorade. Pretty wild I know! But let’s leave brands for now. Because whilst we now know PepsiCo own much more than Pepsi. The question remains - what exactly do PepsiCo do with these brands? Well, let’s find out!

MAKE the drink, PACKAGE the drink, SEND the drink!

Okay, so PepsiCo own all these brands. But let’s dive a bit deeper! Do PepsiCo make the food/drinks and sell them? Do they make the food/drinks and get someone else to sell them? Do they use a licensing model of some sort like we saw with McDonald’s?

Well, the answer is actually yes… to all 3 questions! Not only do PepsiCo have a diverse set of brands in their portfolio. But they also have a diverse business model! With the company using 3 different strategies to get their food and drink infront of consumers like me and you. So, let’s crack on and take a look at these strategies. And for now, we’ll focus on the drinks side of the business!

1) Okay, so the first strategy PepsiCo use is to do all of the work themselves. They make their ‘secret syrups’ and manufacture their drinks. They then package it (into bottles or cans) at their own bottling plants. And then sell the finished product to independent retailers like Tesco (UK) and Walmart (US). For an incredible video of how the bottling process works in a PepsiCo plant then click here!

2) The second strategy PepsiCo uses is similar. But instead of doing everything themselves, PepsiCo outsource one part of the process to their partners. So, they still make the syrup and mix it with water, etc to manufacture the drink. But they then sell the drink to independent packaging partners who are responsible for packaging the Pepsi into bottles and cans. And it’s the independent packaging partner who then sells the drink to retailers like Tesco.

3) The third and final strategy, is where PepsiCo don’t actually make the syrup. But they license it! Remember 2 weeks ago, in The Business Of McDonald’s, we talked all about licensing. Well, it pops up again here! How exactly? Well, PepsiCo have such huge bottling plants, that they can bottle drinks for other drinks brands. Who don’t have the money to build their own plants.

For instance, you know the Starbucks Ready To Drink bottles you see in the supermarket? Or the Lipton tea drinks? These are bottled by PepsiCo! PepsiCo will pay a licensing fee to Starbucks and Lipton for the syrup. PepsiCo will then manufacture the drink and package it. And then sell the drinks to retailers like Tesco.

Okay, so that gives us a nice overview to start the week. But there’s still a lot of questions to answer. When do PepsiCo decide to outsource packaging to their partners? And when do they decide to do it themselves? Do PepsiCo make more profit when they sell to their packaging partners or when they sell to retailers like Tesco? And how much do PepsiCo pay brands like Starbucks to license their syrups?

Well, we’ve got all of that and more to tuck into this week…!

12th Jun 2023

Nigel Jacob CFA