As Pepsi Bottling Group marks the 10th anniversary of its initial public offering this month, times couldn’t be tougher. Although the beverage company’s revenues have nearly doubled in the past decade, research on consumer spending during past recessions has found that carbonated beverages top the list of the most vulnerable food and beverage products. Adding to the macro pressures in this current climate are drops in the currency valuations in two key global markets, Russia and Mexico. But the $14 billion company, which manufactures, distributes, and sells Pepsi-Cola beverages around the world, does have a number of things going for it: an expanding roster of products, keen insight into consumer-spending patterns, and a finance team that CFO Al Drewes describes as “very rigorous and maybe even maniacal in our level of preparation.” Despite notable weakness in the fourth quarter, revenue and net income both rose 2 percent for the year.
As a company focused on consumers, how do you expect consumer spending and behavior to change in the next year?
While many people trace the current concerns to last September and October, when Wall Street blew up, we started seeing consumer weakness more than a year ago. That’s when the housing crisis, trouble in the construction industry, and credit-card debt really started to affect people. It certainly got a lot worse in the fall and then started to spread to international markets. Consumers are under pressure — there’s more and more desire on their part for value. One of the things we’re very focused on is how to provide the best consumer value. The right way to do that is through packaging innovation and options. We want to offer desirable configurations at magic price points. Right now we’re testing new packages that offer consumers great value: a 99 cent price point for single serve and a $2.99 price point for multiserve take-home packages.
Given that you got an early read on the downturn, what’s your take on a recovery?
Our expectation is that this is not going to get better in 2009. We may be wrong about that and I hope we are, but we’re planning that this [downturn] is going to be with us at least through 2009. When you hear these economists talking about a rebound in the second half [of 2009], well, those are the same folks that didn’t realize that it started in Q4 of 2007. Most economists were off by six or nine months on calling this thing because they’re looking at all this government data that takes time to process, while we’re looking at what happens in the local Wal-Mart or the local Safeway. We’ll start seeing in the second half [of 2009] whether it’s going to get better in early 2010 or not.
Anyone who has been in a convenience store lately knows that there are a lot of beverages out there. What’s that like for you on the supply end?
The thing that’s cool is that when I started here we had Pepsi, Diet Pepsi, and Mountain Dew, and then a few other little products. But if you visit our consumer room now and look at the cold vaults it’s unbelievable what’s happened to the beverage category in the last 10 or 15 years. All that change is actually good. It’s the way the world is. If you went back 20 years ago and told people they’d be going to a Starbucks and spending $5 on a cup of coffee they would never believe you, because they were drinking Maxwell House. All this change keeps things exciting; it’s not stagnant. And, we have a pretty tough competitor out there. When you compete with a Coca-Cola Co. day in and day out it keeps you on your toes.