This was a team project/presentation done at Mason School of Business by Tim McGrew, Dami Ashaolu, Trevor Colley, Tom Eitel, Shih-Ji Wang and myslef

2. Agenda
• Industry Overview
• Forecast
• Explanation of Variables
• Recommendations

3. Industry Overview
US CSD Industry Sales Volume and GrRate
11,000 6.0%
5.0%
10,000 4.0%
Millions of Cases
3.0%
Growth Rate
9,000
2.0%
8,000 1.0%
0.0%
7,000 -1.0%
6,000 -2.0%
-3.0%
5,000 -4.0%
1990 1994 1998 2002 2006 2010
Total CSD Sales Sales GrRate
Source: Class Material

4. Industry Overview – cont.
2010 CSD Players' Market Share
7.60%
16.70%
42.00%
29.30%
Coca-Cola PepsiCo Dr. Pepper Snapple Others
Source: beverage-digest.com

5. Actual Pepsi Sales vs. Estimated CSD Sales
CSD Sales Millions
3,350
3,150
2,950
2,750
2,550
2,350
2,150
1,950
1,750
1985 1990 1995 2000 2005 2010
Actual CSD Sales Estimated CSD Sales
Source: Class Material, Estimation by Team 21

6. Explanation of four Variables
Real Price
• Higher price equals lower sales
• Real price removes the inflation bias
• Pepsi has little control over the price

7. Explanation of four Variables
Real Median Income
• Real median income vs. Purchasing Power
• Soda is a discretionary good
• Excludes inflation bias
• Removes outliers

8. Explanation of four Variables
Growth of Candy Consumption
• Candy is a complement to sodas
• Checkout line and vending machines
• 80% of candy buyers also purchase canned soda
• At a comparable level of unhealthiness
Goods Purchased by Candy Buyers
100%
80%
60%
40%
20%
0%
Canned Soda Fountain Soda Bottled Water Juice Hot Beverages
Source: AllBusiness, 2011

9. Explanation of four Variables
Yogurt Daily Consumption per capita
• A proxy of health awareness
• Soda sales decrease with increasing health awareness
• Covers a variety of health considerations
• Resilient against external influences
• High growth amongst youth
– Teens: 59% in 2009
– Children: 54% in 2009
Source: Purcell, 2011

10. Forecasted Pepsi US Sales and Growth Rate
CSD Sales Millions
3,350 8.0%
3,150 6.0%
2,950
4.0%
2,750
2.0%
2,550
0.0%
2,350
-2.0%
2,150
1,950 -4.0%
1,750 -6.0%
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
PEP Growth Rate
Source: Class Material, Estimation by Team 21

11. Recommendations
• Short-Term
– Modify production plan in 2011 and 2012
– Co-opt advertising campaigns with candy manufacturers
– Cross sales promotional activities with candy manufactures
• Long-Term
– Moving into other product categories
– Launch a series of CSD with vitamins and minerals
• Like Coca-Cola’s Diet Coke Plus
• New brand image: Healthy soda company

12. Q&A

13. Appendix A: Forecasting Regression Formula
Pepsi US CSD Sales =
3786–475xRP+0.038xRMI+1317xGCC–10117xYC
Where
RP = Real Price based on 2010
RMI = Real Median Income based on 2010
GCC = Growth Rate of Candy Consumption
YC = Yogurt Daily Consumption per capita

14. Appendix B: Regression Results
Best Forecasting Method 2010 2011 2012 MAPE
Real Price (2010) ARIMA(0,2,1) N/A $5.89 $5.92 1.31%
Real Median Income $59,833.7
ARIMA(1,1,0) N/A $60,029.17 1.22%
9
Yogurt Consumption Double Exponential Smoothing 0.0505 0.0529 0.0553 4.14%
Total Candy
Double Exponential Smoothing 6,740.44 6,772.03 6,803 1.63%
Consumption
Candy Consumption
N/A .468% .468% .466% N/A
Growth Rate
Forecasted Historical
ARIMA(0,2,0) N/A 2,672 2,599 1.42%
Sales
Coefficient T-Test F-Value VIF
Signs
Regression Statistics Correct High: .011 538 98.9% High: 6.64