Strate

gic
Audit
of
Submitted to:

Prof. Ruby Sansano

Professor

Submitted by:
Velinda D. Serrana
Maria Isabela P. Buza
Lea Ambulario
Gelly Jean D. Piscoso
Lester A. Macadangdang

A. Current Performance
Pepsi Co is a worldwide corporation that has been in existence since the late 19th century
when Caleb Bradham, a pharmacist from New Bern, North Carolina first started
experimenting with different soft drink concoctions. It was in 1898 that Pepsi Cola
first became a branded soft drink and from that point forward their product and the
companyhave grown to be the most recognized brand in the world.
This past financial year, PepsiCo continued it three-year positive growth strategy by
maintaining an aggressive presence in the United States and worldwide, boasting healthy
profits and market share.The company is broken into four major branches: Frito-lay
North America,PepsiCo Beverages North America, PepsiCo International, and Quaker
Foods NorthAmerica. Pepsi Co has one of the largest footholds in each of these markets
compared torelative competition, holding the following rankings worldwide: #2 in
Carbonated SoftDrinks. #1 in Sports Drink #1 in PET Water Brand (non-jug) #1 in
chilled Juices andJuice Drinks #1 Enhanced Water Brand #1 In ready to-Drink Coffee #1
in Ready-to-Drink Teas #1 in Potato Chips #1 in Tortilla Chips #1 in Corn Chips #1 in
ExtrudedSnack #1 Multigrain Snacks #2 in Pretzels #1 in Hot Cereal #1 In Grits #1 Rice
Side Dish#1 Brand Pancake Syrup #2 Pancake Mix.
Financially PepsiCo delivered a very strong 2006: Volume grew 5.5%; netrevenue grew
8% to 35,137 in millions; total operating profit increased 9% to 6,439 (inmillions); return
on investment was 26%; total return to shareholders was 8%; cash flowfrom operations
was 6.1 billion USD, and earnings per share increased 13%.3 Much of the strong

financial performance can be attributed to the intense marketing, productdiversification,

and strong market presence in the United States. In addition, Pepsi CoHas a solid share
of snacks in major markets such as Mexico, the United Kingdom,Brazil, Australia, India
and Russia, and are developing markets such as China, of which offers additional
revenue from emerging markets. As will be discussed later, Pepsi Co still remains second
in the international beverage industry, with Coca-Cola maintaining its strong market
share.
B. Strategic Posture
1. Missi

n Statement

Our mission is to be the worlds premier consumer products company focused on

convenient foods and beverages. We seek to produce financial rewards to investors as we
provide opportunities for growth and enrichment to our employees, our business partners
and the communities in which we operate. And in everything we do, we strive for
honesty, fairness and integrity.
Review of Mission Statement

To be a result oriented and profitable Company by consistently improving market share,

quality, diversity, availability, presentation, reliability and customer acceptance.
To ensure cost consciousness in decision making and operations without compromising
the commitment to quality.

To set up highly ethical business standards and be a good corporate citizen, contributing

towards the development of the national economy and assisting charitable causes.
To adopt appropriate safety rules and environment friendly policies.

Operating Principles:

1. Drive local market success.

2. Act Now. Do it today. Get Results.
3. Set Targets. Keep Score. Win.
4 Respect Each other.
Our success will ensure: Customer build their business, Employees build their futures,
Shareholders Build their wealth.

Visi

PepsiCos responsibility is to continually improve all aspects of the world in which we

operate - environment, social, economic - creating a better tomorrow than today.
Pepsi cola international vision is put into action through programs and a focus on
environmental stewardship, activities to benefit society, and a commitment to build
shareholder value by making PepsiCo a truly sustainable company.

II. INTERNAL ENVIRONMENT: Strength and Weaknesses (SWOT)

A. Corporate Structure
B. Corporate Culture
PepsiCos corporate culture is based on performance and quality of their products,
services, and social responsibility.
The culture is clearly communicated throughout the company and is very strong in
consumer and social responsibility. In fact, many efforts have been made to be
environmentally conscious by heavily investing in recycling, and also extensive

efforts have been made to better the lives of impoverished people in regions such as
Africa. One of the main lacking components of PepsiCos values is their employees.
Of the many concerns they have about the consumer and clients, little is said about
the way employees are treated and what expectations and responsibilities are towards
them. Programs exist that help employees take part in the community, and also future
employees by offering school programs and scholarships. However, little effort is
directed towards the responsibility of the company to employees. Coinciding with
their values, objectives, and commitment, employees are left out of the grand scheme
and may even be considered a means to an end. The limited focus on employees may
be a problem in the long-run due to retention issues and resulting lack of quality.

C .Corporate Resources
Marketing
Due to the many product lines PepsiCo markets, there are many different types of
marketing strategies, but can all fall into several main categories. Much of the marketing
efforts are directed towards a younger crowd that is associated with music, entertainment,
sports, and various other market niches such as corporate sponsorship. Products are
marketed with the same type of values the company has regarding quality,innovation, and
performance. Drinks such as Mountain Dew and Gatorade are especially marketed
towards younger active individuals and based on performance and a sense of coolness
that Pepsi provides. This has not been clearly identified by the company, but is apparent

with sponsorship of athletic events and teams, as well as in accordance with their website
and target market. However, PepsiCo is missing a huge market that could largely add to
revenues which is the baby-boomer generation. As much of the marketing is generated
with a younger audience in mind, additional markets are taken up by competitors, which
have not shown to be detrimental, but could bring in many more customers. On
the contrary, by grabbing the attention of many younger individuals, PepsiCo is capturing
the loyalty of an audience that will continue to grow and thrive for many years.

Finance
As one of the leading beverage and food distributors and producers in the world,
PepsiCo obviously has very strong financial backing and has been performing
especially well. Their basic financial statement is very promising with revenues above
Coca-Cola and the highest PepsiCo has ever seen, as well as low debt and liabilities.
PepsiCo has shown and average of six percent growth since the year 2000 and has
accomplished many growth goals by acquired and manufacturing a wide range of
products. The pure size of PepsiCo is a competitive advantage because they produce so
many commonly used products throughout the world, and are minimally leveraged by
market ups and downs. Illustrating this point is their increasing ROE, ROA, and ROI

ratios that have experienced great increases over the past several years where soda sales
have declined.
Operations and Logistics
Headquarters are in New York, but several smaller headquarters for each product are
distributed throughout the U.S. and the world. Since PepsiCo is mainly a U.S.company,
factories and distribution centers are mainly located throughout the U.S.,although there
are a couple exceptions of plants in the United Kingdom, Puerto Rico, andIreland. Most
likely to PepsiCos advantage, offices, warehouses, plants and distributioncenters are
located in the U.S. which provides quick and convenient access and also isless
associated with the complications of operating and producing internationally.

ANALYSIS OF STRATEGIC FACTORS

Pepsi Co has been consistently living up to its mission and objectives, as theyoffer the
most valuable products and beverages to their clients. The main areas they needto focus
on for improvement is continuing of recycling 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 products. In way to the recover, their position in the minds of the public externally,
and with employee satisfaction internally. In light of the various discrimination lawsuits
brought on in 2001 and 2004, the company has been faced with the task of how to
improve from within themselves, thus portraying a more positive external image. Their
mission clearly their dedication to client satisfaction through the integration of all
employees on an equal opportunity playing field. This mission has to becarried out

more effectively in the future for them to be able to progress forward in themost
opportune manner possible.
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 materials 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 November 2000, the boards of Pepsi and Coke passed resolutions for future
container recycling targets. The resolutions call upon management

PepsiCos Strengths (Internal Strategic Factors)

PepsiCos continued global growth and prominence reflects the companys strengths.
This aspect of the SWOT analysis framework outlines internal strategic factors that
enable firms to fulfill their business goals. The following are the most significant
strengths of PepsiCo:

Strong brand image

Broad product mix
Extensive global production network
Extensive global distribution network

As a successful global company, PepsiCo has one of the strongest brands in the market.
This strength enables the firm to attract consumers to its new products. In addition, the

broad product mix represents PepsiCos increasing ability to reach various markets and
segments, such as through Frito-Lay products, Quaker products, and Pepsi products.
PepsiCos extensive global production and distribution networks are strengths that
support the companys international growth and expansion strategies. In this aspect of
the SWOT analysis, PepsiCos strengths are sufficient to support its global growth
strategy.
PepsiCos Weaknesses (Internal Strategic Factors)
PepsiCo suffers from a number of weaknesses that act as barriers to international
growth. The internal strategic factors that limit organizational development are
considered in this aspect of the SWOT analysis framework. The following are PepsiCos
main weaknesses:

Low penetration outside the Americas

Limited business portfolio
Weak marketing to health-conscious consumers

PepsiCo derives about 70% of its revenues from markets in North America and South
America. This weakness indicates that the company has not yet maximized potential
revenues outside the Americas. In addition, PepsiCo operates primarily in the food and
beverage industry. This is a weakness because it maximizes the companys vulnerability
to risks in the food-and-beverage market. Also, PepsiCo fails to effectively market many
of its products to health-conscious consumers. This aspect of the SWOT analysis
highlights weaknesses that PepsiCo must address through changes in its growth strategy.
Opportunities for PepsiCo (External Strategic Factors)

PepsiCo has opportunities for continued global growth. In this aspect of the SWOT
analysis framework, external strategic factors that provide options for business
improvement are identified. PepsiCos opportunities are as follows:

Business diversification
Market penetration in developing countries
Global alliances with complementary businesses

PepsiCo has the opportunity to diversify its businesses, such as by acquiring a

complementary firm that is not in the food and beverage industry. Another opportunity is
for PepsiCo to increase its penetration in developing countries to generate more
revenues from markets outside the Americas. In addition, PepsiCo can create alliances
with complementary business to increase its market presence. Based on this aspect of the
SWOT analysis, PepsiCo has significant opportunities to strengthen its business
resilience.
Threats Facing PepsiCo (External Strategic Factors)
The food and beverage industry experiences a variety of threats. External strategic
factors that could reduce business performance are considered in this aspect of the
SWOT analysis framework. In PepsiCos case, the following are the most significant
threats:

Aggressive competition
Healthy lifestyles trend
Environmentalism

Aggressive competition is a major threat against the company. The influence of the
Coca-Cola Company is especially significant against PepsiCo. In addition, the healthy
lifestyles trend is a threat against PepsiCos products, many of which are seen as
unhealthful because of their sugar, salt, or fat content. Also, environmentalism threatens
the company in how consumers negatively respond to product waste and lifecycle

issues. This aspect of the SWOT analysis indicates that PepsiCo must reform its
strategies to overcome the threats to business.

III. EXTERNAL ENVIRONMENT

A. Natural Environment
As a beverage and food producer and distributor developed in the late 19thcentury,
Pepsi Co is in a dominant market position that has little qualms about emerging
competitors in the market. Its current concerns remain its top competitor, Coca-Cola
who maintains a similar stance in the beverage market as well as Cadbury-Schweppes
who controls the international market share of beverages and confectionary goods. In
addition, acquisitions and mergers of current mid-size beverage companies could
prove to be an external threat to Pepsi Co, while not in the near future. In the
following section of the strategic management audit, Coca-Cola and Cadbury
Schweppes will be detailed according to their financial statements, management
schemes, marketing campaigns and recent acquisition.
B. Societal Environment
Demographic Factors:
Age
The requirements of different age groups are different. PepsiCo. should target that age
group that consumes it the most and make promotional strategies according to their
behavior. So their main target is the young generation.

Education

A company has to make promotional strategies keeping in view the customer level. If
the percentage of education is high in a country then through advertisements people
can be made well aware of their product and can convey their message easily.
Promotion and education has a direct relationship.
Population Distribution
Population distribution means how much population lives in urban areas and rural
areas. In Pakistan 35 % population resides in urban areas and 65% population lives in
rural areas. PepsiCo. is focusing on urban areas as people there are more inclined
towards such beverage while people in rural areas are more inclined drinking lassie
and desi drinks.
Population Density
It means number of people in one square km per area. Punjab has the largest
population density as compare to other. Pepsi sales are more in Punjab as compared to
the sales in other provinces.
Economic Factors:
Income and Income per Capita
If the income level or per capita income of the people increases, it will have a positive
effect on the consumption of Pepsi.

Inflation

If the country faces inflationary trend in the market, the price of the Pepsi will
ultimately increase which will lower its demand.
Consumption Behavior
Pakistan is a consumption oriented society. Due to demonstration effect the people are
more inclined towards consumption than saving. So the people of Pakistan spent
heavily on food items. Hence Pepsi has a good market share in the present
circumstances.
Income Distribution
It means how much is in the hands of rich and poor class. In Pakistan 10% rich people
possess 93% of wealth and 90% people possess 7% of wealth. If there is balanced
distribution of income in the country, the consumption of the people will increase
hence increasing the sales of beverages as well.
Payment Mod
As the use of plastic money is increasing the consumption pattern of the people are
increasing. Although it will have a low effect on the consumption of Pepsi.
Employment Opportunities
As employment opportunities increase the living standard of the people increase and
the people consume more.

Aggregate Demand
In case of Pepsi, aggregate demand of the product increases in the season of summer
as the hot weather makes the consumers want to drink more.
Aggregate Supply
In summer season to cope up with the increasing demand they have to increase the
aggregate supply of their product.
Economic Policies
Some of the economic policies which can affect the market of Pepsi are discussed
below:
Fiscal Policy
It is the policy of taxes. If heavy tax is levied on Pepsi then its price will rise having
negative affect on its consumption.
Monetary Policy
Monetary policy is made to restrict or increase the supply of money in the market. If
policies are made to restrict the flow of money in the market, inflation can be
controlled hence increasing the real income of the people which will ultimately affect
the consumption of Pepsi.
Price Policy

If price of Pepsi is increased its demand will decrease and vice versa.
Income Policy
If income of the people will increase their purchasing power will increase and hence
increasing the market share of Pepsi.
Physical Factor:
Region
Pakistan is divided into different geographical regions. Marketing and sales of Pepsi
is different in different geographical regions. In hot areas its demand is more.
City Size
The cities which are densely populated the consumption of Pepsi is more.
Climate
Pepsi is more suitable for humid or hot weathered countries like Pakistan. It is a
source of refreshment when a person is thirty due to the hot weather.
Infrastructure
Roads are the basic need for transportation of Pepsi from one place to another. Pepsi
cannot open factories in every city of Pakistan so it has to transport it to other cities
where Pepsi is demanded.

Electricity is the basic necessity for production of any product. Constant load
shedding slows down the process of production which leads to less production and
low market share.
Technological Factors:
Research and Development
Through research and development quality of the product can be improved or better
techniques or machinery can be developed which can increase the production. When
technology is advance the supply of the product increase hence the company
experiences growth in their business.
Political and Legal Factors:
POLITICAL STABILITY
Whenever the government is considered to be stable, the business will flourish. If
there is political stability in the country the policies and strategies made by Pepsi can
be consistent to be implemented. Foreign companies are also keen to invest in those
countries which are politically stable where they have no fear of decline in their
market share or shut down due to sudden change of government.

Mixed Economy
In mixed economy government and private sector both plays their role in developing
the economy of the country. Investment by foreign companies like Pepsi is more
likely to flourish in mixed economy.
Laws Formulation
Government has given copy rights to Pepsi so that another company cannot sell their
product by the name of Pepsi. The countries where laws are formulated, the strategies
and activities of the company are different.
Social Responsibility
Pepsis social responsibility is to provide its customers with clean and hygienic
product so to do this they have increased the use of disposable bottles.
Social And Cultural Factors:
Psychographic
It is a combination of demographic and psychological factors. Psychological
attributes mean how you perceive things. The company will focus on the behavior of
consumers and make different changes in their product quantity or quality and in
promoting their product so that they can attract the customers. Keeping in view that
the behavior of different consumers is not alike they have to make their marketing

strategies in accordance with their requirements so that they are convinced to buy the
product.
Religious
Religious factors can influence the market sales of Pepsi as it happened in 2003 when
the U.S-led attack on Iraq, wide sections of society in Pakistan have banned American
multinationals Coke and Pepsi.
Social Status
Pepsi is a well renowned brand. People who are brand conscious will not drink
beverages of lesser known brands such as Am rat cola. They will try to show their
status by drinking Pepsi which is known to all as a quality drink.
Media
It is a very important factor for marketing. Media these days is a very effective way of
inspiring people to buy a specific product. A good promotion can boast up sales to a
great extent.
C. Task/Industry Analysis