The purpose of this report is to analyze the commercial activity of PepsiCo in the countries of UK and Brazil. The report highlights various macroeconomic activities and its implications on the business of the company is analyzed. PepsiCo is the world’s second largest company operating in the food and beverage industry where it makes the market and sells various brands of products across the beverage and snacks categories. The company owns 23 brands and had a revenue of $70 billion in the end of 2020. Some of the brands popular by the company includes Lays, Doritos, Mountain Dew, Gatorade etc. The company follows a go-to-market model and their primary strategy of the company is to hire distributors, contract manufacturers and bottlers. The firm primarily operates into five different geographies having operations in more than 200 countries.
In the year 2019, the UK’s food and beverage industry were the country’s largest manufacturing sector (fdf.org.uk, 2020). In the year 2020, the industry will have contributed roughly GBP 29 billion to the country’s GDP. In the year 2018, the industry provided 2.3 percent of the country’s national gross value added. In terms of revenue, firms in the food and beverage industry outperformed industries such as automotive and aerospace (fdf.org.uk, 2020). Domestic sales for the industry amounted for GBP 73 billion in 2020, while exports for this sector were to the extent of GBP 23 billion.
In 2017, the soft drink category in the nation was separated into four categories, with a market share of 25%. In 2018, private label soft drinks brought in a total of GBP 1.3 billion in sales. PepsiCo had the third most grocery sales in the country for the year, while Coca-Cola Inc had the second highest grocery sales and was still a long way behind PepsiCo (Statista, 2022). In the year 2020, bottled water’s market share has overtaken that of fizzy beverages such as cola. Since the beginning of 2012, per capita soft drink consumption has decreased to 205.1 liters in 2017 (Statista, 2022). PepsiCo is finding it tough to compete in the UK with private label brands, and has sold items worth GBP 696 million in 2021 (Statista, 2021). With the soft drink business in decline, PepsiCo will need to strategize well to stay afloat and successful in the nation.
The food and beverage industry in Brazil constitute around 10.5% of the total Gross Domestic Product of the country in the year 2020 (foodexport.org, 2022). The industry grew handsomely on a year on year basis from a growth rate of 6.7% in 2019 to achieving a growth rate of 12.8% in the year 2020 (anufoodbrazil.com, 2022). Out of all the food and beverages products produced within the country, the country consumes 75 percent of the products while the remaining 25 percent is exported out of the country. The Brazilian beverage market recorded a revenue of around 137 billion Brazilian reals and this figure is constantly on the rise since the year 2019.
The country has huge potential in terms of beverages sales as middle class and consumers in the country are increasing at a rapid pace. Rising population also results in a rise in the demand for beverages as consumers in the country constantly looks for new products. Following the elimination of Covid 19-induced restrictions, the country’s beverage consumption has grown, with a significant trend of healthy drinks being in demand (Global data, 2022). According to (Wild Flavors, 2022), the beverage industry in the country is expected to grow at a pace of 3 to 4 percent in the short to medium term. In the year 2017, PepsiCo invested $25 million into the country for setting up a research and development center focused on developing nutritional products.
GDP data (2010 to 2020)
Figure 1 GDP data for United Kingdom and Brazil (World bank, 2020)
The UK’s GDP was attempting to rebound in 2010 and 2011 following the global financial crisis that happened in 2008-2009 as a result of excessive property market investment and greater reliance on credit (focus economics.com 2022). The increase in government borrowing from 52 percent to 76 percent supplied the essential support to the economy, preventing a recession akin to the Great Depression. From 2011 to 2013, the country’s GDP continued to rise, but it was still not as high as it had been before the financial crisis. Due to a decrease in wage growth and an increase in the current account deficit, which was to be paid by foreign investors, GDP declined marginally from 2014. The economy recovered slightly for two consecutive years starting from 2017 to 2019 falling in 2020 due to the onset of Covid 19 pandemic.
Due to the reduction of poverty and income disparity accomplished in the previous decade, Brazil was one of the fastest growing countries in terms of GDP until 2012. Since the beginning of 2011, the country’s GDP has been declining, eventually entering a recession in 2014. Due to a political crisis including regime transition in 2015 and 2016, GDP decreased by 3.5 percent and 3.3 percent, respectively. Residents were dissatisfied with the political system, which was already dealing with corruption difficulties, as a result of the country’s predicament. The bad performance of the economy was partly due to the 2014 commodity price shock, which hurt the country’s exports and reduced foreign invested capital in the country. The GDP recovered slightly in the year 2017 by 1% only to fall below the levels of the economic recession in the subsequent years(OECD, 2021).
PepsiCo revenues from the region of North America witnessed a steep fall by around 27% in the year 2016 on the back of the political turbulence in the country.
Figure 2 GDP per capita data for United Kingdom and Brazil (World bank, 2020)
As seen in Figure 2, the UK and Brazil have quite different GDP per capita levels. Brazil’s per capita GDP was over $6796 in 2020, whereas the UK’s was around $41,000. From the beginning of 2010 to 2020, Brazil’s GDP per capita has been on the slide, falling from a high of over $10,000 to a low of about $5000. On the other hand, the UK’s GDP per capita has been variable and has gone sideways, reaching a high of more than $45,000 in 2014. With a rise in GDP per capita, the spending on consumer staples products are expected to increase due to more disposable income available to residents. With a fluctuating GDP per capita levels in the UK, PepsiCo sales in the country has witnessed fall in value due to changing consumer preferences and falling market share of carbonated soft drinks.
Brazil was one of the company’s primary markets in North America, as evidenced by the company’s investment in a research and development facility focused on producing cookies and snacks using more Brazilian ingredients. PepsiCo was thought to have a significant influence on the country’s agricultural community since it was the country’s largest consumer of agricultural products, directly influencing the economy on a massive scale (Food Navigator 2018).
Figure 3 Inflation rate (CPI) for United Kingdom and Brazil (World bank, 2020)
The inflation rate in Brazil moved in a range of 5 per cent to 6 per cent during the year 2010 to 2014. After the country went into recession in the year 2014, the inflation rate in the country has risen steeply to the levels of 9 per cent due to rise in food and transportation prices. Housing related costs and higher electricity costs were also the reason behind high levels of inflation experienced by the country during the period as the consumer price index reached to around 10 per cent in the year 2016 (Jelmayer,2016). Although, in the following year, due to significant reduction in food prices, the inflation level fell to the lowest levels experienced in the past 19 years (efe.com, 2017). PepsiCo operating in consumer staples industry, was better able to earn revenues in the rising inflation environment.
Inflation level in UK followed an identical pattern to that of Brazil during 2010 to 2011. However, since the beginning of 2012, the inflation level witnessed by the country was comparatively low and kept on declining till the year 2015 due to the improvement in the economy on the back of increased government spending. The country experienced increased inflation in the year 2017 reaching the level of 3.1 per cent mainly due to the rise in air fares which were under control during the year 2016. Rise in prices of recreational and goods related to culture also acted as a catalyst in pushing the inflation upwards. Since 2017, the inflation has been falling slowly reaching to a low of 1 per cent (Gooding, 2022).
United Kingdom has provided perfect opportunity for PepsiCo to leverage upon the relatively stable economic environment and rising consumer confidence after the onslaught of the financial crisis in the year 2008 to 2009.
Figure 4 Unemployment rate for United Kingdom and Brazil (World bank, 2020)
As it is clearly, represented by figure 4, Brazil has been experiencing a rising unemployment rate since the beginning of the 2014 which was the year with the most significant political turmoil. Since the beginning of 2010, the country has been witnessing falling unemployment rate as the country was recovering from the troubles caused by the financial crisis. The unemployment rate in the country rose to the levels of more than 13 per cent in the year 2017-2018 because of structural changes as a result of the recession of 2014. Poor performance in the labor market was one of the primary reasons of the rising unemployment rates.
Beginning from the year 2010, United Kingdom had an unemployment rate of 8% which gradually began to decline with the improvement of the economy for the country after withstanding the crippling effect of financial crisis 2008-2009. After the year 2015, the unemployment rate in the country was the lowest due to the increased spending by the government and ample job opportunities available to the residents. PepsiCo employs many people in the food and beverage sector, and has performed well financially compared to other brands.
Figure 5 General balances for United Kingdom and Brazil (World bank, 2020)
According to Orthodox philosophers and researchers, a government should avoid running a deficit in the public sector since it might lead to inflationary pressures. The system in the United Kingdom has always produced deficits. Because to the low level of inflation in the United Kingdom, the country’s deficit has gradually decreased over the years, accounting for less than 5% of GDP in 2015-2016, compared to approximately 10% in 2012. The country’s inflation is under control, and an increase in the deficit is not predicted until 2018. (Jstor.org 2022).
The gap between receipts and expenditures, as well as the percentage of GDP funded by debt, are shown in the government balances (OECD,2017). From the beginning of 2010 to the end of 2016, Brazil’s government balances exhibited a rising trend. After 2016, the government balance continued to progressively decline, eventually reaching levels of 20% of GDP by 2020. Brazil’s government has to rely on foreign sources of debt to cover its expenditures due to political turbulence and financial instability in the country.
Figure 6 Balance of payments for United Kingdom and Brazil (World bank, 2020)
Balance of payment measures the difference between the amount of money received by the country and the amount of money that went out of the country (McCombie and Thirlwall, 2016).
The UK has experienced a trade deficit for the past 10 years, with the balance of payments reaching its lowest point in 2015. Until 2015, Germany was the country’s largest trading partner, however it also maintains substantial business ties with other European nations. Trade arrangements will change as a result of the United Kingdom’s decision to exit the European Union, resulting in a shift in the balance of payments in the years ahead (Statista.com 2022).
Brazil has managed to stay afloat in terms of keeping a positive trade balance till 2014. According to government figures, the country faced its first trade deficit since 2000 in 2014, as economic development slowed and prices for iron ore, soybeans, and other vital commodity exports fell (Reuters, 2015). Brazil recorded a trade surplus of $19.681 billion last year, up from a deficit of $4 billion the year before, according to figures from the Trade Ministry. Commodity demand was dwindling in China, the world’s largest importer; but, a 33 percent devaluation of the real against the dollar helped to keep exports from collapsing, while import demand was restrained by the country’s growing depression (Soto & Raizer, 2016).
The country’s economy was one of several large nations that suffered significant effects as a result of the financial crisis of 2008-2009, since it was heavily leveraged and fragile. Since 1992, the country’s monetary policy has been aimed at limiting inflation and supporting economic programs, which it has been successful in doing (Allen, 2017). To aid economic recovery during the financial crisis, the Central Bank used the quantitative easing strategy by acquiring long-term government bonds. This approach aided the depreciation of the currency rate while also benefiting the economy. This relaxation was maintained from 2011 to 2016 in order to keep inflation under control (Obserwator Finansowy, 2022). Following the outbreak of the corona virus pandemic, the country’s central bank began offering budgetary assistance to people and businesses in order to boost income. As a result, the budget deficit increased to 14 percent in March 2020. Due to the initiative, the Bank of England’s portfolio reached GBP 875 million in late 2021, accounting for roughly 40% of the country’s GDP (Obserwator Finansowy, 2022)
The previous fiscal rule in place in the UK was to maintain debt levels below 40%, and the government’s most current regulation, implemented in December 2019, reintroduced this norm. (Llzetzki, 2021) However, during the corona virus epidemic, the government suspended this budgetary norm and began imposing direct regulations on businesses and organizations. Small firms can get a loan to help them keep going if their activities are disrupted. Schemes like as the Covid Corporate Financing Facility (CCFF), grants to retail, hotel, and leisure enterprises, and income tax deferrals all helped to mitigate the consequences of the epidemic (Deloitte, 2022).
Pepsi might gain from greater consumer spending as a result of the country’s expansionary fiscal and monetary policies. Increased consumer confidence, a predicted drop in unemployment, and an increase in inflation, particularly once the economy is reopened during covid-induced lockdowns, can all help the firm improve sales.
The economic authorities continued to be concerned about the administration of fiscal and monetary policy after the political turmoil in the year 2014. The government deficit in 2017, which does not include debt spending, was 123.5 billion, or 1.9 percent of GDP, down from 160.4 billion reais, or 2.6 percent of GDP in 2016. The deficit reduced on the back of cut in primary spending and spending dropped by 1% in the year 2017. The revenues from public grew in the first half of 2018 with increase in taxes. Government spending on pension also rose and a rise in revenues allowed the country to increase investment spending (Economic survey, 2018). The country adopted following measures after the impact of Covid: a) supporting the most vulnerable population by providing allowances and relaxation of labor laws, b) aiding self-employed workers, c) extending tax deadlines and d) reducing FGTS contributions (KPMG/Brazil, 2021).
The expansion of administration firms, which now account for about 66 percent of GDP and three-quarters of overall employment in the United Kingdom, has been the most spectacular financial development. This reflects the rise of real individual lifestyles, modifications in buyer usage patterns, and the expansion and revaluation of company administrations (van Schalkwyk, 2021). The economy of the United Kingdom has always been dependent on trade. The total value of imports and exports accounts for over half of the country’s GDP. The United Kingdom’s exports and imports have been constantly filling in recent months. The United Kingdom is now the world’s fifth largest economy. The country has a $156 billion negative trade surplus (Economic Indicators, 2022). Exports of labor and goods as a percentage of GDP are 30.01 percent, while imports of labor and products are 31.77 percent (gov.uk, 2022) The best three trading partners of the United Kingdom are the United States, Germany, and Ireland. Cars, aircraft components, and hard alcohol are the most often imported items.
PepsiCo would be able to develop its company by using expansionary methods if the country’s trade policy processes were more efficient. In the long run, PepsiCo would profit from government backing and changes in customer behaviour. Despite the fact that the corporation competes directly with private label brands, which account for the majority of the market share.
Over the last decade, the country has been able to establish itself in the global trade arena and has built a strong export industry in agricultural commodities, electronic goods, and other non-durable goods and services. In recent years, the country has had a solid balance of payments due to a positive current account balance (nber.org, 2022). Failure to comply with WTO-promoted fair-trade practices can result in retaliatory or hostile trade policies from other trading countries in the international market, jeopardizing or negatively affecting the country’s export sector and, as a result, its balance of trade and balance of payments situation (Europa.eu, 2022).
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