Wednesday, 19 September 2018

 

At the Consumer Analysts of Greater New York (CAGNY) conference, PepsiCo Inc. used its presentation time to discuss the success and future opportunities of its second-largest segment, snacks giant Frito-Lay North America (FLNA).  

Propelled by the popularity of brands like Lays, Doritos, Cheetos, and Fritos, FLNA has posted 3% annual organic growth over the last three years, to become one of PepsiCo's most dependable sources of revenue growth. It also generates enviable margins: while responsible for 25% of total PepsiCo revenue, FLNA contributes an outsize 42% of total operating profit, according to madison.com.

In dissecting FLNA's performance, Vivek Sankaran, president and COO of Frito-Lay North America, acknowledged some legacy advantages decades in the making. Chief among these is the segment's category dominance. Per PepsiCo, FLNA owns the top seven brands in the salty-snacks category.

Distribution prowess

During the CAGNY conference, Sankaran repeatedly emphasized FLNA's direct-store-delivery (DSD) distribution model, to illustrate its edge over competitors. Compared with centralized distribution, DSD is a more specialized approach, enabling companies to more accurately fill order levels for grocery and convenience stores.

For competitive reasons, PepsiCo doesn't disclose a great deal about its distribution practices, but you can get a sense of the disparities between FLNA and NAB from its listing of manufacturing plants and "other facilities" within the company's recently filed 2017 annual report. The table below is broken down by business segment. "Other facilities" includes warehouses, distribution centers, offices, and storage facilities:

 

Facility Type

FLNA

NAB

QFNA

Latin America

ESSA

AMENA

Shared Facilities

Plants

35

65

5

50

85

50

5

Other facilities

1,680

440

3

585

340

345

40

NAB= North America Beverages, QFNA= Quaker Foods North America, ESSA= Europe Sub-Saharan Africa, AMENA= Asia, Middle East and North Africa

FLNA has 1,680 "other facilities," several times the number owned by NAB, or any other segment for that matter.

In its financial report, Pepsico mentioned at division results that FLNA was positively impacted by productivity gains, partially offset by operating cost inflation and higher raw material costs. For the third quarter of 2017, FLNA recorded an operating profit of USD1,208m, a growth with 5% by comparison with the same period in 2016.

Related articles: 

PepsiCo to Score First Zero Waste Legacy Project at Super Bowl LII 

PepsiCo Increases Production Capacity in Moscow Region 

Frito-Lay Brand Records Growth for PepsiCo 



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