GEPP IS THE SOLE BEVERAGE BOTTLER IN MEXICO WITH A NATIONWIDE DISTRIBUTION NETWORK

Our subsidiary, GEPP, is the only bottler with a nationwide distribution network in Mexico, serving nearly 740,000 points of sale for beverages from the PepsiCo brand, private labels and third party brands. Through its wide network, GEPP has achieved nationwide presence, reaching a combined sales volume of beverages and jug water of 1,614 million eight ounce cases, which represents a 0.4% annual increase over the previous year, in a near zero-growth industry.

GEPP’s broad distribution network for jug water directly serves three channels: home, businesses and institutions. Through this network GEPP reaches more than 2 million homes.

OPERATING EFFICIENCIES

We continue making significant operational and production enhancements that contribute to margin expansion and allow our companies to further optimize operations.

During 2014, we maintained our focus on increasing the efficiency of procurement processes, distribution, technologies standardization, operational integration and administrative processes optimization.

These actions allowed us to achieve operational improvements and protect profit margins during a challenging year. Such improvements will continue to enhance our cost structure in a sustained manner.

AN APPEALING MARKET

As a result of its geographic presence, GEPP continues to benefit from growth opportunities offered by the Mexican market. The territory remains attractive and valuable, since Mexico keeps one of the highest per capita consumptions of carbonated drinks, at nearly 160 liters per year. According to information from Canadean¹, the carbonated beverages segment generated approximately US $ 20 billion dollars in total sales with volume sales of 19 billion liters in 2014. Total 2014 sales of non-carbonated beverages reached approximately US $11 billion dollars with a sales volume of 11.5 billion liters.

The jug water market in Mexico remains attractive with 2014 sales of US$ 2.2 billion dollars, and sales volume over 23.5 billion liters. Mexico remains among the highest consumers of bottled water in the world, at nearly 200 liters per capita per year. The jug water segment in Mexico has consolidated significantly, switching from small vendors and street distributor to large companies with recognized, brands and regional or national coverage. Factors such as the growth of a health and wellness culture, as well as the poor quality of public drinking water, continue to contribute positively to the development of this market.

¹ Canadean is a global consultancy firm that provides information on market dynamics for different industries, including carbonated and non-carbonated drinks as well as bottled water (including jug water).