PepsiCo, Anheuser-Busch InBev team up to save costs, rule the world

Beverage giants PepsiCo (PEP) and Anheuser-Busch struck an unusual alliance this week to establish a procurement system in the U.S., letting them act as one company when purchasing certain materials and services. The pact, the companies said this week, will give the corporations better prices on computers, office supplies, transportation, and other supplies and services.

PepsiCo, based in Purchase, New York, and St. Louis-based Anheuser-Busch, the U.S. subsidiary of the world's largest brewer, say they haven't determined how much money the pact will save them, but that they will invest any savings into other parts of their businesses.

The agreement makes sense, says Gary Hemphill, research director at Beverage Marketing Corp. in Manhattan. "Given present economic conditions, companies are looking to save dollars and be more creative than they have been historically," he says. Because the pact is unique, he says, other large companies will be watching; if Anheuser-Busch and PepsiCo achieve substantial savings, other sharing agreements could become more commonplace.

The arrangement may have greater implications than saving money. Analysts say the pact indicates a tighter relationship between PepsiCo, which specializes in soft drinks and snacks, and Anheuser-Busch's Belgium-based parent, Anheuser-Busch InBev (BUD). Any savings from the alliance would likely be "helpful" rather than "material," Cazenove Securities analyst Matthew Webb told The procurement deal, he said, "may lead to further suggestions that the two companies may ultimately merge, or at least develop closer links."

The pact may also give Atlanta-based Coca-Cola Co. (KO) reason to rethink its strategy of distancing itself from beer and focusing solely on soft drinks. Such distinctions are obsolete, Credit Suisse analyst Carlos Laboy said in the Financial Times.

Sensing greater consolidation of soft drinks and beer, Laboy told FT that Coke's stance defies logic and the realities of the marketplace -- especially in light of the growing ties between archrival PepsiCo and Anheuser-Busch InBev.

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