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Elasticity of Pepsi

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Elasticity of Pepsi
Introduction: Firm profile and product selection The origins of Pepsi-cola started in the late 1890s through an invention by Caleb Bradham, a pharmacist, who like all pharmacist had soda fountains in their store. His most famous concoction was a soda that contained pepsin. This was initially called brads drink before he changed the name to Pepsi. Over the years subsequent mergers and acquisitions Pepsi-cola merged with Frito-Lays, and a new company, PepsiCo, was created. Currently, PepsiCo is divided into four divisions: Frito-Lay North America, PepsiCo Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA). The Pepsi Bottling Group is the company that packages and distributes Pepsi products (Pepsico, 2008). The product selected from PepsiCo and analyzed for income and price elasticity is Pepsi. Pepsi is a product of PBNA. PBNA also includes Mountain Dew, Sierra Mist, Tropicana, SoBe and Aquafina. “PBNA manufactures and sells concentrate for some of these brands to licensed bottlers, who sell the branded products to independent distributors and retailers” (Pepsico, 2008). Some of the major competitors for PepsiCo are Bacardi Limited, Coca-Cola Bottling Co. Consolidated, Heineken N.V., Nestle S.A., Ocean Spray, Red Bull, and Southern Wine and Spirits of America, Inc (Marketline, 2008). In this paper Pepsi’s price elasticity will be determined as well as the income elasticity of its customers. These calculations will be used to predict future revenue increases for the company.
Company’s financial information PepsiCo is the second largest food and beverage industry in the world. “PepsiCo brands are available in nearly 200 countries and generate sales at the retail level of more than $98 billion” (Pepsico, 2008). The company recorded revenues of $39,474 million during the fiscal year of 2007 and $35,137 million during the fiscal year of 2006. This increase in revenue is credited from the strong growth in volume and


References: BeverageDigest (2008) Special issue: Top-10 CSD Results for 2007. Beverage Digest, 52, 5. Electronically retrieved May 12, 2008 from http://www.beverage-digest.com/pdf/top-10_2008.pdf Marketline (2008) McConnell & Brue. (2004). Economics: Principles, problems and policies (16th ed). New York: McGraw-Hill MSN Money (2008) http://news.moneycentral.msn.com/printarticle.aspx?feed=PR&date=20080207&id=8154061 Pepsico (2008) Pepsico Electronically retrieved May 12, 2008 from http://www.pepsico.com/PEP_Company/History/index.cfm# Pepsico (2008) Pepsico 2007 Annual Report
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