DEAR FELLOW SHAREHOLDERS,
When I became CEO in the fall of 2018, I inherited a company that was built to compete in the marketplace and continue delivering good performance. In many ways, we were operating from a position of strength. But we knew we hadn’t yet unlocked our true potential, and at PepsiCo, just good is not good enough. So, we decided to embark on a journey to become a great company in every sense of the word — great in the marketplace, great in our capabilities and talent, great for the sustainability of our planet and communities. A little over one year later, that journey is far from finished, but I can say with confidence that our strategy is working, as evidenced by the results we delivered in 2019 — meeting or exceeding all of the financial objectives we had set out for the year:1
• Our rate of organic revenue growth accelerated to 4.5 percent — our fastest rate of growth since 2015.
• All our divisions contributed to this growth, including an 8 percent increase in organic revenue in developing and emerging markets and a 3 percent increase in developed markets.
• We delivered in excess of $1 billion in productivity savings.
• We are gaining share in the majority of our top markets in both snacks and beverages. These results were driven by two critical
forces: the tireless, dedicated work of our world-class associates — approximately 267,000 strong, serving customers and consumers in more than 200 countries and territories around the world — and our targeted investments to make PepsiCo Faster, Stronger, and Better. We’re investing to become Faster by winning in the marketplace, being more consumercentric and accelerating investment for
topline growth; Stronger by transforming our capabilities, cost, and culture to operate as one PepsiCo, leveraging technology, winning locally and globally enabled; and Better at integrating purpose into our business strategy and brands, whilst doing even more for our planet and people. We’re making tremendous strides on all fronts. During 2019, we invested in becoming Faster by:
• Increasing our global advertising and marketing spending by more than 12 percent for the full year, reflecting investments across snacks and beverages, in both our large, established brands and our emerging brands;
• Expanding our market presence by increasing route capacity, adding merchandising racks and coolers, and advancing the technologies we deploy to drive greater and more precise execution;
• Investing in additional manufacturing capacity to remove bottlenecks and increase growth capacity for our products. This includes investments in new plants, new lines, and added distribution infrastructure; and
• Accelerating innovation, including new innovations like Gatorade Zero, bubly, Lay’s Yam, and Off the Eaten Path, as well as innovations we’re lifting and scaling around the world like Pepsi Black, Poppables, Flamin’ Hot, and Lay’s Baked Potato Chips.
While we intend to continue to invest back into the business, we know that sustaining higher growth will require building Stronger
capabilities, ones which will be difficult to match competitively. During 2019, we enhanced our consumer- and customerfacing
capabilities, strengthened our organizational culture, and transformed our cost management. Specifically:
• We invested in data analytics and other information technology to build consumer intimacy and achieve “Precision at Scale.”
By capturing and analyzing more-granular, consumer-level data, we can understand the consumer in a more individualized way to both customize communication and execute in every store with precisely the right products, placed in the right location, at the right price;
• We strengthened our omnichannel capabilities, particularly in e-commerce, where our measured retail sales were nearly $2 billion in 2019. To meet the growing need across channels for greater customization and faster innovation, we are investing in an end-to-end, agile value chain that can
deliver more precision and variety to enable us to win in the marketplace;
• We migrated our organizational structure closer to the market in order to improve speed, increase accountability, and become more locally focused;
• We evolved our values and ways of working to foster a culture where employees act like owners, with a greater sense of empowerment and accountability. We call this The PepsiCo Way, which includes a set of seven leadership behaviors that have been rapidly embraced by our organization; and
• We took a completely holistic approach to cost management — one in which we manage all costs as an investment. In doing so, we challenged the entire cost structure to evaluate the cost and benefit of our spending. In 2019, we delivered in excess of $1 billion in productivity savings, and plan to deliver this amount annually through 2023.
Finally, as more is expected of leading corporations like PepsiCo by society, becoming Better reflects both our responsibility and aspiration to continually integrate purpose into our business strategy and brands. In 2019, we prioritized and integrated a set of focused initiatives to help
build a more sustainable food system. These included:
• Advancing benefits to farmers and communities through Next Generation Agriculture. We have engaged more than 40,000 farmers on regenerative agricultural practices through our Sustainable Farming Program and leveraged over 230 demonstration farms to promote improved farmer livelihoods and agricultural resiliency. In 2019, nearly 80 percent of our global potatoes, oats, whole corn, and oranges were sustainably sourced.
• Driving Positive Water Impact, including striving to improve water-use efficiency and aiming to expand access to safe water. We are adopting the Alliance for Water Stewardship standard in all of our high-water-risk watersheds, with pilots launched in South Africa, the United States, and Pakistan. At the Mexico City snacks plant, our largest snacks plant by volume in Latin America and second largest outside the United States, we
are able to recycle and reuse roughly 70 percent of the water used in our processes.
• Striving to build a Circular Future for Packaging and a world where plastic packaging need never become waste. In 2019, we announced new targets to continue increasing incorporation rates of recycled plastic and reduce virgin plastic usage, including our goal to reduce 35 percent of virgin plastic content across our beverage portfolio by 2025. We also announced that we are transitioning LifeWTR to be packaged in 100 percent recycled plastic in the United States and bubly will be packaged exclusively in aluminum. Aquafina will also be available in aluminum at U.S. food service outlets.