Despite lead, Pepsi aims for bigger piece of the cake

Published: July 17, 2012
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SPENDING: $1b is the amount invested by Pepsi in Pakistan as claimed by
the company’s management.

SPENDING: $1b is the amount invested by Pepsi in Pakistan as claimed by the company’s management.

KARACHI: It is the single largest food and beverages company in the country, yet Pepsi has shown no signs of slowing down its rapid growth in the Pakistani market, according to Pepsico global executive Qasim Khan.

While its great rival Coca Cola may have the global lead in terms of cola beverages, Pepsi is undisputedly the preferred beverage amongst Pakistani consumers. In addition to the familiar Pepsi branded drink, the company’s best sellers in the country are Mountain Dew – which has recently been ranked the most popular drink in Pakistan – as well as 7up and others.

The company appears to also have been good to its Pakistani talent. Pepsico famously has a diverse global management team, led by CEO Indra Nooyi. The company’s NASA business unit – which includes Japan, Korea, Thailand, Indonesia, Philippines, Malaysia, Singapore, Pakistan, Pacific Islands and Mongolia – is headed by the Rawalpindi-born Khan.

Pepsico operates in Pakistan through seven franchisees, none of which are publicly listed. The company declined to disclose revenue numbers, though it did claim that it is the largest food and beverages company in the country and has maintained that leading position since 1982. The largest listed food company in Pakistan is Nestle, which had revenues of more than Rs65 billion in 2011. Pepsi’s retail sales are assumed to be higher than that number.

Despite, the franchise model, the company has invested heavily into Pakistan. Khan claims that Pepsico has spent up to $1 billion in Pakistan. Pepsi’s investment in Pakistan appears to be justified: Khan says that the country forms the sixth largest market for the company globally.

Long seen as merely a beverages company in Pakistan, Pepsico has since brought over many of its snack foods products to the country, and began manufacturing many of them in 2006, starting with its popular Lays brand. The Lahore-based factory that manufactures these chips now employs well over 1,000 people and has been growing “in the high double digits” according to Qasim Khan, rapidly growing into becoming the largest snack food brand in the country.

Khan attributes the company’s success not just to its highly sophisticated marketing and distribution operation in the country, but also its ability to increase the productivity of its suppliers. For instance, Pepsico has invested in improving the productivity of potato farmers in Punjab, leading to a boom in potato cultivation.

Besides the snacks manufacturing unit, Pepsi has one concentrate manufacturing plant and 14 bottling facilities spread throughout the country. This geographic dispersion is the key to Pepsi’s success in Pakistan: it is not reliant on long-distance transportation of its products, unlike many other multinational and even local food and beverage manufacturers, which face much higher logistics costs.

Overall, the company and its affiliates employ over 20,000 people in Pakistan directly, making it one of the largest private sector employers in the country.

But Pepsico’s success has not been without its challenges. It faces many local competitors who are often not shy of tax evasion. The company also faces higher taxation on its products than in most other parts of the world. And the Government of Pakistan offers very little intellectual property rights protection in the food and agriculture business, making it difficult for Pepsico to expand its seed programmes for potato farmers in the country. In addition to all of these unique challenges, it also bears the brunt of the energy crisis, much like every other business in Pakistan.

Yet Khan remains optimistic about the country as a whole. He notes that the country has a large and rapidly-growing middle class. He believes that Pakistan has more investor-friendly laws than most other countries in the region.

Published in The Express Tribune, July 17th, 2012.

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Reader Comments (9)

  • Pakistanii
    Jul 17, 2012 - 3:59AM

    Interesting article, but what about their Income/Revenue Tax, how much do they pay annually ?

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  • Rameez
    Jul 17, 2012 - 9:09AM

    To be honest looks like an advert for Pepsico rather than news.

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  • Hasan Mehmood
    Jul 17, 2012 - 9:59AM

    @Pakistanii:
    Rest assured that whatever they are paying as tax/duty must be higher than local enterprises on per unit revenue basis. One good thing about MNC’s is that they seldom cheat on taxes. I once read many years ago about three foreign banks with less than a dozen branches paying more income tax than entire Pakistan textile industry.

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  • BlackJack
    Jul 17, 2012 - 12:46PM

    I am a really surprised by the claim that Pakistan is the 6th biggest market for Pepsi. Available literature indicates that the entire AMEA (Asia Middle East and Africa region) contributes only 13% to Pepsi’s topline, which means that most of its large markets are in North America and Europe – and Russia is supposed to be Pepsi’s second biggest market. Even in this region, China, Japan and India are much bigger markets – so this really makes no sense. Any insight from Pepsico insiders?

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  • MoLM
    Jul 17, 2012 - 5:08PM

    Coke is better; but all soda drinks are poison.

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  • londonistani
    Jul 17, 2012 - 7:45PM

    this article should also highlight how pepsi cheated and destroyed its rising threat i.e. RC cola in 90’s………..

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  • Pakistanii
    Jul 17, 2012 - 10:05PM

    @Hasan Mehmood:
    Well said, however, it would have been a good idea to mention “Tax” figures also ?

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  • Raheel
    Jul 25, 2012 - 12:54PM

    I am surprised to see this comment of Khan “Khan attributes the company’s success not just to its highly sophisticated marketing and distribution operation in the country, but also its ability to increase the productivity of its suppliers.”

    The distribution operations of Pepsi are operated on political power and dirty games.
    – Pepsi threat retailers to have only their product in outlets. This is the Pepsi model that they operate with strong franchise bottlers who have political contacts.
    – Pepsi steals the Returnable Glass Bottles of the competition so that they can’t fill it again. In this way the glass of competition is removed from the market. This leaves them with no glass bottles for production.
    – Also they steal the shell (Shell is the one in which Glass bottles are carried) of competition.
    – Pepsi only pay half the taxes. They manipulate the sales numbers by saying that most of the bottles were sold through price offs.

    Shame on such a multinational company.

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  • MSA
    Jul 25, 2012 - 3:51PM

    I totally agree with Raheel on all the points, if Pepsi is paying all its due taxes on the total revenue they generate through whatever means then they should declare their income in order to claim that they are the biggest food company in Pakistan.

    Also the quality of Pepsi beverages goes down as you go into rural areas which is mainly because they use different kinds of raw materials in order to reduce their costs.

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