Zacks Commentary

PepsiCo Inc. (PEP) has inked a multi-year agreement with Family Dollar Stores Inc. (FDO), by virtue of which the latter is responsible for selling Pepsi’s beverages.

Family Dollar already offers PepsiCo brands like Gatorade, Frito-Lay and Quaker products. The new agreement will also allow Family Dollar to offer products like Mountain Dew and Sierra Mist sodas, Aquafina water and Lipton tea.

Management at Family Dollar promises that the new agreement with PepsiCo will not affect the existing agreement with The Coca-Cola Company (KO).

Last November, Papa John's Pizza ended its long-time relationship with Coca-Cola and started serving Pepsi beverages in U.S. stores with effect from early 2012.

Coca Cola struck back and bagged an agreement with Dunkin' Brands Group Inc., under which more than 9,400 Dunkin' Donuts and Baskin-Robbins shops across the U.S. switched to offering Coca-Cola beverage instead of Pepsi products. The deal includes juices, energy drinks and bottled water along with Diet Coke, Coca-Cola and Sprite.               

Management of Family Dollar believes that the new deal with PepsiCo will allow them to provide their customers more choice and variety. PepsiCo opines that Family Dollar is a good partner and the opportunity of offering their products through the grocery chain will give more exposure to the beverage company.

Our Recommendation

We currently have a Neutral recommendation on PepsiCo on a long-term basis. Further, the stock carries a Zacks #3 Rank (short-term Neutral rating).