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PepsiCo to Invest $5B in Mexico

Zacks Equity Research

PepsiCo, Inc.(PEP) recently announced a massive expansion plan in Mexico worth $5 billion spanning the next 5 years.

The huge investment will be directed toward brand building and expanding the range of food/beverage products, research & development, ramping up the selling/delivery infrastructure, expanding production capacity, growing the country’s agricultural programs and creating more jobs.

Pepsi has been investing aggressively in emerging and developing markets in the recent years to capitalize on the significant growth potential due to relatively low per-capita consumption. Another reason is the burgeoning middle-class population with rising income levels which in turn is increasing the demand for convenience food and beverages. Pepsi is growing in developing and emerging countries through tailored distribution models as well as by offering locally-relevant innovation and value-added products.

In addition to Mexico, Pepsi is expanding in other developing and emerging countries like China, India, Brazil and Africa. In November last year, Pepsi announced plans to spend $5.5 billion for expansion in India by 2020. In Mexico, Pepsi has strengthened its business through bottling consolidation deals and in China, through a strategic partnership with Tingyi.

Developing and emerging markets accounted for 35% of Pepsi’s revenues in 2012. In fact, the company has tripled the revenues generated from these markets in the past five years. Going forward, management expects these markets to account for two-third of the revenues.

Pepsi carries a Zacks Rank #3 (Hold). Better-ranked stocks in the beverage sector include The WhiteWave Foods Company (WWAV), Monster Beverage Corporation (MNST) and Coca-Cola HBC AG (CCH). While WhiteWave Foods sports a Zacks Rank #1 (Strong Buy), Monster Beverage and Coca-Cola HBC have a Zacks Rank #2 (Buy).

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