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Case Analysis Purpose

To analyze how the PepsiCos diversification strategy has maximized the shareholders value. To identify problems, opportunities, and strategic actions that would sustain its impressive financial and market performance.

Agenda
Case Analysis Purpose Strategic Profile Situation analysis SWOT Analysis Strategy Formulation Strategic Alternative Implementation

Pepsicos Strategic Profile


The worlds 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 FritoLay salty snacks, Quaker Chewy granola bars, Pepsi soft drinks, Tropicana orange juice, Lipton, Gatorade, Quaker Oatmeal, etc.

PepsiCos Strategic Profile


1965: Frito-Lay and Pepsi-Cola was merged into PepsiCo Inc. 1898 Pepsi-Cola was founded. 1970 Entered Japan and Eastern Europe. Open one snack food plant per year. 1996: Needs for a company turnaround were identified, where the potential strategic fit benefits between restaurants and PepsiCos food and beverages are difficult to realised, and low margin of restaurant business. August 2001: Quaker Oats were acquired with $13.9 billion, with Gatorade as the most valuable assets.

1993: Introduced Lipton tea and Aquafina.

1997: Spun off the restaurant business

1977 1986 Acquired 1932 Pizza Hut, Taco Bell, Fritos and and KFC. 1980 1996 Lay were Continued acquired founded. 1961 Fritos and Lay were various foods and merged into Frito-Lay beverages Company. companies, and
quick service restaurants.

1997 2000: various acquisitions on overseas F&B companies (Australia and Saudi Arabia).

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

PepsiCos 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, International Expansion, and Strategic Acquisitions.

PepsiCos Strategic Profile


Product Innovations To make snack foods and beverage healthier. Really believed thegood-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 America, and also slow bottling water growth.

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 Ecological / Natural Environment Environment friendly packaging solutions

Situation Analysis Industry 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. Joint distribution system between PepsiCos products.

Situation Analysis Industry Analysis


Volume Share of US Beverages
60 90% 80% 50 70% Percentage of Growth Percentage Volume Growth

40

60%
50% 40% 30% 20% 10%

30

20

10 0% 2006 0 2005 2006 2007 -10% 2007

Situation Analysis Industry Analysis


Potential New Entrants Low. Only few MNCs have large market share. Some local players with nich market. Bargaining power from Seller Medium Dependent to raw materials, but many providers are available. 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 and healthy nutrition content. Bargaining power from Buyers Very high Cost to switch is very low. Retailer may have bargaining power, depend on the size.

PepsiCo Internal Analysis


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

How well is the companys strategy working? What are the companys competitively important resources and capabilities? Are the companys cost structure and customer value proposition competitive? Is the company competitively stronger or weaker than key rivals? What strategic issues and problems merit frontburner managerial attention?

PepsiCo Internal Analysis


#1 : How Well Is The Companys Strategy Working ? The two best indicators of how well a companys strategy is working are : 1. whether the company is recording gains in financial strength and profitability and 2. whether the companys competitive strength and market standing is improving.

PepsiCo Internal Analysis


#1 : How Well Is The Companys Strategy Working ?

PepsiCo Internal Analysis


#1 : How Well Is The Companys Strategy Working ?

PepsiCo Internal Analysis


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

#2 :

What are the companys competitively important resources and capabilities? SWOT

Analysis

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 Good customer service capabilities

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.

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 bottling partners.

PepsiCo SWOT Analysis


Potential Market Opportunities : Significant opportunity to grow internationally (from US market) by expanding PepsiCos 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.

PepsiCo SWOT Analysis


Potential External Threats to a Companys 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 energy; foreign exchange rates; and interest rates.

PepsiCo Internal Analysis

PepsiCo Internal Analysis


# 3 : Are The Companys Cost Structure and Customer Value Proposition Competitive?

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 (Not Stronger or Weaker)

PepsiCo Internal Analysis


#5 : What Strategic Issues and Problems Merit FrontBurner Managerial Attention? There are 5 strategic issues and problems must be addressed by PepsiCos management: Revitalizing Its North American Beverage Business. Broadening Its Diverse Portfolio of Global Products. Successfully Navigating The Global Economic Crisis. Expanding in International Markets. Maintaining Its Commitment To Sustainable Growth.

Evaluating industry attractiveness


Rating scale : 1 = Very unattractive to Company; 10 = Very attractive to Company
Industry Attractiveness Measure Weight Soft drinks Market Size & projected Growth Rate Industry Profitability Intesity of Competition Emerging Opportunities & Threats Resource Requirements Product Innovation Social Political Environmental Factors Totals 0.25 0.15 0.15 0.2 0.05 0.15 0.05 1 9 8 5 7 9 8 7 2.25 1.2 0.75 1.4 0.45 1.2 0.35 7.6 Bottled Water 8 7 4 8 7 10 8 2 1.05 0.6 1.6 0.35 1.5 0.4 7.5 Chilled Juices 6 6 7 6 7 8 7 1.5 0.9 1.05 1.2 0.35 1.2 0.35 6.55 Isotonic Beverages 4 7 10 7 8 5 7 1 1.05 1.5 1.4 0.4 0.75 0.35 6.45 Salty Snacks 8 9 5 7 7 6 6 2 1.35 0.75 1.4 0.35 0.9 0.3 7.05 Hot Cereals 5 7 8 5 8 7 7 1.25 1.05 1.2 1 0.4 1.05 0.35 6.3

Evaluating Business-unit Competitive Strengh


Rating scale : 1 = Very Weak; 10 = Very Strong
Competitive Strength Measure Weight PepsiCola Aquafina Tropicana Dole, Sobe Gatorade Frito-Lay Snacks Quaker Oatmeal

Relative Market Share

0.25

0.75

0.75

0.5

1.5

1.5

1.5

Market & Promotion

0.2

1.4

1.2

1.6

1.6

1.2

Product Innovation
Distribution

0.1
0.15

6
7

0.6
1.05

6
6

0.6
0.9

8
6

0.8
0.9

8
7

0.8
1.05

8
7

0.8
1.05

6
6

0.6
0.9

Resources

0.1

0.8

0.8

0.8

0.8

0.8

0.8

Brand Name / Image

0.2

1.2

1.4

1.6

1.6

1.2

Totals

5.8

5.05

5.6

7.35

7.35

6.2

Nine-Cell Industry AttractivenessCompetitive Strength Matrix

Strategy Formulation - Objective


Increase International Sales

Improve Operating Margin

Reinforce the International Presence

Manage the Stock Price

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

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 New target: emerging countries

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 Communication more about the sustainable efforts

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

0.80

0.40

1.00

RISK

0.20

0.60

0.40

0.80

TIME

0.10

0.60

0.30

0.40

BRAND EQUITY

0.20

1.60

1.80

10

2.00

INTERNATIONALIZATION

0.15

1.35

10

1.50

0.75

CUSTOMER SERVICE

0.15

1.05

0.75

1.35

TOTAL

6.00

5.15

6.30

Strategy Formulation - Alternative Choice

According to the alternative evaluation, the best choice for the company is Alternative 3. PepsiCo would be try to forecast customer s trends and relying on marketing intelligence with extensive research & development.

Strategic Alternative Implementation Action Items

Try to forecast customers trends

Anticipate the trend by providing new products through innovation

Strategic Alternative Implementation Action Plan


Rely on marketing research in order to detect new customer's needs Rely on research & development to create new products suiting the needs