PepsiCo Case Analysis

Case 3: PepsiCo

Case 3: PepsiCo

Introduction: Introduction:

Donald M. Kendall of Pepsi-Cola and Herman W. Lay of Frito-Lay founded PepsiCo, Inc. through Donald M. Kendall of Pepsi-Cola and Herman W. Lay of Frito-Lay founded PepsiCo, Inc. through the merger of both companies in 1965 (PepsiCo Our History,

the merger of both companies in 1965 (PepsiCo Our History, nd nd ). Caleb Bradham, who was a N.C.). Caleb Bradham, who was a N.C. pharmacist, created the Pepsi-Cola company itself during the 1890s (PepsiCo Our History,

pharmacist, created the Pepsi-Cola company itself during the 1890s (PepsiCo Our History,nd nd ). The Frito-). The Frito-Lay, Inc. was formed during 1961 through a merger of the Frito Company and the H. W. Lay Company Lay, Inc. was formed during 1961 through a merger of the Frito Company and the H. W. Lay Company (PepsiCo Our History,

(PepsiCo Our History, nd nd ). Herman Lay is the chairman of the Board of Directors of the newly created). Herman Lay is the chairman of the Board of Directors of the newly created PepsiCo company while Donald M. Kendall is president and chief executive officer (PepsiCo Our History, PepsiCo company while Donald M. Kendall is president and chief executive officer (PepsiCo Our History,

nd 

nd ). The new company has 19,000 employees and sales of over 500 million dollars per year (PepsiCo Our). The new company has 19,000 employees and sales of over 500 million dollars per year (PepsiCo Our History,

History, nd nd ). Some of the products of the Pepsi-Cola Company are Pepsi-Cola which was developed in). Some of the products of the Pepsi-Cola Company are Pepsi-Cola which was developed in 1898, Diet Pepsi developed in 1964

1898, Diet Pepsi developed in 1964 and Mountain Dew, created in 1948 and Mountain Dew, created in 1948 (PepsiCo Our History,(PepsiCo Our History,nd nd ).).

Mission Statement Analysis: Mission Statement Analysis:

Our mission is to be the world's premier consumer products company focused on convenient foods and  Our mission is to be the world's premier consumer products company focused on convenient foods and  beverages. We seek to produce financial rewards to investors as

beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and we provide opportunities for growth and  enrichment to our employees, our business partners and the communities in which we operate. And in enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for

everything we do, we strive for honesty, fairness and integrity honesty, fairness and integrity (PepsiCo Our Mission and Vision,(PepsiCo Our Mission and Vision,nd nd ))..

The PepsiCo mission statement talks about their products, being food products, which are easy The PepsiCo mission statement talks about their products, being food products, which are easy to

to eat including consumer beverages. The PepsiCo mission statement also talks about the company’seat including consumer beverages. The PepsiCo mission statement also talks about the company’s

concern for its financial stability, its concern about the enrichment of its employees and its concern for concern for its financial stability, its concern about the enrichment of its employees and its concern for how it operates its business. The statement shows concern about how the company will operate, with how it operates its business. The statement shows concern about how the company will operate, with

and the public, operating with fairness and integrity. They are concerned about their growth and also and the public, operating with fairness and integrity. They are concerned about their growth and also want to

want tobe number one in their market category which is clearly stated by PepsiCo’s mission statementbe number one in their market category which is clearly stated by PepsiCo’s mission statement

as consumer products. as consumer products. Internal Factors: Internal Factors: 1. 1. MarketingMarketing

PepsiCo is a global company with respected high quality brand name products such as Quaker PepsiCo is a global company with respected high quality brand name products such as Quaker Oats, Tropicana, La

Oats, Tropicana, Lay’s, and many Pepsi Cola productsy’s, and many Pepsi Cola products (David, 2011). These products are impulse(David, 2011). These products are impulse buys which also generate significant revenue for both PepsiCo and the retailers who sell them. In buys which also generate significant revenue for both PepsiCo and the retailers who sell them. In

addition, healthier products featuring Whole grains, fruits and nuts under their “good for you” addition, healthier products featuring Whole grains, fruits and nuts under their “good for you” portfolio are growing snack divisions. PepsiCo’s many brands are moving into 40 developing regions portfolio are growing snack divisions. PepsiCo’s many brands are moving into 40 developing regions

worldwide (PepsiCo Annual Reports 2009)

worldwide (PepsiCo Annual Reports 2009). They use their brands in commercial’s, TV shows, and. They use their brands in commercial’s, TV shows, and

movies, online and in print in order to facilitate

movies, online and in print in order to facilitate brand familiarity and market expansion.brand familiarity and market expansion.

2.

2. ManagementManagement

PepsiCo’s goal is to utilized strong corporate governance along with experienced corporate PepsiCo’s goal is to utilized strong corporate governance along with experienced corporate

management to score high on governing metrics, manage the company effectively and provide management to score high on governing metrics, manage the company effectively and provide consistent

consistent value to their shareholders. PepsiCo’s management leads by experience with John Compvalue to their shareholders. PepsiCo’s management leads by experience with John Comptonton

with 26 years at the company, Eric Floss with 28 years at PepsiCo, and Massimo d’Amore with 30 years with 26 years at the company, Eric Floss with 28 years at PepsiCo, and Massimo d’Amore with 30 years

in the global consumer market and 15 year

in the global consumer market and 15 year s with PepsiCo (PepsiCo Annual Reports 2009).s with PepsiCo (PepsiCo Annual Reports 2009).

3.

PepsiCo’s main goals are to invest in re

PepsiCo’s main goals are to invest in re search into more affordable, nutritionally whole products andsearch into more affordable, nutritionally whole products and to reduce waste while increasing efficiency. PepsiCo’s goal is to continually make their core products to reduce waste while increasing efficiency. PepsiCo’s goal is to continually make their core products

healthier and expand a variety of new snacks to the public. The company plans to reduce product healthier and expand a variety of new snacks to the public. The company plans to reduce product packaging by 350 million pounds (PepsiCo Annual Reports 2009). Operationally PepsiCo seeks to packaging by 350 million pounds (PepsiCo Annual Reports 2009). Operationally PepsiCo seeks to consolidate bottling plants, expand into developing regions, and reduce water consumption while consolidate bottling plants, expand into developing regions, and reduce water consumption while increasing energy efficiency at their

increasing energy efficiency at their facilities (PepsiCo Annual Reports 2009).facilities (PepsiCo Annual Reports 2009).

The Internal Matrix: The Internal Matrix:

Internal Matrix for PepsiCo Internal Matrix for PepsiCo

Key Internal Factors Key Internal Factors Key

Key Strengths Strengths Weight Weight Rating Rating WeightedWeighted Score Score 1

1 Adjust Adjust costs costs downward downward in in economic economic climate climate 0.11 0.11 3 3 0.330.33 2

2 The The unification unification of of bottling bottling plants plants 0.12 0.12 4 4 0.480.48 3

3 Diversified Diversified product product line line including including snacks, snacks, juice juice 0.1 0.1 4 4 0.400.40 4

4 Expanding Expanding into into other other countries countries 0.09 0.09 3 3 0.270.27 5

5 Company Company is is run run by by experienced experienced managementmanagement team team 0.08 0.08 4 4 0.320.32 Key Key Opportunities Opportunities 1

1 Adjust Adjust costs costs downward downward in in economic economic climate climate 0.11 0.11 3 3 0.330.33 2

2 Increase Increase healthy healthy foods foods divisions divisions 0.11 0.11 3 3 0.330.33 3

3 Expand Expand research research and and development development 0.09 0.09 3 3 0.270.27 4

4 Expand Expand marketing marketing to to web web related related media media outlets outlets 0.08 0.08 4 4 0.320.32 5

The average total weighted score is 3.27 The average total weighted score is 3.27

Rational: Rational:

The average total weighted score for PepsiCo is 3.79, which is above average for companies in The average total weighted score for PepsiCo is 3.79, which is above average for companies in the consumer food category. This is to be expected since they are number two in market share with the the consumer food category. This is to be expected since they are number two in market share with the Coca-Cola company number one. The two have battled for market share for many years, but also Coca-Cola company number one. The two have battled for market share for many years, but also combined dominate this industry. PepsiCo had a diversified product line from carbonated beverages, combined dominate this industry. PepsiCo had a diversified product line from carbonated beverages, non-carbonated teas, sports drinks, fruit juices as well as snacks like potato chips, baked snacks and non-carbonated teas, sports drinks, fruit juices as well as snacks like potato chips, baked snacks and various healthy snack products (PepsiCo Annual Reports 2009). They repurchased their North American various healthy snack products (PepsiCo Annual Reports 2009). They repurchased their North American bottling plants combining them and expanding heavily into China (David, 2011). They are also expanding bottling plants combining them and expanding heavily into China (David, 2011). They are also expanding their marketing onto the internet. PepsiCo does need to reduce its long term debt which they incurred their marketing onto the internet. PepsiCo does need to reduce its long term debt which they incurred through restructuring and they need to hold costs down internally as the cost of raw products have through restructuring and they need to hold costs down internally as the cost of raw products have continued to increase (David, 2011).

continued to increase (David, 2011).

External Factors: External Factors:

1.

1. Economic ForcesEconomic Forces

Most food manufacturers have had significant commodity inflation over the past several years Most food manufacturers have had significant commodity inflation over the past several years which has caused an overall cost increase of products and a decrease in per item profit. In addition, this which has caused an overall cost increase of products and a decrease in per item profit. In addition, this increased manufacturing and production costs for most of them. European consumers purchasing increased manufacturing and production costs for most of them. European consumers purchasing power has been reduced due to their prolonged recession as well as American consumers purchasing power has been reduced due to their prolonged recession as well as American consumers purchasing

power which has been hampered due to a slower than expected economic recovery (PepsiCo Annual power which has been hampered due to a slower than expected economic recovery (PepsiCo Annual Reports 2009).

Reports 2009).

2.

2. Social, Cultural, Demographic and Environmental ForcesSocial, Cultural, Demographic and Environmental Forces

Socially, consumers are looking for healthier snacks and beverages along with a greater variety of  Socially, consumers are looking for healthier snacks and beverages along with a greater variety of  healthier snacks and beverages. Expanding into new regions often requires a reformulation of the healthier snacks and beverages. Expanding into new regions often requires a reformulation of the original consumer food product or the need to develop new regionalized products completely. Costs of  original consumer food product or the need to develop new regionalized products completely. Costs of  product packaging and storage have increased (PepsiCo Annual Reports 2009). Finally, transportation product packaging and storage have increased (PepsiCo Annual Reports 2009). Finally, transportation and distribution costs are up due to incre

and distribution costs are up due to incre ased fuel costs.ased fuel costs.

3.

3. Political, Governmental and Legal ForcesPolitical, Governmental and Legal Forces

The quality of local urban food, its price and lack of access can cause both obesity and malnutrition The quality of local urban food, its price and lack of access can cause both obesity and malnutrition must be addressed. There can be significant supply chain issues from the local farmers where the base must be addressed. There can be significant supply chain issues from the local farmers where the base

foods are grown to the manufacturing site. Small farmers in the country’s PepsiCo operate are th foods are grown to the manufacturing site. Small farmers in the country’s PepsiCo operate are theireir suppliers and require training as well as guidelines to produce more abundant crops for PepsiCo suppliers and require training as well as guidelines to produce more abundant crops for PepsiCo (PepsiCo Annual Reports 2009).

(PepsiCo Annual Reports 2009).

4.

4. Technological ForcesTechnological Forces

There has been a steady increase in the cost of energy and water required to manufacture food There has been a steady increase in the cost of energy and water required to manufacture food products. Reduced crop yields have also impacted the cost of raw products such as potatoes, corn, rice, products. Reduced crop yields have also impacted the cost of raw products such as potatoes, corn, rice, fruits and nuts. The costs of bottling and the ever present need to bring new bottle designs to market fruits and nuts. The costs of bottling and the ever present need to bring new bottle designs to market require a more nimble, responsive and effective

require a more nimble, responsive and effective beverage system (PepsiCo Annual Reports 2009).beverage system (PepsiCo Annual Reports 2009).

5.

PepsiCo operates in the very competitive food market. They compete against extremely large global PepsiCo operates in the very competitive food market. They compete against extremely large global food producers, those that are smaller private label companies. They face strong competition with food producers, those that are smaller private label companies. They face strong competition with Coca-Cola in the consumer snack division with Coca-Coca-Cola number one in terms of consumption while PepsiCo Cola in the consumer snack division with Coca-Cola number one in terms of consumption while PepsiCo has a large share of

has a large share of the liquid refreshment product line then Coca-Cola (David, 2011).the liquid refreshment product line then Coca-Cola (David, 2011).

External Matrix: External Matrix:

External PepsiCo Matrix External PepsiCo Matrix

Key External Factors Key External Factors Opportunities

Opportunities Weight Rating Weight Rating WeightedWeighted

Score Score 1

1 Increase Increase in in carbonated carbonated soft soft drink drink usage usage in in AsiaAsia and Europe

and Europe

0.12

0.12 3 3 0.360.36

2

2 Increased Increased demand demand for for sports sports drinks drinks and and flavoredflavored waters

waters

0.12

0.12 3 3 0.360.36

3

3 Expand Expand into into Brazil Brazil through through its its current current acquisitionacquisition of Amacoco Nordeste Ltda

of Amacoco Nordeste Ltda

0.09

0.09 4 4 0.360.36

4

4 Expand Expand low low cost cost line line to to compete compete against against househouse brands

brands

0.08

0.08 2 2 0.160.16

5

5 Gain Gain shelf shelf space space through through product product synergy synergy 0.09 0.09 3 3 0.270.27

Threats Threats 1

1 Carbonated Carbonated soft soft drink drink market market in in decline decline 0.12 0.12 3 3 0.360.36 2

2 Industry Industry operates operates unchanged unchanged 0.09 0.09 2 2 0.180.18 3

3 Campaign Campaign against against bottle bottle water water affecting affecting usage usage 0.09 0.09 2 2 0.180.18 4

5

5 Extensive Extensive marketing marketing needed needed driving driving marketingmarketing costs up costs up 0.10 0.10 2 2 0.200.20 Total Total 1 1 2.632.63

The average total weighted score is 2.63 The average total weighted score is 2.63

Rational: Rational:

PepsiC

PepsiCo’s total weighted score is 2.63o’s total weighted score is 2.63, which is slightly above average for companies in the, which is slightly above average for companies in the consumer beverage and snack industry. PepsiCo is taking advantage of their opportunities but is consumer beverage and snack industry. PepsiCo is taking advantage of their opportunities but is responding poorly to its threats, many of them long term in nature. Not only are the costs of raw responding poorly to its threats, many of them long term in nature. Not only are the costs of raw materials and ingredients increasing but also the substrates that are used in the packaging of the materials and ingredients increasing but also the substrates that are used in the packaging of the products. These is a decrease in cola and carbonated beverage consumption in the US that will need to products. These is a decrease in cola and carbonated beverage consumption in the US that will need to be offset by increased consumption in other countries. PepsiCo has acquired long term debt from be offset by increased consumption in other countries. PepsiCo has acquired long term debt from restructuring and the marketing of their products has always been costly (PepsiCo Annual Reports restructuring and the marketing of their products has always been costly (PepsiCo Annual Reports 2009). In addition, they compete against other companies already well-established in the snack division 2009). In addition, they compete against other companies already well-established in the snack division such as Kellogg and Nabisco (David, 2011). PepsiCo also has to compete from store brands which often such as Kellogg and Nabisco (David, 2011). PepsiCo also has to compete from store brands which often compete with their products on cost.

compete with their products on cost.

Competitive Analysis: Porter’s Five

Competitive Analysis: Porter’s Five-Forces Model:-Forces Model:

1.

1. Rivalry among competing firmsRivalry among competing firms

High-They face very strong competition from Coca-Cola in the beverage market and face strong They face very strong competition from Coca-Cola in the beverage market and face strong competition in their snack division from Coca-Cola, Kellogg, Kraft and General Mills (David, 2011). This competition in their snack division from Coca-Cola, Kellogg, Kraft and General Mills (David, 2011). This

competition is fought out through advertising, through store shelve space and through various competition is fought out through advertising, through store shelve space and through various sponsorship opportunities.

sponsorship opportunities.

2.

2. Potential Entry of new competitorsPotential Entry of new competitors

High-PepsiCo faces a high likelihood of potential new competitors. These new competitors can be from PepsiCo faces a high likelihood of potential new competitors. These new competitors can be from new products from their existing competitors such as

Coca-new products from their existing competitors such as Coca-Cola competing with PepsiCo’s existingCola competing with PepsiCo’s existing

brands or new companies developing new products such as Starbucks cold coffee drinks. As PepsiCo brands or new companies developing new products such as Starbucks cold coffee drinks. As PepsiCo expands into other countries they will face those countries regional food manufactures who already expands into other countries they will face those countries regional food manufactures who already have had developed a market presence there.

have had developed a market presence there.

3.

3. Potential development of substitute productsPotential development of substitute products

High-Foods can be substitute most readily for other foods of equal quality costing less, lower quality Foods can be substitute most readily for other foods of equal quality costing less, lower quality costing less or a different product altogether. Not only can one food be substituted for another but can costing less or a different product altogether. Not only can one food be substituted for another but can be purchased at a different locations. In addition, consumers can simply buy a store brand, have tap be purchased at a different locations. In addition, consumers can simply buy a store brand, have tap water or go without the any substitute altogether.

water or go without the any substitute altogether.

4.

4. Bargaining power of suppliersBargaining power of suppliers

Low-The basic food products PepsiCo needs to develop its products from originate at farms, these farms The basic food products PepsiCo needs to develop its products from originate at farms, these farms sell to intermediaries who then sell it to food processing facilities. It is these intermediaries, food sell to intermediaries who then sell it to food processing facilities. It is these intermediaries, food processing companies and wholesalers who have the most bargaining power in relation to suppliers. processing companies and wholesalers who have the most bargaining power in relation to suppliers. However, should some of these farms experience internal or external environmental issues the result However, should some of these farms experience internal or external environmental issues the result

could hamper PepsiCo’s supply chain. could hamper PepsiCo’s supply chain.

5.

5. Bargaining power of consumersBargaining power of consumers

High-Consumers have a high level of bargaining power in relation to food manufactures such as Consumers have a high level of bargaining power in relation to food manufactures such as PepsiCo. Shoppers can chose from a variety snacks and beverages from a wide variety of stores from PepsiCo. Shoppers can chose from a variety snacks and beverages from a wide variety of stores from within just a few miles of their home. Consumers can chose what types of food stuffs to buy in a store within just a few miles of their home. Consumers can chose what types of food stuffs to buy in a store and they can shop at multiple stores to complete their entire purchase. In addition, shoppers can and they can shop at multiple stores to complete their entire purchase. In addition, shoppers can substitute one food for another, chose products based on price, quality, sale, marketing, its packaging, substitute one food for another, chose products based on price, quality, sale, marketing, its packaging, freshness, shelf life and many other characteristics. Consumers can buy in bulk or they can impulse buy, freshness, shelf life and many other characteristics. Consumers can buy in bulk or they can impulse buy, each determining the profit of the store supplying the snack or beverage and the return on the product each determining the profit of the store supplying the snack or beverage and the return on the product for PepsiCo.

for PepsiCo.

Porter Generic Strategy: Porter Generic Strategy:

Target Scope Target Scope Low

Broad

Broad Cost Cost Leadership Leadership Strategy Strategy Differentiated Differentiated StrategyStrategy

Narrow

Narrow Focused Focused Strategy Strategy (low (low cost)cost)

X

X

Focused Strategy (Differentiation) Focused Strategy (Differentiation)

Porter rational: Porter rational:

PepsiCo should select continue their differentiated strategy but in addition add a focused PepsiCo should select continue their differentiated strategy but in addition add a focused strategy product line that offers the consumer several high quality low cost snacks to compete against strategy product line that offers the consumer several high quality low cost snacks to compete against store brands and market fragmentation.

store brands and market fragmentation.

The Competitive Factor Evaluations Matrix: The Competitive Factor Evaluations Matrix:

PepsiCo Coca-Cola Nabisco

PepsiCo Coca-Cola Nabisco

Critical

Critical Success Success Factors Factors Weight Weight Rating Rating Score Score Rating Rating Score Score Rating Rating ScoreScore

Brand

Brand recognition recognition 0.14 0.14 4 4 0.56 0.56 5 5 0.70 0.70 3 3 0.420.42 Product

Product Quality Quality 0.13 0.13 4 4 0.52 0.52 4 4 0.52 0.52 4 4 0.520.52 Price

Price Competitiveness's Competitiveness's 0.12 0.12 3 3 0.36 0.36 3 3 0.36 0.36 3 3 0.360.36 Management

Management 0.12 0.12 3 3 0.36 0.36 3 3 0.36 0.36 3 3 0.360.36 Financial

Financial Position Position 0.13 0.13 3 3 0.39 0.39 4 4 0.52 0.52 3 3 0.390.39 Customer

Customer Loyalty Loyalty 0.11 0.11 3 3 0.33 0.33 4 4 0.44 0.44 3 3 0.330.33 Global

Global Expansion Expansion 0.12 0.12 3 3 0.36 0.36 4 4 0.48 0.48 3 3 0.360.36 Market

Market Share Share 0.13 0.13 3 3 0.39 0.39 4 4 0.52 0.52 3 3 0.390.39 Total

The Competitive Factor Evaluations Matrix shows that PepsiCo is out competing Nabisco but not The Competitive Factor Evaluations Matrix shows that PepsiCo is out competing Nabisco but not its chief rival Coca-Cola. PepsiCo produces high quality brand name products that compete on price with its chief rival Coca-Cola. PepsiCo produces high quality brand name products that compete on price with Coca-Cola. In addition PepsiCo has a strong management team but suffers from a high level of long term Coca-Cola. In addition PepsiCo has a strong management team but suffers from a high level of long term debt. PepsiCo has strong customer loyalty but not as strong as Coca-Cola customers brand loyalty debt. PepsiCo has strong customer loyalty but not as strong as Coca-Cola customers brand loyalty although both

although bothcompanies’companies’loyal customers can shift their loyalty should product prices increase.loyal customers can shift their loyalty should product prices increase.

Summary of Operating Results Summary of Operating Results For

For the the year year ending ending December December 31st 31st 2008 2008 2007 2007 20062006

In millions of dollars except per share amounts In millions of dollars except per share amounts

Net Revenue

Net Revenue 43,25143,251 39,47439,474 35,13735,137

Cost

Cost of of Sales Sales 20,351 20,351 18,038 18,038 15,76215,762 Selling

Selling and and General General Expenses Expenses 15,901 15,901 14,208 14,208 12,71112,711 Amortization Amortization 64 64 58 58 162162 Interest Expense Interest Expense (329) (329) (224) (224) (239)(239) Net Income Net Income 5,142 5,142 5,658 5,658 5,6425,642 Cash

Cash and and Cash Cash Equivalents Equivalents 2,064 2,064 910 910 1,6511,651 Accounts

Accounts Receivable Receivable 4,683 4,683 4,398 4,398 3,7253,725 Inventories

Inventories 2,522 2,522 2,290 2,290 1,9261,926

Total Current Assets

Total Current Assets 10,806 10,806 10,151 10,151 9,1309,130

Short

Short Term Term Liabilities Liabilities 369 369 0 0 274274 Long Term Liabilities

Long Term Liabilities 7,825 7,825 4,203 4,203 2,5502,550

Total Liabilities

Total Liabilities 23,888 23,888 17,394 17,394 14,56214,562

PepsiCo’s operating summary for the years 2006, 2007, 2008 show that although PepsiCo’s net PepsiCo’s operating summary for the years 2006, 2007, 2008 show that although PepsiCo’s net

three years to do an increase in raw food materials which make up PepsiCo’s products and

three years to do an increase in raw food materials which make up PepsiCo’s products and interestinterest expenses increased as well. In addition, although

expenses increased as well. In addition, although total current assets increased marginally total total current assets increased marginally total liabilitiesliabilities increased 9 billion dollars (David, 2011) which in the long term will be detrimental to the company increased 9 billion dollars (David, 2011) which in the long term will be detrimental to the company should it not pay it down.

should it not pay it down.

SWOT Matrix: SWOT Matrix:

SWOT

SWOT

 _–

 _–

2. The unification of bottling plants 2. The unification of bottling plants 3. Diversified product line including 3. Diversified product line including snacks, juice

snacks, juice 4. Expanding into

4. Expanding into other countriesother countries 5. Company is run by

5. Company is run by experiencedexperienced management team

management team

Weaknesses Weaknesses

 _–

 _–

1. Adjust costs downward in 1. Adjust costs downward in economic climate

economic climate

2. Increase healthy foods divisions 2. Increase healthy foods divisions 3. Expand research and

3. Expand research and development

development

4. Expand marketing to web 4. Expand marketing to web related media outlets related media outlets 5. Reduce long term debt 5. Reduce long term debt

Opportunities Opportunities

 _–

 _–

1. Increase in carbonated soft drink 1. Increase in carbonated soft drink usage in Asia and Europe

usage in Asia and Europe 2. Increased demand for sports 2. Increased demand for sports drinks and flavored waters drinks and flavored waters 3. Expand into Brazil through its 3. Expand into Brazil through its current acquisition of Amacoco current acquisition of Amacoco Nordeste Ltda

Nordeste Ltda

4. Expand low cost line to

4. Expand low cost line to competecompete against house brands

against house brands

5. Gain shelf space through product 5. Gain shelf space through product synergy

synergy

SO Strategies SO Strategies Increase variety of sports or Increase variety of sports or healthy type snacks aligned with healthy type snacks aligned with flavored waters. (S3,O2)

flavored waters. (S3,O2)

Use Brazilian bottler to expand into Use Brazilian bottler to expand into Brazil and other regions in South Brazil and other regions in South America. (S4,O3)

America. (S4,O3)

Increase brand name low cost line Increase brand name low cost line for bargain shoppers. (S1,O4) for bargain shoppers. (S1,O4)

WO Strategies WO Strategies

Create carbonated health waters. Create carbonated health waters. (W2,O2)

(W2,O2)

Develop new low cost snacks and Develop new low cost snacks and beverages. (W3,O4)

beverages. (W3,O4)

Expand global sale to offset long Expand global sale to offset long term debt. (W5,O1)

Threats Threats

 _–

 _–

1. Carbonated soft drink market in 1. Carbonated soft drink market in decline

decline

2. Industry operates unchanged 2. Industry operates unchanged 3. Campaign against bottle water 3. Campaign against bottle water affecting usage

affecting usage 4.

4.Kellogg and Nabisco’s growingKellogg and Nabisco’s growing snack divisions

snack divisions

5. Extensive marketing needed 5. Extensive marketing needed driving marketing costs up driving marketing costs up

ST Strategies ST Strategies Experiment with other types of  Experiment with other types of  beverage containers based on beverage containers based on regional market. (S4,T2) regional market. (S4,T2)

Develop powdered drinks. (S4,T3) Develop powdered drinks. (S4,T3) Management signing strategic Management signing strategic partnerships with smaller snack partnerships with smaller snack companies. (S5,T5)

companies. (S5,T5)

WT Strategies WT Strategies Increase marketing of colas on Increase marketing of colas on alternate media outlets. (W4,T1) alternate media outlets. (W4,T1) Restructure company by paying Restructure company by paying down debts. (W5,T2)

down debts. (W5,T2)

Redesign water bottles for less Redesign water bottles for less plastic, or develop biodegradable plastic, or develop biodegradable bottles. (W3,T3).

bottles. (W3,T3).

PepsiCo’s SWOT matrix shows that they have room to create new types of products and PepsiCo’s SWOT matrix shows that they have room to create new types of products and

packages for those products that will expand their market and reduce their costs. They can use these packages for those products that will expand their market and reduce their costs. They can use these new products and packages as they expand into other countries while regionalizing those products to new products and packages as they expand into other countries while regionalizing those products to the areas which they serve. They must reduce their total long term debt and can do this through the areas which they serve. They must reduce their total long term debt and can do this through decreasing the amount of packaging they use in their products while reducing their fixed costs. The case decreasing the amount of packaging they use in their products while reducing their fixed costs. The case shows that PepsiCo is already reducing fixed costs, however reducing package costs can only help them shows that PepsiCo is already reducing fixed costs, however reducing package costs can only help them at this time.

at this time.

Space Matrix: Space Matrix: Financial

Financial Position Position RatingsRatings

Leverage 3

Leverage 3

Liquidity 2

Liquidity 2

Working

Working capital capital 22

Cash

Cash flow flow 33

10 10 Industry Position

Industry Position Growth

Profit

Profit potential potential 33

Financial

Financial stability stability 22

Resource

Resource utilization utilization 22

11 11 Stability Position

Stability Position Technological

Technological changes changes -1-1

Price

Price range range of of competing competing products products -3-3 Competitive

Competitive Pressure Pressure -4-4

Price

Price elasticity elasticity of of demand demand -4-4

-12 -12 Competitive Position

Competitive Position Market

Market Share Share -2-2

Product

Product quality quality -1-1

Customer

Customer loyalty loyalty -3-3

Product

Product lifecycle lifecycle -2-2

-8 -8 Conclusions: Conclusions: FP Average = 10/4 = 2.5 FP Average = 10/4 = 2.5 IP Average = 11/4 = 2.75 IP Average = 11/4 = 2.75 SP Average = -12/4 = -3 SP Average = -12/4 = -3 CP Average = -8/4 = -2 CP Average = -8/4 = -2

Space Matrix Coordinates: Space Matrix Coordinates:

X-axis:

X-axis: CP+IP or (-2 CP+IP or (-2 + 2.75) = + 2.75) = .75.75 Y-axis:

Space Matrix analysis: Space Matrix analysis:

The Space Matrix shows that PepsiCo is competing fairly well in a very unstable market. Their The Space Matrix shows that PepsiCo is competing fairly well in a very unstable market. Their sales are increasing and they are expanding into other countries. PepsiCo is number two in market share sales are increasing and they are expanding into other countries. PepsiCo is number two in market share in the consumer snack and beverage category while having a wide portfolio of brands (David, 2011). in the consumer snack and beverage category while having a wide portfolio of brands (David, 2011). They compete on price and quality with their number one competitor Coca-Cola while taking on They compete on price and quality with their number one competitor Coca-Cola while taking on companies that are already established in the snack market being Nabisco and Kellogg. They have companies that are already established in the snack market being Nabisco and Kellogg. They have experienced management and an active research and development department. PepsiCo is very active experienced management and an active research and development department. PepsiCo is very active in managing their brands, keeping older brands fresh while creating new brands as consumer tastes in managing their brands, keeping older brands fresh while creating new brands as consumer tastes change. change. BGC matrix: BGC matrix: fp fp 3 3 2 2 1 1 ccpp iipp --33 --22 --11 11 22 33 -1 -1 -2 -2 -3 -3 sp sp

High

High Medium Medium LowLow

Medium Stars

Medium Stars

Lay’s potato chips (7 billion 2009) Lay’s potato chips (7 billion 2009)

?’s ?’s

Aquafina water (3 billion 2009) Aquafina water (3 billion 2009) Low

Low Cash Cash CowsCows

Pepsi-Cola (20 billion 2009) Pepsi-Cola (20 billion 2009)

Dogs Dogs

Rice a Roni (double digit decline Rice a Roni (double digit decline in sales < 500 million)

in sales < 500 million)

The BGC Matrix shows that

The BGC Matrix shows that PepsiCo’s main product PepsiPepsiCo’s main product Pepsi-Cola is a cash cow and this is to be-Cola is a cash cow and this is to be expected with Pepsi-Cola, Mountain Dew and Diet Pepsi accounting for almost 30 billion dollars in sales expected with Pepsi-Cola, Mountain Dew and Diet Pepsi accounting for almost 30 billion dollars in sales for 2009 (PepsiCo Annual Report 2009 - Management's Discussion). Aquafina water and other for 2009 (PepsiCo Annual Report 2009 - Management's Discussion). Aquafina water and other non-carbonated beverages can become cash cows with additional market penetration in regions outside the carbonated beverages can become cash cows with additional market penetration in regions outside the United States while marketing those products overseas (PepsiCo Annual Report 2009 - Management's United States while marketing those products overseas (PepsiCo Annual Report 2009 - Management's Discussion). Unfortunately, for PepsiCo products such as Rice a Roni and other types of PepsiCo brand Discussion). Unfortunately, for PepsiCo products such as Rice a Roni and other types of PepsiCo brand salty semi-prepared foods are losing market ground as well as having sharp declines in sales (PepsiCo salty semi-prepared foods are losing market ground as well as having sharp declines in sales (PepsiCo Annual Report 2009 - Management's Discussion) possibly due to customers being more health conscious Annual Report 2009 - Management's Discussion) possibly due to customers being more health conscious than previous years. For these types of products PepsCo will need to either reformulate those brands or than previous years. For these types of products PepsCo will need to either reformulate those brands or discontinue them.

discontinue them.

Strategy Recommendations: Strategy Recommendations:

PepsiCo should expand its healthy line of beverages and snacks, develop carbonated flavored PepsiCo should expand its healthy line of beverages and snacks, develop carbonated flavored waters, expand overseas with carbonated sodas, sports drinks and healthy snacks, develop new types of  waters, expand overseas with carbonated sodas, sports drinks and healthy snacks, develop new types of 

reduce its long term debt and expand on its powdered drink line. If PepsiCo follows these strategic reduce its long term debt and expand on its powdered drink line. If PepsiCo follows these strategic recommendations their brand sales will grow,

recommendations their brand sales will grow, they will develop new brands and they they will develop new brands and they will have increasedwill have increased sales while having lower fixed costs. Once PepsiCo has several quarters of increased sales and lower sales while having lower fixed costs. Once PepsiCo has several quarters of increased sales and lower fixed costs they will then be

fixed costs they will then be able to pay off their long term able to pay off their long term debt brought on by restructuring.debt brought on by restructuring.

Income

Income Statement Statement 20082008

2012 2012

Projected Comments Projected Comments (in millions unless specified)

(in millions unless specified) Sales

Sales Revenue Revenue 43,251 43,251 65,00065,000 Increased sales due to an expansion of Increased sales due to an expansion of starstar

brand and the development of new brand and the development of new brands.

brands.

Cost of goods sold decrease due to Cost of goods sold decrease due to lowerlower fixed costs.

fixed costs. Lower costs of goods Lower costs of goods soldsold through better distribution and through better distribution and reorganization.

reorganization.

Cost

Cost of of Goods Goods Sold Sold 20,351 20,351 21,00021,000

Selling

Selling and and general general expenses expenses 15,901 15,901 16,00016,000

Net

Net Income Income 5,142 5,142 6,5006,500

Increase net income due to development Increase net income due to development of new brands, reduction of dog brands of new brands, reduction of dog brands and increase in healthy drinks/snacks and increase in healthy drinks/snacks

Accounts

Accounts Payable Payable 8,237 8,237 7,0007,000 _{Reduction of accounts payable do to betterReduction of accounts payable do to better}

turnover, efficiency, reduction of long term turnover, efficiency, reduction of long term debt through paying of principle.

debt through paying of principle.

Reduction of current liabilities as well due Reduction of current liabilities as well due to use of technology.

to use of technology.

Long

Long Term Term Debt Debt 7,858 7,858 6,2006,200 Current

Current Liabilities Liabilities 369 369 350350

Common

Common Stock Stock Repurchase Repurchase (or (or sale) sale) -14,122 -14,122 (5,000)(5,000) Common stock sold to pay forCommon stock sold to pay for expansion in other countries. expansion in other countries.

Cash

Cash 2,064 2,064 3,1003,100

Cash on hand increases due to SWOT Cash on hand increases due to SWOT implementation

implementation

The above pro forma statement shows a portion of the Consolidated Statements of Operations and  The above pro forma statement shows a portion of the Consolidated Statements of Operations and  Balance sheet affected by my recommendation and the external factors discussed in the Internal, Balance sheet affected by my recommendation and the external factors discussed in the Internal, External and SWOT matrix. The above Pro Forma statement is comprised of actual 2008 data and  External and SWOT matrix. The above Pro Forma statement is comprised of actual 2008 data and   projected 2012 data.

Epilogue Section: Epilogue Section:

Since the case was written

Since the case was writtenPepsiCo’s net sales have increased to 65,000 milliPepsiCo’s net sales have increased to 65,000 million dollars while neton dollars while net income grew to 6,400 million dollars (PepsiCo Annual Reports 2011)

income grew to 6,400 million dollars (PepsiCo Annual Reports 2011). PepsiCo’s cost of sales increased to. PepsiCo’s cost of sales increased to

31,000 million dollars while long term debt increased to 20,500 million dollars (PepsiCo Annual Reports 31,000 million dollars while long term debt increased to 20,500 million dollars (PepsiCo Annual Reports 2011)

2011). PepsiCo’s cash on h. PepsiCo’s cash on hand was 358 million dollars (PepsiCo Annual Reports 2011). For 2011and was 358 million dollars (PepsiCo Annual Reports 2011). For 2011

PepsiCo’s return on investment was at 17 percent while it’s

PepsiCo’s return on investment was at 17 percent while it’s return on equity was 31 percent (PepsiCoreturn on equity was 31 percent (PepsiCo Annual Reports 2011). Their net revenue was up 14 percent while their operating profit rose by 7 Annual Reports 2011). Their net revenue was up 14 percent while their operating profit rose by 7 percent (PepsiCo Annual Reports 2011). Their investment in Brazil helped them expand deeper into the percent (PepsiCo Annual Reports 2011). Their investment in Brazil helped them expand deeper into the backed cookie and dairy product market while distribution improvements increased operating efficiency backed cookie and dairy product market while distribution improvements increased operating efficiency (PepsiCo Annual Reports 2011). Currently, P

(PepsiCo Annual Reports 2011). Currently, PepsiCo’s nutritional food category is at 13 billion dollars inepsiCo’s nutritional food category is at 13 billion dollars in

sales annually while new products such as PepsiMax zero calorie cola was the fastest growing cola drink sales annually while new products such as PepsiMax zero calorie cola was the fastest growing cola drink in the US in 2011 (PepsiCo Annual Reports 2011). The company made several debt repurchases in 2011 in the US in 2011 (PepsiCo Annual Reports 2011). The company made several debt repurchases in 2011 as well as swapping secured debt for variable interest debt (PepsiCo Annual Reports 2011), in addition as well as swapping secured debt for variable interest debt (PepsiCo Annual Reports 2011), in addition to this they are still tied extensively to their repurchasing of both North American bottling plants which to this they are still tied extensively to their repurchasing of both North American bottling plants which occurred in 2008. This is unfortunate because they are assuming their ability to repay these debts on occurred in 2008. This is unfortunate because they are assuming their ability to repay these debts on their increased sales and increases in the

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