Pepsi Cracks Open a $5.2B Investment in India
Just as soon as Coca-Cola Co. (NYSE:KO) made its big China investment, PepsiCo Inc. (NYSE:PEP) followed suit. This time, though, Pepsi is pumping money into a different economy.
Bloomberg reports that the world’s second largest soda company announced in a statement Monday that it will invest 330 billion rupees ($5.2 billion) in India by 2020. The money will help boost Pepsi’s manufacturing efforts in the country, along with its new product launches; the snacks giant also expects the investment to support Pepsi’s focus on India’s rural areas.
Although it boasts the status of the world’s second most populous nation, India has been a hard market for Pepsi to crack into on account of its struggling economy and plunging currency. The country remains one of Pepsi’s biggest global markets, but its share of the carbonated beverage market in India fell from 40.1 percent to 36.4 percent last year, and the Purchase, New York-based company is now eager to stem the losses.
CEO Indra Nooyi said in Pepsi’s Monday statement: “India is a country with huge potential and it remains an attractive, high-priority market for PepsiCo. We believe we’ve only scratched the surface of the longer-term growth opportunities that exist for PepsiCo and our other partners.”
India’s business is especially important to Pepsi, because like that of other developing countries’ markets, its growth rates are four to five times greater than those in the U.S. and Europe. The soda company generated half of its $65.5 billion in revenue last year from outside the U.S., and as it continues suffering flattened consumer demand in its developed markets, Pepsi’s business in India is more important than ever.
The problem is, India’s economy is now only expected to grow 5 percent in the year through March. Pepsi’s $5.2 billion investment in the country will undoubtedly help support the growth, but the company still faces the reality of modest consumer spending, as customers more likely to spend money on only the necessities.
Luckily for Pepsi, though, Bloomberg reports that rural consumer spending surged 19 percent per year to $69 billion from 2009 through 2012, and that is what the soda maker is now working on investing. Pepsi maintained in its statement Monday that it will expand its production capacity in the region to more than double the current levels by 2020 — ambitious goals, but the company also has other thriving brands, as well as a team of lucrative partners to help it sustain success.
Shares of PepsiCo were wavering Monday upon the announcement. They were down 0.05 percent at $85.77 as of 10:30 a.m.