Pepsi_Co Diversification Strategy Case Analysis

(1)

(2)

(3)

Case

Analysis

Purpose



T

o anal

yze how

the P

epsiC

o’s

diversification

strategy has maximized the

shareholders

value.



To identify problems, opportunities, and

strategic actions that would sustain its

impressive financial and market

performance.

(4)

Agenda



Case Analysis Purpose



Strategic Profile



Situation analysis



SWOT Analysis



Strategy Formulation



(5)

Pepsico’s

Strategic Profile



The

world’s largest snack and beverage

company, with 2007 net revenues

approximately $39.5 billion.



Has restructuring their major product

portfolio and acquired many companies

since 1997.



Portfolio of business in 2008 included

Frito-Lay salty snacks, Quaker Chewy granola

bars, Pepsi soft drinks, Tropicana orange

juice, Lipton, Gatorade, Quaker Oatmeal,

(6)

PepsiCo’s Strategic Profile

1997: Spun off the restaurant business 1898 Pepsi-Cola was founded. 1932 Fritos and Lay were founded. 1961

Fritos and Lay were merged into Frito-Lay Company.

1965: Frito-Lay and Pepsi-Cola was merged into PepsiCo Inc.

1970

Entered Japan and Eastern Europe. Open one snack food plant per year.

1977 – 1986 Acquired Pizza Hut, Taco Bell, and KFC.

1980 – 1996

Continued acquired various foods and beverages

companies, and quick service restaurants. 1993: Introduced Lipton tea and Aquafina.

1996: Needs for a company

turnaround were identified, where the potential strategic fit benefits between restaurants and

PepsiCo’s food and beverages are difficult to realised, and low margin of restaurant business.

1997 – 2000: various acquisitions on overseas F&B companies (Australia and Saudi Arabia). August 2001: Quaker Oats were acquired with $13.9 billion, with Gatorade as the most valuable assets. 2005 – 2007: various tuck in acquisitions of small, fast growing F&B companies in US and overseas. 2005: $1.1 bio 2006: $522 mio 2007: $1.3 bio

(7)

PepsiCo’s Strategic Profile



Most PepsiCo brands had achieved number

one or number two positions.



Impressive performance of stock price

compared to other S&P 500 companies.



Down turn on its stock price has begun in 2008.



Focused on sustaining the impressive

performance through:



Product Innovation,



Close Relationships with Distributors,

(8)

PepsiCo’s Strategic Profile

 Product Innovations

 To make snack foods and beverage healthier. Really believed

the“good-for-you” or “better -for-you” products.

 Relationship with distribution allies

 Develop Power of One Retailer Alliance Strategy, collaborate with

retailers to increase consumers purchase more than one product of PepsiCo.

 International Expansion and strategic acquisition

 Organised into four divisions, all followed general strategic approach:

Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North America.

 Developed new organisational structure in 2008 to handle international

operations.

 The international operations have two problems: i.e: PepsiCo is

relatively unsuccessful to introduce Quaker brand products to outside the US and the international operations less profitable than North

(9)

Situation Analysis

–

General

Environment Analysis

 Political, regulators, and legal factors

 Protectionism in emerging countries  More and more protected consumers

 Stricter legislation to defend against obesity

 Gatorade was not allowed to use PepsiCo distribution channel for 10 years.

 Economic

 High growth potential of emerging market with strong competition

 Population demographics

 Glee generation prefers healthy foods and concerns with environmental problems.  In some countries consumer may prefer noncarbonated beverage.

 Societal values and lifestyles

 Start to leave sodas and sugar

 Healthier lifestyles promotes opportunities and different pattern of consumption

 Technological

 Strong research development departments to develop new ingredients, e.g: new

substitute of sugar, elimination of trans fat.

 More efficient value chain

(10)

ua on na ys s

–

n us ry

Analysis

 Changes on consumer preferences:

 Prefer healthier foods and more aware of the nutritional content, e.g.:

concern on salty foods, trans fat, sugar, etc.

 Desire to escape from the norm and taste snacks from a wider, often

global palate.

 Consumer in developed countries concerns on obesity issues. This

drive for smaller snack bags which easier for indulgence and to take during outing.

 International markets may have different taste preference for snack

foods, e.g: spicier snack foods in Thailand market.

 Closer relationship with distribution allies to analyse the consumer habits

and improve the value chain to avoid stock out in the retailers.

 World class advertising. Intense competition in beverages requires world

class advertising. Gatorade sub brand use Tiger Woods as the marketing ambassador. In Indonesia, even local beverages companies use world class celebrities such as Miss Universe.

 New style of packaging and design.

(11)

Situation Analysis

–

Industry

Analysis

-10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2006 2007 P e r c e n t a g e o f G r o w t h

Percentage Volume Growth

0 10 20 30 40 50 60 2005 2006 2007

(12)

Situation Analysis

–

Industry

Analysis

Potential New Entrants Low.

Only few MNCs have large market share. Some local players with nich market.

Bargaining power from Buyers

Very high

Cost to switch is very low.

Retailer may have bargaining power, depend on the size. Rivalry

Very High.

Strong competitors such as: Coca-Cola, Kraft, Nestle.

Have ability to develop new products and entering new emerging market.

Firms offering Product Substitutes High

Each beverages can be substituted.

More and more products with new taste Bargaining power from Seller Medium Dependent to raw materials, but many providers are available.

(13)

PepsiCo Internal Analysis

Five Questions To Do Internal Analysis (John Gamble, 2013) :

 How well is the company’s strategy working?

 What are the company’s competitively important

resources and capabilities?

 Are the company’s cost structure and customer

value proposition competitive?

 Is the company competitively stronger or weaker

than key rivals?

 What strategic issues and problems merit

(14)

PepsiCo Internal Analysis

#1 : How Well Is The Company’s Strategy Working ? The two best indicators of how well a company’s

strategy is working are :

1. whether the company is recording gains in financial

strength and profitability and

2. whether the company’s competitive strength and

(15)

PepsiCo Internal Analysis

(16)

PepsiCo Internal Analysis

(17)

PepsiCo Internal Analysis

Five Questions To Do Internal Analysis (John Gamble, 2013) :

#2 : What are the company’s competitively important resources and capabilities?

Analysis

(18)

PepsiCo SWOT Analysis

Internal Strength and Competitive Capabilities :

 Core competencies on product innovation and

strong global distribution capability

 A strong financial condition

 Have a good financial resources to grow the

business

 Strong brand name image and company reputation  Proven capabilities in improving production process  Good supply chain management capabilities

(19)

PepsiCo SWOT Analysis

Internal Strength and Competitive Capabilities :

 Alliances/joint ventures with other firms that

provide access to valuable technology,

competencies and attractive geographic markets.

 Strong commitment to sustainable growth – called

Performance with Purpose - focused on generating healthy financial returns while giving back to the communities PepsiCo serve.

(20)

PepsiCo SWOT Analysis

Potential Internal Weakness and Competitive Deficiencies :

 Non-Carbonated Drinks. The U.S. market shows a recent

trend that is shifting towards non-carbonated drinks.

 Health Food Alternatives. Consumers are becoming

increasingly health conscious.

 International operations had a low profitability, relative to

US operations.

 Held large market shares on outside US but had been

relatively unsuccessful in making international brand.

 Highly dependencies on key customers, especially

(21)

PepsiCo SWOT Analysis

Potential Market Opportunities :

 Significant opportunity to grow internationally (from

US market) by expanding PepsiCo’s existing

business and through acquisitions, particularly in emerging markets.

 North American Beverage Business – stagnant and

decline but still profitable (can be revitalized).

 Expand the global leadership position of its snacks

business.

 Opportunities from global trend to increase

healthier products and new product packaging alternatives.

(22)

PepsiCo SWOT Analysis

Potential External Threats to a Company’s Future Prospects :

 High rivalry competition.  Global economic crisis.

 Environment (packaging) issues

 Market risks arising from adverse changes in :

commodity prices, cost of raw materials and

(23)

(24)

PepsiCo Internal Analysis

# 3 : Are The Company’s Cost Structure and Customer Value Proposition Competitive?

(25)

PepsiCo Internal Analysis

# 4 : Is The Company Competitively Stronger Or Weaker Than Key Rivals?

 PepsiCo Competitive Strength vs Secondary Level Rivals : “Stronger”  PepsiCo Competitive Strength vs Primary Level or Key Rivals :

“Equal”

(26)

PepsiCo Internal Analysis

#5 : What Strategic Issues and Problems Merit Front-Burner Managerial Attention?

There are 5 strategic issues and problems must be

addressed by PepsiCo’s management

:

 Revi tal izing Its North A m er ican B ev erage Bu si nes s

.

 B r o ad e n i n g It s D i v e r s e Po r t f o l i o o f G l o b al P r o d u c t s

.

 S u c c e s s f u l l y N av i g a t in g T h e G lo b al E c o n o m i c

Cr is is

.

 Ex pand ing in Inter nation al Mar kets

.

(27)

Evaluating industry attractiveness

Rating scale : 1 = Very unattractive to Company; 10 = Very attractive to Company

Industry Attractiveness Measure Weight Soft Bottled Chilled Isotonic Salty Hot

drinks Water Juices Beverages Snacks Cereals

Market Size & projected Growth Rate 0.25 9 2.25 8 2 6 1.5 4 1 8 2 5 1.25

Industry Profitability 0.15 8 1.2 7 1.05 6 0.9 7 1.05 9 1.35 7 1.05

Intesity of Competition 0.15 5 0.75 4 0.6 7 1.05 10 1.5 5 0.75 8 1.2

Emerging Opportunities & Threats 0.2 7 1.4 8 1.6 6 1.2 7 1.4 7 1.4 5 1

Resource Requirements 0.05 9 0.45 7 0.35 7 0.35 8 0.4 7 0.35 8 0.4

Product Innovation 0.15 8 1.2 10 1.5 8 1.2 5 0.75 6 0.9 7 1.05

Social Political Environmental Factors 0.05 7 0.35 8 0.4 7 0.35 7 0.35 6 0.3 7 0.35

(28)

Evaluating Business-unit Competitive

Strengh

Rating scale : 1 = Very Weak; 10 = Very Strong

Competitive Strength

Measure Weight PepsiCola Aquafina Tropicana Gatorade Frito-Lay Quaker Dole, Sobe Snacks Oatmeal

Relative Market Share 0.25 3 0.75 3 0.75 2 0.5 6 1.5 6 1.5 6 1.5

Market & Promotion 0.2 7 1.4 5 1 6 1.2 8 1.6 8 1.6 6 1.2

Product Innovation 0.1 6 0.6 6 0.6 8 0.8 8 0.8 8 0.8 6 0.6

Distribution 0.15 7 1.05 6 0.9 6 0.9 7 1.05 7 1.05 6 0.9

Resources 0.1 8 0.8 8 0.8 8 0.8 8 0.8 8 0.8 8 0.8

Brand Name / Image 0.2 6 1.2 5 1 7 1.4 8 1.6 8 1.6 6 1.2

(29)

Nine-Cell Industry

Attractiveness-Competitive Strength Matrix

(30)

Strategy Formulation - Objective

Increase International Sales Improve Operating Margin Reinforce the International Presence Manage the Stock Price

(31)

Strategy Formulation - Strategic

alternatives

1. Adapting product to spesific consumers

needs



Taste are different in function of each

country



gives an idea of what the consumers prefers



Follow the customer's taste in order to

attract them.

example: in Mexico spicy food, in Europe

healthy food with less saturated fat

(32)

Strategy Formulation - Strategic

alternatives

2. Increase the presence with International

acquisitions



Reinforce their presence on new markets



Increase the relationship with local

companies in order implement easier

(33)

Strategy Formulation - Strategic

alternatives

3. Forecast the trends and relying on marketing

intelligence with extensive research & development



Nowadays, the customer

’

s taste is changing:

Pepsico has to focus on healthy products in order

to respond to consumer health and wellness

(reduce the consumption of statured fats,

cholesterol, trans fat, and simple carbohydrates).



Improve the packaging in order to follow more and

more environmental criteria

(34)

Strategy Formulation - Alternative

Evaluation

Decision Grid

Rating scale : 1 = Less Favorable; 10 = most favorable

Criteria Weight Alternative 1 Alternative 2 Alternative 3

COST 0.20 4 0.80 2 0.40 5 1.00 RISK 0.20 3 0.60 2 0.40 4 0.80 TIME 0.10 6 0.60 3 0.30 4 0.40 BRAND EQUITY 0.20 8 1.60 9 1.80 10 2.00 INTERNATIONALIZATION 0.15 9 1.35 10 1.50 5 0.75 CUSTOMER SERVICE 0.15 7 1.05 5 0.75 9 1.35