Dive Brief:
- PepsiCo anticipated about $400 million in annual savings when it reacquired its bottling divisions in 2010, but net income in 2015, at $5.5 billion, has tumbled a total of 14% and its stock price has stagnated, according to an M&A flashback from Forbes.
- In the late 1990s, PepsiCo spun-off several business segments, including its restaurants division and North American bottling businesses. But six years ago, with CEO Indra Nooyi at the helm, the company reacquired two of its independent bottling divisions to consolidate 80% of its North American beverage manufacturing, sales and distribution.
- The company's experience with shedding and then reacquiring its bottling divisions shows why soda companies consider cutting out those businesses in the first place.
Dive Insight:
While in theory it may seem more profitable for soda companies to take care of bottling and distribution themselves, PepsiCo's experience demonstrates that this isn't always the case. And at a time when soda consumption had already sunk into its now 11-year decline, PepsiCo was likely looking for any way to boost profitability while seeking other ways to drive top-line growth.
Earlier this year, Coca-Cola made its own announcement to streamline its business model and focus solely on the more profitable concentrate segment, shedding its manufacturing and distribution operations in the process. Coca-Cola didn't jump to this decision right away. Selling U.S. bottling operations came after an initial plan to re-franchise delivery trucks and warehouses fell through.
Coca-Cola is confident its restructuring will have a significant financial impact. It estimates a decrease in revenue from $44.3 billion in 2015 to $28.5 billion this year, but also a jump in operating margin from 23% to 34%. Unlike PepsiCo,it's unlikely Coca-Cola will backpedal and reacquire those bottling operations in the future. The company is more likely to continue expanding its portfolio of non-carbonated and non-soda beverages instead.
PepsiCo will announce second-quarter earnings before the market opens Thursday.