Case Study of Pepsi ----------------------------------Case Study of Pepsi I. CUR RENT SITUATION A.

Corporate Overview and Financial Performance: PepsiCo, Inc. is one of the most successful consumer products companies in the world, with 2000 revenues of over $20 billion and 125,000 employees. The company consists of: Fri to-Lay Company, the largest manufacturer and distributor of snack chips; Pepsi-C ola Company, the second largest soft drink business and Tropicana Products, the largest marketer and producer of branded juice. PepsiCo brands are among the bes t known and most respected in the world and are available in about 190 countries and territories. In 2000, PepsiCo has a reported net sale of $20,348 and a comp arable net sale of $20,144 in comparison to its 1999s net sales of $20,367 and $1 8,666 respectively. PepsiCo has increased its comparable net sale of 8% in 2000 while it had an increase of 15% in 1999. This reflects the increasing rate is go ing slower. On the other hand, PepsiCos interest expense declines 39% showing tha t the company is significantly lower the average debt level. Back to 1999, the r eport shows that the companys interest expense dropped 8%, which indicates that t he company is performing well in managing its financial strategies. More details about the financial performance of the company will be discussed in the later p art of this paper. B. Strategic Posture: 1. Mission: PepsiCo s overall mission i s to increase the value of shareholder s investment. They do this through sales growth, cost controls and wise investment of resources. They believe their comme rcial success depends upon offering quality and value to their consumers and cus tomers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhe ring to the highest standards of integrity. 2. Objectives:

PepsiCos overriding objective is to increase the value of our shareholders inves tment through integrated operating, investing and financing activities. Their st rategy is to concentrate their resources on growing their businesses, both throu gh internal growth and carefully selected acquisitions. Their strategy is contin ually fine-tuned to address the opportunities and risks of the global marketplac e. The corporation s success reflects their continuing commitment to growth and a focus on those businesses where they can drive their own growth and create opp ortunities. PepsiCo believes that as a corporate citizen, it has a responsibilit y to contribute to the quality of life in our communities. This philosophy is pu t into action through support of social agencies, projects and programs. The sco pe of this support is extensive -- ranging from sponsorship of local programs an d support of employee volunteer activities, to contributions of time, talent and funds to programs of national impact. Each division is responsible for its own giving program. Corporate giving is focused on giving where PepsiCo employees vo lunteer. 3. Strategies: As a consumer products company, PepsiCo does not have th e major environmental problems of heavy industry. Their biggest environ-mental c hallenge is packaging generated by their products. Packaging is important to pub lic health and a critical component of the distribution system that delivers pro ducts to consumers and commercial establishments. To meet both consumer demand a nd safeguard the environment, they recycle, reuse and reduce packaging wherever possible. Each business is also committed to responsible use of resources requir ed in manufacturing their products. Continually fine-tuned to address the opport unities and risks of the global marketplace. Concentrate our resources on growin g our businesses, both through internal growth and carefully selected acquisitio ns. Company developed its traditional products and expanded into low-fat and nofat snacks as well as salsas and dips. 4. Policies: Employee networks to mentor and support minority & female employees. Actively and diligently seek out qualif ied M/WBEs for all possible company requirements. Make every reasonable effort t o help qualified M/WBEs to meet company standards. Respect the privacy of all vi sitors who access and use the companys corporate Web site Treating all customers with respect, sensitivity and fairness, while providing some of the greatest pro ducts on earth.

 We respect individual differences in culture, ethnicity and color. PepsiCo is co mmitted to equal opportunity for all employees and applicants. Corporate program for training employees how to work and manage in an inclusive environment. II. STRATEGIC MANAGERS A. Board: Roger A. Enrico, 56, is chairman of the Board and C EO. Mr. Enrico was elected as PepsiCos CEO in April 1996 and as Chairman of the B oard in November 1996, after service as Vice Chairman since 1993. Enrico, who on ce wanted to be an actor, understands that great marketing is pure theater. In h is 29 years at PepsiCo (PEP), he has staged some of marketing s most spectacular productions. Coke s leadership tried to put us out of business, he says fla tly. But we did not look for a temporary boost or a short-term gain despite th e self-destructive business philosophy by our major competitor. We ve been honed by fire. He spun off Pepsi s capitalintensive bottling operations into an ind ependent public company. He spent $3.3 billion to acquire Tropicana, the leading orange juice brand. Indra K. Nooyi, 45, is a Senior Vice President and CFO. She joined PepsiCo in 1994 as Senior Vice President, Corporate Strategy and Develop ment. Prior to joining PepsiCo, she was Senior Vice President of Strategy, Plann ing and Strategic Markets for Asea Brown Boveri. Nooyi is responsible for corpor ate staff functions, including legal, human resources and corporate communicatio ns, in addition to her current CFO duties overseeing finance, strategic planning , mergers and acquisitions, information technology, advanced technologies and pr ocurement. She is also known in company circles for her analytical abilities, a key component behind her rise. Nooyi, whose remuneration for fiscal 1999 totaled more than $1 million, is also believed to be the chief strategist behind PepsiC o s competition with rival Coca-Cola. Steven S. Reinemund, 52, is President and Chief Operating Officer. Mr. Reinemund was elected President and COO in Septembe r 1999. He began his career with Pepsi as Senior Operating Officer of Pizza Hut, Inc. Peter A, Bridgman, 48, is Senior Vice President and Controller. Prior to a ssuming his current position, Mr. Bridgman was Senior Vice President and Control ler of The Pepsi Bottling Group and he was the Senior Vice President and Control ler for Pepsi-Cola North America from 1992 until 1999. Matthew M. Mckenna, 50, i s Senior Vice President and Treasurer. Previously, he was Senior Vice President, Taxes. Prior to joining PepsiCo in 1993 as Vice President, Taxes, he was a part ner with law firm Winthrop, Stimson, Putnam & Roberts in New York. B. Top Manage ment:

The top one of fifty most talented executives of the company, Roger A. Enrico, d emonstrates his excellent ability of leadership as representing the company to s how the Wall Street that PepsiCo can deliver superior performance quarter after quarter. One of Enrico s top priorities is to attract more investors into the st ock. In international markets, Enrico still faces several obstacles in building Pepsi s soda business; however, he builds up his strategy to place his biggest b ets on developing markets, such as India, China, and Russia. The key thing is not to merely plant flags, says Peter M. Thompson, CEO of Pepsi-Cola Internati onal. It s to make sure you build a business, customer by customer, block by b lock, day by day. In India, where per capita soft drink consumption is seven s ervings a year, vs. more than 700 in the U.S., and where deliveries are often do ne on threewheel bicycles, Pepsi finds the most prominent businessman in each to wn and gives them exclusive distribution rights, tapping their connections to dr ive growth. Over the past five years, volume has risen at a 26% annual clip. Pep si has stolen 19 points of market share from CocaCola, bringing Pepsi s share to 47%, close to Coke s 52%. III. EXTERNAL ENVIRONMENT A. Societal Environment: 1. Economic Factor: The key elements taken into consideration are the principal ma rket risks, which PepsiCo is exposed to interest rate, foreign exchange rate and commodity prices. These are specified as : (a)Interest rate on PepsiCos debt as well as it short-term investment portfolio: PepsiCo can manage its overall finan cing strategies in term of balancing investment opportunities and risks. The com pany is using interest rate and currency swaps to effectively modify the interes t rate in order to reduce the overall borrowing costs. (b)Foreign exchange rate and other international economic conditions: Operating in international markets involve exposure to movements in currency exchange rates, which typically affect the economic growth, inflation, interest rate, government actions and other fac tors. Once these changes occur, they will cause PepsiCo to adjust its financing and operating strategies. Changes in currency exchange rates that would have the largest impact on translating PepsiCos international operating profit include Me xican peso, British pound, Canadian dollar and Brazilian real. Through years, ma cro-economic conditions in Brazil, Mexico, Russia and across Asia Pacific have a dversely impacted on PepsiCos operations. Especially, the economic turmoil in Rus sia which accordingly resulted in the devaluation of the ruble in 1998 caused th e significant drop in the soft-drink demand.

(c)Commodity prices that affect the cost of raw materials: PepsiCo is subject to market risk with respect to commodities because its ability to recover increase d costs through higher pricing will be limited by the competitive environment in which it is operating. 2. Technological Factor: Development of additives such a s sugarless sweeteners, caffeine free products, and new flavorings enables Pepsi Co to provide products that meet changing customer tastes and preferences. In ad dition, computerized manufacturing technologies are great contributions to highe r efficiency and quality in bottling operations. For Pepsi, a critical business challenge is ensuring that the distribution processes can deliver the right prod ucts to the right place at the right time. According to Jerry Gregoire, Vice Pre sident, Information Services, The competitive advantage will go to the company th at can apply technology to areas such as logistics, getting costs out of the dis tribution pipeline and getting products into the stores less expensively while i ncreasing the availability of sales information. Pepsi NAs data communication netw ork is an important element in the companys efforts to address sales and distribu tion challenges with technology. Connecting nearly 330 manufacturing, distributi on, and sale sites around the U.S. and Canada, the Pepsi NA network transports d ata help management in controlling inventory. For instance, sales data helps man agers identify regions where certain products are not selling well, and move any excess inventory to areas where those products are in demand. Sales data also h elps Pepsis managers make decisions about products before they reach the freshnes s date and must be pulled from the shelf and discarded. 3. Political/Legal Facto rs: (a)The Human Right Issue: Few years ago, PepsiCo did business in Burma (Myan mar) under the brutal SLORC regime, the State Law and Order Restoration Council. As the SLORC moved to attract international investment, two millions people hav e been forced to work for no pay under brutal conditions to rebuild Burmas long n eglected infrastructure. What PepsiCo did at the time was patronizing the SLORC regime in what they called rebuild the countrys infrastructure. PepsiCo also said i t helps the economy by buying "products such as mung beans, sesame seeds and rat tan from small, local farmers." The issue addressed is whether these products we re made by forced labors. In fact, PepsiCo must export their products for hard c urrency because it cannot use Burma s nearly worthless currency to buy imports o f supplies for its bottling plants. As the result, PepsiCo had lost contracts at Harvard, Stanford, Colgate and other universities because it refuses to name th e sources of these farm products. (b)FDA Regulation: As a food product manufactu rer, PepsiCo is under the control of the Food and Drug Administration. For examp le, the FDA tests and certifies new ingredients such as high-intensity sweetener s before they are allowed to be used in soft drink production. (c)Waste Manageme nt and Public Concerns: Growing environmental awareness is leading to increasing legislation. The companys operation is affected by federal legislative proposals that address the four objectives:

-Minimize the quantity of packaging material entering the nations solid waste sys tem -Minimize the consumption of scarce natural resources -Maximize the recyclin g and reuse of packaging materials -Protect human health and the natural environ ment from adverse effects associated with the disposal of packaging materials. F or example, Connecticut has already passed a law that regulates packaging to inc rease its recyclability. 4. Socio-cultural Factor: Consumers today are not as mu ch joyous to cola products as they were before. Age and ethnicity are two main c haracteristics that affect consumer preference for soft drinks and alternative b everages. With age, health concerns become more of a factor when choosing a beve rage. To illustrate, some studies show that cola products or soft drink in gener al may cause kidney stones and other related diseases. In contrast to older cons umers, younger consumers particularly teens and those in their twentieshave less a ttention spans for products and are more likely to prefer products that seems to be fun and different . Although PepsiCo is the number one seller in carbonated beverages, it lost is market share in 2000 as consumers seek for alternative bev erages. As the matter of fact, PepsiCo switches to non-cola products such as bot tle-water, ready-to-drink tea and sports drinks. In turn, bottled water gained t he market share up to 12.8% in unit sales. B. Task Environment: 1. New Entrants: It is important when PepsiCo can identify what costs potential entrants to ente r the soft drink industry. The production technologies required for manufacturin g soft drinks is widely available for the potential entrants. However, competing on a national or global scale requires the ability to manufacture and distribut e a well-recognized brand. Therefore, not only PepsiCo is the one who have to sp end a tremendous fund on advertising campaigns, other companies such as Coca-Col a and Cadbury Schweppes have to go on the same path. According to the Beverage I ndustry, PepsiCo had a great number of commercials during the super-bowl. CocaCo la Co., PepsiCo, and Cadbury Schweppes spent a total of $469.1 million on media advertising in the U.S. market between January and September 1996. Will new entr ants be able to spend a tremendous amount to advertise themselves, or in other w ords, to create their big names in order to deprive the market shares from PepsiCo or Coca-Cola. Another aspect is the distribution challenging in some Asian coun tries such as China, Indonesia and India, where poor road conditions and other i nfrastructure problems may prevent the effective delivery by trucks. The questio n is whether PepsiCo can have a competitive advantage

to overcome these difficulties, then it will be difficult for the new companies who want to distribute their products. 2. Existing Companies: The U.S. and globa l soft drink industries are quite concentrated. Long dominated by two companies, Coca-Cola Co. and PepsiCo, the industry saw the emergence of a third significan t player when Cadbury Schweppes acquired the Dr. Pepper and 7UP brands in 1995. Table below shows that the top three firms accounted for 90% of the U.S. soft dr ink market in 1998 vs. 2000. The top one is still Coca-Cola with market share of 44% in 2000, next would be PepsiCo with 30.9% share. Dr.Pepper & 7UP goes down slightly in 2000 at 14.4%. There are some changes on market shares to other comp anies but the changes are not significant. U.S Soft Drink Market Share in 1998 v s 2000 Gallons Market Volume Company Coca-Cola Co. PepsiCo Inc. Dr.Pepper&7UP Co tt National Beverage Royal Crown Monarch Big Red Rank Millions(1998) 1 2 3 4 5 6 7 9 6,223.90 4,370.20 2,060.40 357 270 254.6 138.5 32 Millions(2000) 1998 Share 2000 Share 4,491.5 3,157.4 1,473.1 300 214.0 106.3 11.8 26.7 43.80% 30.80% 14.5 0% 2.50% 1.90% 1.80% 1.00% 0.20% 44.0% 30.9% 14.4% 2.9% 2.1% 1.0% 0.1% 0.3% As discussed in Social-cultural Factor part, consumers tastes change over the tim e. Instead of drinking cola products, consumers switch to water or fruit juices. Competitors may take this advantage to market their products. One example is th e agreement between Ocean Spray Cranberries Inc. and Beijing Huiyuan Beverage Gr oup, which is the largest juice company in China. Ocean Spray grants a ten-year license to Huiyuan manufacture, market and distribute its products. 3.Trends:

The market for soft drink is expected to grow at a slower rate in the next four years, according to a series of new global soft drink reports published by Bever age Marketing Corporation. The industry had a five-year compound annual growth r ate (CAGR) of 5.0% between 1993 and 1998. But for the five-year period from 1998 -2003, the CAGR is estimated to drop to about 4%. Although colas are the most im portant soda flavor on the market, the strongest growth in the industry is in th e non-cola segment. IV. A. INTERNAL ENVIRONMENT Corporate Structure PepsiCo owns its corporate headquarters buildings in Purchase, New York. The com pany is engaged in the snack food, soft drink and juice businesses. Each product category is further divided into North America segmentUS and Canadaand internatio nal segment. (PepsiCo 2000 Annual Report) Frito-Lay North America (FLNA) Frito-La y North America manufactures, markets, sells and distributes salty and sweet sna cks. Products manufactured and sold in North America include Lays and Ruffles bra nd potato chips, Doritos and Tostitos brand tortilla chips, Cheetos brand cheese -flavored snacks, Fritos brand corn chips, a variety of branded dips and salsas and Rold Gold brand pretzels. Low-fat and no-fat versions of several brands are also manufactured and sold in North America. Frito-Lay International (FLI) FritoLay International manufactures, markets, sells and distributes salty and sweet s nacks. Products include Walkers brand snack foods in the United Kingdom, Smiths b rand snack foods in Australia, Sabritas brand snack foods and Alegro and Gamesa brand sweet snacks in Mexico. Many of our U.S. brands have been introduced inter nationally such as Lays and Ruffles brand potato chips, Doritos and Tostitos bran d tortilla chips, Fritos brand corn chips and Cheetos brand cheese-flavored snac ks. Principal international snack markets include Mexico, the United Kingdom, Br azil, Spain, the Netherlands, Australia and South Africa. Pepsi-Cola North Americ a (PCNA) Pepsi-Cola North America manufactures concentrates of brand Pepsi, Moun tain Dew, Mug, Slice, Fruitworks, Sierra Mist and other brands for sale to franc hised bottlers. PCNA also sells syrups to national fountain accounts. PCNA marke ts and promotes its brands. PCNA also manufactures, markets and distributes read y-to-drink tea and coffee products through joint ventures with Lipton and Starbu cks and licenses the processing, distribution and sale of

Aquafina bottled water. In addition, PCNA manufactures and sells Dole juice drin ks for distribution and sale by Pepsi-Cola bottlers. Pepsi-Cola International (PC I) Pepsi-Cola International manufactures concentrates of brand Pepsi, 7UP, Mirin da, KAS, Mountain Dew and other brands internationally for sale to franchised bo ttlers and companyowned bottlers. PCI operates bottling plants and distribution facilities in various international markets for the production, distribution and sale of company-owned and licensed brands. PCI markets and promotes its brands internationally. Principal international markets include Mexico, China, Saudi Ar abia, India, Argentina, Thailand, the United Kingdom, Spain, the Philippines and Brazil. Tropicana Tropicana produces, markets, sells and distributes its juices in the United States and internationally. Products primarily sold in the United States include Tropicana Pure Premium, Seasons Best, Tropicana Twister and Dole b rand juices. Many of these products are distributed and sold in Canada and brand s such as Fruvita, Looza and Copella are also available in Europe. Principal int ernational markets include Canada, the United Kingdom and France. B. Corporate C ulture PepsiCo, Inc. has been systematically changed over the past two decades f rom passivity to aggressiveness in order to avoid stagnation and to adapt to cha nging competitive threats and the changing economic or social environments. Once the company was content in its number two spot, offering Pepsi as a cheaper alte rnative to Coca-Cola. But today, a new employee at PepsiCo quickly learns that b eating the competition, whether outside or inside the company, is the surest pat h to success. In its softdrink operation, for example, Pepsi s marketers now tak e on Coke directly, asking consumers to compare the taste of the two colas. The culture of the company now is based on the goal of becoming the number one of so ft drinks. Managers are pitted against each other to grab more market share, to w ork harder and to wring more profits out of their businesses. Because winning is the key value at Pepsi, losing has its penalties. Severe pressure was put on ma nagers to show continual improvement in market share, product volume, and profit s. All Employees know they must win merely to stay in place and must devastate th e competition to get ahead. To keep everyone on their toes, "creative tension" is continually encouraged among departments at Pepsi. The staff is kept lean and m anagers are moved to new jobs constantly,

which results in people working longs hours and engaging in political maneuverin g just to keep their jobs from being reorganized out from under them. C. Corpora te Resources 1. Marketing: Pepsi has now beaten Coke in the domestic take-home m arket, and it is mounting a challenge to Coca Cola overseas. Pepsi has been maki ng inroads: Besides monopolizing the Soviet market, it has dominated the Arab Mi ddle East ever since Coke was ousted in 1967, when it granted a bottling franchi se in Israel. The companys products are transported from manufacturing plants to its major distribution centers, principally by company-owned trucks. The company utilizes a direct store delivery system, whereby its sales force delivers the p roducts directly from distribution centers to the store shelf. This system permi ts the company to work closely with retail trade locations and to be responsive to their needs. The company believes this form of distribution allows it to have a marketing advantage and is essential for the proper distribution of products with a short shelf life. PepsiCo has developed the national marketing, promotion and advertising programs that support the its many brands and brand image, over see the quality of the products; develop new products and packaging, and coordin ates selling efforts. (PepsiCo 2000 Annual Report) 2. Finance: PepsiCo, Inc. man ufactures, markets and sells soft drinks and concentrates (Pepsi-Cola, Mountain Dew, Slice, etc.), snack foods (Frito-Lay) and Tropicana branded juices. For the 12 weeks ended 3/24/01, net sales increased 8% to $4.54 billion. Net income inc reased 18% ($498 million). Revenues benefited from volume gains across all divis ions. Net income also reflects an increased gross profit due to higher effective net pricing. Even though sales of PepsiCo were going down slightly on the last three years but they still have very high profits on that years. On the Ratio Pe psiCo just only 33% on debt/equity ratio and profit margin is 10.9 compare with industry just only 8.10%. On the first quarter of this year net sales advance 8% to over $4.5 billion with earnings per share increasing 17% to $.34. PepsiCo is very strong revenue growth. EPS grows 15% in the 16-week quarter to 38 cents, a nd 17% for the 52-week year to $1.45 Each division boosts Q4 volume, and gains m arket share for the year Net sales advance 8% to over $6 billion for the quarter , annual sales grow 8% and exceed $20 billion

 Every division posts double-digit operating profit growth in the quarter, annual operating profits advance 13% to $3.5 billion Operating cash flow grows 33% to $2.7 billion Return on invested capital (ROIC) improves to 23% -- a 250 basis po int increase 2001 outlook for continued double-digit earnings growth 3. Operatio ns: Most of the sales are through the companys own direct store distribution (DSD ) systems, where they actually take the products to stores and put them on the s helf. These systems reach hundreds of thousands of outlets, from the tiniest liq uor stores to the mightiest club store. The DSD systems give the company the abi lity to merchandise its products for maximum appeal to consumers. PepsiCo has be en adding new platforms for growth, which strengthen the companys portfolio and e nhance its vitally important innovation capabilities. For example, in January 20 01 the company acquired a majority of the South Beach Beverage Company, whose So Be line of drinks adds to the Pepsi-Cola portfolio some of the fastest-growing b rands in the fastestgrowing segment of the industry, non-carbonated beverages. A nother example is the planned merger with the Quaker Oats Company, which is expe ct to complete in the second quarter of 2001. This is without question the bigge st step to ensure a bright future of growth for PepsiCo. The merger will make Pe psiCo an even more effective competitor in the expanding market for convenient f oods and beverages. It will add two very powerful brands to its portfolio, Gator ade and Quaker, and create new opportunities for every PepsiCo division. The com bined enterprise will rank among the world s five largest consumer product compa nies. PepsiCo bought $383 million worth of goods and services from minority-owne d and womenowned suppliers in the year of 2000. The Women s Business Enterprise National Council named the company among America s Top Corporations for Women s Business Enterprise. PepsiCo minority and women business development programs we re rated among the top-10 nationally by the National Minority Supplier Developme nt Council. We were named by Fortune magazine to its list of America s "50 Best Companies for Minorities," by Hispanic magazine to its list of "The Hundred Comp anies Providing the Most Opportunities to Hispanics," by Latina Style magazine t o its list of "The 50 Best Companies for Latinas," and by Minority MBA magazine to its list of "Ten Top Companies for Minority MBAs."

The company encourages conservation, recycling and energy use programs that prom ote clean air and water and reduce landfill. Last year, the Occupational Health and Safety Administration named two more PepsiCo facilities to its top "STAR" st atus as part of the agency s Voluntary Protection Program. 4. Human Resources: T he company has a wealth of talent across the corporation. It starts with its exc eptional frontline team, the people out there serving the customers 365 days a y ear, and it extends to our corporate staff. The company not only has great oppor tunities, but the skills, experience, dedication and intellectual horsepower to make the most of them. The companys continued growth has created outstanding care er opportunities for talented professionals in a variety of specialized fields, such as information technology, treasury, tax, human resources, law, accounting, public affairs, audit. All successful applicants share a commitment to PepsiCo s goals and an ability to thrive in a fast-paced, results-oriented environment. In exchange, the company offers a highly competitive compensation and benefits p ackage. Pepsi executives are expected to be physically fit as well as mentally a lert: Pepsi employees four physical-fitness instructors at its headquarters. It is an unwritten rule that to get ahead in the company a manager must stay in sha pe. The company encourages one-on-one sports as well as interdepartmental compet ition in such games a soccer and basketball. 5. Information Systems: In respondi ng to market demands for efficient 24-hour "order-to-delivery" process for custo mer orders, PepsiCo has installed a computer system that links an effective wide area network that allows immediate transmission of customer orders. The outcome has been to integrate with a wide area network, transmit accurate, complete cus tomer order data, allowing the company to more efficiently load trucks, schedule deliveries and save man-hours. V. ANALYSIS OF STRATEGIC FACTORS A. Key strategi c factors are: 1. Recyclability of Containers Due to the liquid nature of Pepsis product, it is necessary that a solid and non-porous container be used to store the product. This fact leads to the use of plastics, aluminum, and glass as mate rials for the containers that Pepsi is stored in. These materials work very well for the purpose of their use, however these materials do not biodegrade easily. Every day, 93 million

empty soft drink bottles and cans are thrown away, rather than recycled. In Nove mber 2000, the boards of Pepsi and Coke passed resolutions for future container recycling targets. The resolutions call upon management to establish recycling t argets and prepare a plan to achieve them by January 1, 2005. There are two goal s: (1) achieving an 80 percent national recycling rate for bottles and cans; and (2) making plastic bottles with an average of 25 percent recycled plastic. The implementation of these resolutions will have a future effect on the cost basis of Pepsis product, and a positive environmental impact if the recycling targets a re met. 2. Continued growth to other segments, decline of cola interest The beve rage industry is moving towards the alternative drinks sector. Although in recen t times, mainstream beverages have been making a revival, it is obvious that alt ernative drinks will continue to grow. Pepsi can utilize its excellent brand rec ognition and reputation to invest in and capitalize on growth in this area, and increase it market share against Coca-Cola at the same time. 3. Increased use of exclusivity agreements with restaurant chains and college campuses Coca-Cola ha s a majority of exclusivity with restaurant chains including McDonalds and other major fast food chains. The benefits of exclusivity agreements give Coca-Cola a major advantage in channel distribution. The major reason Taco Bell was purchas ed by Pepsi was to create a new channel for Pepsi to be sold in restaurants. In addition to restaurants, soft drink manufacturers are willing to engage in "cola wars" to win the rights to supply all the machines in a given school in return for a commission. The funds go to support financially starved school programs th at could range from buying new library books to beefing up the computer lab. 4. Coca-Colas market dominance The dominance of Coca Cola in the soft drink market h as always been considered a major factor for Pepsi management. As long as Coca C ola continues to retain a dominant market share, Pepsi should continue to aggres sively acquire Coca Cola market share. 5. Excessive work pressure resulting in e xodus of Pepsi management The creative tension which is constantly being placed on Pepsi management has resulted in a number of management leaving the company for Coca Cola. Coca Cola has consistently been able to acquire the Pepsi Tigers, or v ery good managers, away from Pepsi. B. Evaluation of the current mission and obj ectives 1. Mission The overall mission of PepsiCo is to increase the value of sh areholder s investments. This is achieved through sales growth, cost controls an d wise investment of resources. PepsiCo

believes that their commercial success depends upon offering quality and value t o their consumers and customers; providing products that are safe, wholesome, ec onomically efficient and environmentally sound; and providing a fair return to t heir investors while adhering to the highest standards of integrity. 2. Objectiv es a. Concentration of resources on growth of businesses through internal growth and carefully selected acquisitions PepsiCo has adopted a plan for growth by co ntinually addressing the opportunities and risks associated with the global mark etplace. The corporation s success reflects their continuing commitment to growt h and a focus on those businesses where they can drive their own growth and crea te opportunities. b. Contribute to the quality of life in communities PepsiCo be lieves that as a corporate citizen, it is responsible to contribute to the quali ty of life in the communities it serves. This policy is implemented through supp ort of social agencies, projects, and programs. The company also supports employ ee volunteer activities through contributions of time, talent, and funds. Each P epsiCo division is responsible for its own giving program with corporate giving focused on supporting employee volunteer activities. VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY Out of the many strategic alternatives that PepsiCo cou ld choose to follow, we have chosen to endorse one that fosters continued growth and diversification. Although their over-diversified portfolio has hindered the ir International Growth, these strategies strengthen their overall corporate wor th and market presence domestically. As consultants for PepsiCo, we are making t he following recommendations: Pepsi should focus on increasing sales globally to compete effectively with Coke. They have been beaten badly in some markets, and need to focus more on "un-tapped" areas. Continue to diversify their beverage s election through acquisitions. This will enable PepsiCo to combat the decreased interest in cola. Going along with this, PepsiCo needs to ensure that they can p roperly manage all of these acquired companies and should divest those that show limited potential. Increase the use of exclusivity agreements to boost their sa les in key markets. This may make it harder to keep costs low but will ensure ad ded revenues. Another reason why Coke has continued to beat Pepsi is through its exclusivity agreements with restaurant chains, sports and

entertainment complexes, and college campuses. More attention in this area will help to battle Coke s dominance. Capitalize on their aggressive corporate cultur e in overseas dealings. This can help to combat the weakness of their current in ternational strategies.