PepsiCo Company

Company Profile

PepsiCo, Inc. was established in 1956 when Pepsi Cola and Frito-Lay shareholders agreed to a
merger between the salty snack icon and soft drink giant. During PepsiCo’s first five years as a
snack and beverage company, it introduced new product as Doritos and Funyuns, entered
markets in Japan and Eastern Europe, and opened, on average, one new snack food plant per
year.

PepsiCo, Inc. is among the world’s leading consumer product companies with 2005 net
revenues of more than $32 billion and total operating profit of $5.9 billion. PepsiCo
manufactures and markets snack foods in North America through our Frito-Lay division (32%
of revenues); beverages in North America through PepsiCo Beverages North America (28% of
revenues); beverages and snacks outside North America through PepsiCo International (35% of
revenues); and cereals and rice products through Quaker Foods North America (5% of
revenues).

We offer great tasting convenient foods and beverages to consumers. Our principal brands
include Frito-Lay, Pepsi-Cola, Tropicana, Gatorade and Quaker. We manufacture, market and
sell more than 500 products that serve the needs of consumers of all ages in more than 200
countries.

Our products offer fun and refreshment and many can contribute to good health and nutrition.
Our largest brands include Pepsi-Cola, Diet Pepsi, Mountain Dew, Gatorade thirst quencher,
Lay’s potato chips, Doritos tortilla chips, Tropicana Pure Premium orange juice, 7UP (outside
the United States), Cheetos cheese flavored snacks, Quaker cereals, Aquafina bottled water,
Ruffles potato chips, Mirinda carbonated soft drinks, ready-to-drink Lipton teas, Tostitos
tortilla chips, Sierra Mist carbonated soft drinks and Fritos corn chips. Many of these brands
are known around the world.

As part of our Smart Spot initiative, we offer a growing number of products that can contribute
to healthier lifestyles. These products may be healthy, such as oatmeal, or may have been
reformulated to offer lower sugar or fats, or may have added ingredients that deliver health
benefits, such as calcium. The Smart Spot eligible products are based on authoritative
statements from the U.S. Food and Drug Administration (FDA) and the National Academy of
Sciences (NAS). In 2005, revenues from Smart Spot eligible products grew at two-and-one-
half times the rate of the rest of our portfolio. We see the growing interest in health and
wellness as an opportunity and we’re committed to providing consumers with the products they
want.

We distribute our products to customers through a variety of distribution methods including

direct-store-delivery, broker-warehouse delivery and foodservice and vending distribution
networks. Our customers include large supermarkets and small grocery stores, warehouse and
club stores, mass merchandisers, convenience and gas station stores, drug stores and other
retail outlets as well as restaurants and foodservice and vending operations. We manufacture
the majority of our products, sourcing from both independent and contract farmers, processing
and packaging in our own plants. With respect to soft drinks, we provide concentrate to bottlers
who manufacture and distribute our brands. In the United States, these bottlers are
independently owned and operate under franchise agreements.

PepsiCo is a publicly-listed, widely-held company, trading as PEP. Our common stock is traded
principally on the New York Stock Exchange. PepsiCo is also listed on the Amsterdam,
Chicago and Swiss Stock Exchanges. At year-end 2005, there were approximately 197,500
shareholders of record.

PepsiCo is organized into four divisions: Frito-Lay North America, PepsiCo Beverages North
America, PepsiCo International and Quaker Foods North America. During 2005, we acquired
several companies that fit with our portfolio including:

• Full ownership of Snack Ventures Europe, Europe’s largest snack food company with
operations in Holland, France, Spain, Portugal, Greece, the Baltics, Hungary and
Russia;
• Star Foods in Poland;
• Sakata, the market leader in rice snacks in Australia; and
 • Punica Getränke GmbH, a leading maker of fruit juices and juice drinks in Germany.

Our largest markets are the United States, Mexico, the United Kingdom and Canada.

Our roots go back more than 100 years to the creation of Pepsi-Cola by New Bern, N.C. druggist
Caleb Bradham and his founding of the Company in 1898. Frito-Lay was founded by Herman
W. Lay in 1932. He started the H.W. Lay Company to distribute potato chips and merged with
The Frito Company in 1961 to form Frito-Lay. PepsiCo was formed in 1965 through the merger
of the Pepsi-Cola Company and Frito-Lay.

Tropicana was started by Anthony Rossi, who pioneered a pasteurization process for orange
juice. It became a part of PepsiCo in 1998. Gatorade, which was created in 1965, became a part
of the Quaker Oats Company in 1983. The Quaker Oats Company, which dates back to 1901
when several American pioneers in oat milling came together to incorporate, became a part of
PepsiCo in 2001.

Industry Life Cycle

Introductory Growth Maturity

Decline Stage
Stage Stage Stage

Total
Market
Sales

Time
PepsiCo including into mature company, so the strategy that could applied to the company are:

1. Prune marginal products and models

2. Emphasize innovation in the value chain
3. Strong focus on cost reduction
4. Increase sales to present customers
5. Purchase rivals and bargaining prices
6. Expand internationally
7. Build new, more flexible competitive capabilities
8. Merger and acquisitions reduce number of rivals

And there are several strategies to meet the strategies above:

A. Diversification

Definisi

Diversification is a risk management technique that mixes a wide variety of investments within a
portfolio (www.investopedia.com). PepsiCo has a lot of diversification while the company has
core product (Pepsi). The diversification products of PepsiCo are:

1. Fruit juices (Tropicana and Dole)

2. Sport Drinks (Gatorade)

3. Snack Foods (Frito, Lay’s, Ruffles, Doritos, Chee-tos, and Sun Chips)

4. Cereals, rice, and breakfast products (Quaker oatmeal, Cap’ n Crunch, Life, Quaker rice
cakes, and Quaker grits)

Type of diversification

PepsiCo use both of types of diversification, related and unrelated.

Related Diversification
Related diversification involves diversifying into business whose value chains possess
competitively valuable “strategic fits” with value chain of firm’s present business. There is
competitive advantage of related diversification:

1. Transfer expertise/capabilities/technology from one business to another

2. Reduce costs by combining related activities of different businesses into a single

operation

3. Transfer use of firm’s brand name reputation from one business to another

4. Create valuable competitive capabilities via cross-business collaboration in performing

related value chain activities

Unrelated Diversification

It involves diversifying into businesses with no strategic fit, no meaningful value chain
relationships and no unifying strategic theme. Basic approach to diversify into any industry
where potential exists to realize good financial results. While industry attractiveness and cost-of-
entry tests are important, better-off test is secondary.

Benefit and effect

There are two reasons to diversification, the first, may benefit the firm’s owners, through
increasing the efficiency of the firm. The second, diversification decision may reflect the
reference of the firm’s managers.

From the shareholder view the motivation of the diversification are economies of scale and
scope, to gain synergies, to make use of internal capital market, to diversify shareholder
portfolios, to economies on transaction costs, identifying under valued firms when there is excess
capacity, internal labor market, and brand extension.

Management motive of the diversification are pecuniary advantage and non-pecuniary such as
ego, social standing, etc.

B. Acquisition
Definition

An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another.
An acquisition may be friendly or hostile. In the former case, the companies cooperate in
negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board
has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by
a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or
longer established company and keep its name for the combined entity. This is known as a
reverse takeover.

Benefit

There are several benefits from acquisition to PepsiCo:

1. Expanding market share

2. Firm expanding

3. Increasing PepsiCo reputation

4. Give more benefit to customer

5. Strong brand portfolio

6. Superior go to market capabilities

7. Talented workforce

C. Developing Value Chain

Definition

A value chain is a chain of activities. Products pass through all activities of the chain in order and
at each activity the product gains some value. The chain of activities gives the products more
added value than the sum of added values of all activities. It is important not to mix the concept
of the value chain with the costs occurring throughout the activities. A diamond cutter can be
used as an example of the difference. The cutting activity may have a low cost, but the activity
adds to much of the value of the end product, since a rough diamond is significantly less valuable
than a cut diamond.

The value chain categorizes the generic value-adding activities of an organization. The "primary
activities" include: inbound logistics, operations (production), outbound logistics, marketing and
sales (demand), and services (maintenance). The "support activities" include: administrative
infrastructure management, human resource management, information technology, and
procurement. The costs and value drivers are identified for each value activity. The value chain
framework quickly made its way to the forefront of management thought as a powerful analysis
tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing
costs.

Benefit

The effect of diversification and acquisition strategies influenced PepsiCo value chain, there are:

1. Enhance productivity

2. Efficiency and provide cost reducing

3. Improve each division performance

4. To develop new product likely to be hits to with consumer

5. Consolidate company’s purchasing to reduce cost and manufacture similar product

Recommendations

1. PepsiCo to gain strength and to be more competitive in the market, PepsiCo has
experienced growth in product diversification and distribution through the acquisition
process. this is to expand PepsiCo’s economies of scale.

2. PepsiCo also acquired into several restaurants applying related diversification through
forward integration, this is because restaurant is one of the distribution channel to supply
 soft drink to consumers. in order for PepsiCo to focus on overseas development of
restaurants.

3. Pepsi-Cola to be able to achieve its specific goals of becoming World Number One
beverages and to guarantee Pepsi long-term sustained achievement of "fast profitable
growth" for their business.; they have to keep up with a rapidly increasing diversified
global market and increased competition.

4. Pepsi Co. keep made a wise diversity. Because many consumers are becoming
increasingly aware of the dangers of obesity and the health problems with consuming
large amounts of sugary carbonates drinks. This health awareness has caused drift
noncarbonates beverages and other healthier foods that Pepsi Co. Produced.

References

www.wikipedia.org

www.investopedia.com

www.julianmarklatuheru.blogspot.com

http://deepinpain.blogspot.com/2007/04/pepsi-cola-and-its-diversification.html