Pepsi Co Inc. plans to cut 8,700 jobs in 30 countries as well as expand marketing in hopes of increasing sales to take back the title of the world's largest soft drink manufacturer from rival Coca-Cola Co.
The cuts represent 3% of Pepsi’s global workforce, and, combined with other cost-cutting measures, are expected to save the soft drink maker $1.5 billion by 2014.
Pepsi also plans to increase spending on marketing by as much as $600 million. The new marketing efforts are aimed at 12 key brands: soft drinks Pepsi, Mountain Dew and 7-Up; beverages Tropicana and Gatorade; and snack foods Lay’s and Doritos.
Another $100 million will be used to upgrade display racks and other projects.
Pepsi expects to see benefits from its marketing dollars during the second half of the year.
Some analysts have suggested Pepsi might be worth more if it splits into two separate businesses: one dedicated to food and the other to beverages.
Pepsi, however, has no plans of splitting. Instead, it will work to increase shareholder value and plans to offer a stock buy-back program, with buy back of at least $3 billion. It also plans to increase dividends starting in June.
Pepsi’s 2011 fourth quarter net income was $1.42 billion, a slight increase from 2010. Sales were $20.2 billion, and stock shares rose 1.6% compared to 6.4% for competitor Coca-Cola. Profit per share beat Bloomberg analyst estimates by only three cents.
For 2012, the company forecasts earnings will fall 5% and commodity costs will rise 7%.
Health Drink Partnership in India with Tata
Meanwhile, Pepsi is partnering with Tata Global Beverages to market a health drink in India. The joint venture, called NourishCo Beverages Ltd., started selling Tata Water Plus nutrient water last week. So far the drink is only available in one Indian state.
NourishCo, which was formed in 2010, also sells Himalayan mineral water and a glucose-based energy drink.
The sale of Tata Water Plus is expected to benefit both Pepsi and Tata as the beverage market is growing in India. Euromonitor International predicts the market will double from 2010 to 2015.
Key Statistics - Global Soft Drink Market (source: MarketLine)
- In 2010, total revenue for the global soft drink market was close to $504 billion, for a compound annual growth rate (CAGR) of 2.7%.
- In 2010, the most lucrative segment of the global soft drink market was carbonates, which generated over $204 billion in revenue, or nearly 41% of the market's value.
- It is predicted the market will be valued at more than $586 billion by 2016. During the five-year period 2010-2015, it should have a CAGR of 3.1%.