Swot Analysis: Pepsi

SWOT Analysis: PepsiCo Diversification Strategy in 2008 Name Course Instructor Name Date PepsiCo Diversification Strategy in 2008 PepsiCo History

PepsiCo is the second largest snack and beverage company in the world. Established in 1965 when Pepsi-Cola and Frito-Lay shareholders merged their salty snack icon and soft drink giant. With revenues of $500 million with popular brands such as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Cheetos, and Ruffles, they have achieved growth and long-term value in its operational activities by creating competitive advantages through new product innovation and acquisitions.

Its portfolio has grown year after year with its acquisition of Tropicana in 1998, two largest bottlers (Pepsi Bottling Group/PepsiAmericas) in 2010 and Wimm-Bill-Dann (dairy products) in 2011, and the merger with Quaker Oats in 2001. Profits generating $39. 5 billion in net revenues in 2007 leading to 19 products each generating $1 billion in worldwide retail revenues in 2010. Some of the most popular inclusions have been Quaker Oats, Gatorade G2, Tiger Woods signature sports drinks, Cap’n Crunch cereal, Aquafina, and Aunt Jamima pancake mix.

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In keeping up with consumer health and wellness concerns of reducing saturated fats, cholesterol, trans fats, and simple carbohydrates, PepsiCo created better-for-you and good-for-you products under the Power of One alliance strategy which focused on increasing customers tendency to purchase more than one PepsiCo product during each visit. A quite ingenious innovation!

PepsiCo’s top brand is its most recognized brand in the world, Pepsi, followed by its 155 varieties of Frito-Lay, PepsiCo beverages, Tropicana, Gatorade, and Quaker Oats brands.

Most PepsiCo brands reached number one or two positions in their respective categories and has “24 other global and local brands with annual retail sales ranging from $250 million to $1 billion, including Sobe, Naked, AMP Energy, Propel Zero, Sabritas, Gamesa, Lebedyansky, Aunt Jemima and Rice? A? Roni . ” (PepsiCo website) In2008, Frito-Lay was the top selling chip brand in the U. S. and Propel Fitness Water was the leading brand of functional water; In 2007 it was Gatorade, propel, and Aquafina with a 76 percent market share.

Three initiatives leading the industry were “convenience, a growing awareness of nutritional content of snack foods, and indulgent snacking. ” (Gamble & Thompson, 2012, pg. 426) The strength of these brands is evident in PepsiCo’s presence in 200 countries and proven in it’s 2007 net revenues of $39. 5 billion globally and annualized revenues of $60 billion in 2010. (PepsiCo website) The company has the largest market share in the US beverage at 39%, and snack food market at 25%.

Such brand dominance insures loyalty and repetitive sales.

Diversification

PepsiCo’s diversification not only integrates snacks (chips), ready-to-drink teas, juice drinks, flavored/bottled water, as well as breakfast cereals, cakes and cake mixes, but its brands are catered to its international franchise such Crujitos corn snacks, Fruko beverages, and Crueslic cereal sold in the UK, Europe, Asia, Middle East, and Africa.

All the various products plus a multi-channel distribution system, and its 300,000 team of professionals that thrive on collaboration and respect were led by three CEOs (Enrico, Reinemund, Nooyi); all of which served to insulate PepsiCo position as the “world’s second largest food and beverage business”. (PepsiCo website)

Distribution

The company delivers its products through direct-store-delivery (DSD) from manufacturing plants and warehouses to customer warehouses and foodservice and vending distribution networks to retail stores. PepsiCo website) These delivery options allow maximum visibility and appeal (DSD), costs savings for fragile/perishables with lower turnover (customer warehouse), and the use of third party distribution services (foodservice/vending) to schools, stadiums and restaurants reducing stock-outs. All are based on “customer needs, product characteristics, and local trade practices”. (PepsiCo website) Weaknesses

Overdependence on Snacks and Non-carbonated drinks

PepsiCo failed to focus on its main brand, Pepsi. Although sales of carbonated drinks was considerable his, it was carried by it’s non-carbonated which increased revenues 5 percent; consequently, carbonated revenues dropped 3 percent the same year, 2007.

The company focused on more healthy products by trying to develop new sweeteners and acquiring Izze lightly carbonated sparkling fruit drinks in 2007. It failed to strengthen its position in the U.S. to out beat Coca-Cola and lagged 10 percent in 2007; bumping PepsiCo to the number two position of nonalcoholic beverage producer. (Gamble & Thompson, 2012, pg. 430)

Large Size

Despite its international presence, 48 percent of its revenues originate in the US. (Gamble & Thompson, 2012, pg. 431) This leaves PepsiCo vulnerable to the impact of changing economic conditions. Large US customers could exploit PepsiCo’s lack of bargaining power and negatively impact revenues. Acquisition of Pizza Hut, Taco Bell, and KFC initially proved beneficial but continued growth in snack food and beverage acquisitions deemed its strategic-fit benefits existing between restaurants and its core beverage and snacks were difficult to capture. Benefits were offset by fast-food industries fierce price competition and low profit margins. (Gamble & Thompson, 2012, pg. 423)

“Its value chain consists of 230 plants, 3,600 distribution systems, and 120,000 service routes around the world. (Gamble & Thompson, 2012, pg. 436)

Low Productivity

Low profit margins on PepsiCo’s international business demanded the need for a new organizational structure leading to the 2008 realignment creating a three division structure under one roof with six reporting segments: Frito-Lay North America, Quaker Foods North America, Latin American Foods, PepsiCo Americas Beverages, United Kingdom & Europe, and Middle East, Africa & Asia. (Gamble & Thompson, 2012, pg. 36) In an article from the Dow Jones & Company, dated 21 November 2012, it reports a disappointing year for Pepsi and the speculation that PepsiCo may be reconsidering its refusal to create separate global snacks and beverage companies. ” (Proquest)

Opportunities Broadening of Product Base

PepsiCo seized opportunity of potential weaknesses by acquiring Mexico’s largest Pepsi bottler, Pepsi-Gemex SA de CV, for $1. 26 billion capitalizing Mexico’s number one producer of purified water. (Gamble & Thompson, 2012, pg. 34) In addition, the two largest bottlers (Pepsi Bottling Group/PepsiAmericas) in 2010 and Wimm-Bill-Dann (dairy products) in 2011, and the merger with Quaker Oats in 2001.

It continues to broaden its product base by introducing what consumers want most: Healthier snacks and drinks, convenient snack size portions, and introducing multiple flavors to the needs of various cultures. These initiatives will enable PepsiCo to adjust to the changing lifestyles of its consumers and appeal to its international customer base.

International Expansion

PepsiCo is focused on expanding Gatorade into 15 additional countries, Tropicana into 20 new markets, and Lipton into five international markets in 2012. (Gamble & Thompson, 2012, pg. 434) Its expansion into international markets and a lessening its dependence on US sales in addition to the company plans on major capital initiatives in China will increase their global customer base. Growing Snacks of new flavors and Bottled Water market in US

Products such as Aquafina, and Propel are well established products and in a position to ride the upward crest.

PepsiCo products such as, Doritos tortilla chips, Cheetos cheese flavored snacks, Tostitos tortilla chips, Ruffles potato chips, Sun Chips multigrain snacks, Rold Gold pretzels, benefit from a growing savory snack markets.. Threats Decline in Carbonated Drink Sales • Soft drink sales have decline by as much as 2 percent from 2005 to 2007 due to a health conscience society. Fruit beverages went down slightly and others stayed relatively the same. The future state of the economy and additional emphasis on health could drive these numbers in the negative direction.

Potential Negative Impact of Government Regulations

Manufacturing, marketing, and distribution of food products may be altered as a result of state, federal or local dictates. In 2000, PepsiCo experienced FTC setbacks due to concerns over the merger of Gatorade and that it might give the company too much leverage in negotiations with convenience stores. The FTC stipulated that PepsiCo could not jointly distribute Gatorade with soft drinks for 10 years. (Gamble & Thompson, 2012, pg. 423) This could have set them so far ahead of their number one competitor to stay number one.

There’s also been talk about the ingredient, acryl amide, suggesting it could cause cancer if consumed in significant amounts in rats. If the company has to comply with a related regulation or add warning labels, it could have negative impacts. Intense Competition • The Coca-Cola Company is PepsiCo’s primary competitors. Intense competition may influence pricing, advertising, sales promotion initiatives undertaken by PepsiCo.

Potential Disruption

The economy is unstable and people are cutting back on spending.

Although people want to eat and drink healthier products, the costs to eat healthier is more expensive so the changes to make healthier snacks need to stay reasonable. Another potential threat are the generic brands most stores sell that appeal to the penny pincher during hard times.

Alternatives Smaller packaging

PepsiCo could expound on making smaller portions to all their products that have high sale rates. Selling in bulk at cheaper prices is another option for the residential and business arena.

Advertisements

Promote their products through effective marketing strategies. Utilize internet, facebook and other resources that hit thousands at one time but isn’t expensive. Do funny advertisements like the Super Bowl ones more often. These are things people remember and talk about for long periods.

Intense Competition

The Coca-Cola Company is PepsiCo’s primary competitors. Intense competition may influence pricing, advertising, sales promotion initiatives undertaken by PepsiCo. The economy is unstable and people are cutting back on spending.

Although people want to eat and drink healthier products, the costs to eat healthier is more expensive so the changes to make healthier snacks need to stay reasonable. Another potential threat are the generic brands most stores sell that appeal to the penny pincher during hard times.

Potential Disruption Due to Labor Unrest

Outsource jobs to other countries to benefit their needs but provide job opportunities to people in the U. S. This provides added growth at home and abroad while not jeopardizing at home support.

Assessment

PepsiCo has held their own for decades and have grown into the global market becoming diverse in the snack industry, carbonated and non-carbonated drinks, and incorporating new seasonings and spices to appeal to the local nationals. Pepsi has a large loyal group of customers that they need to stay attuned to and ensure they offer incentives for being so loyal. Offering discounts is a great way to not only keep customers, but it helps gain new customers. Overall, Pepsi has achieved success and stayed in the running.

Although they were bumped down to number two, it seems as though the take great care in addressing lessons learned and are not fast to make a rash decision as they Dow recently reported that I mentioned above. They have cross-communication and rotate managers to keep them fresh on new initiatives and this puts fresh eyes on the situation to better capture new ideas and identify potential shortfalls. PepsiCo commitment is to deliver sustained growth. They offer a wide variety to meet the needs and preferences to satisfy fun to contributing to healthier lifestyles.

It has a solid foundation and is only going to progress back to the number one position in the future. I think it needs to continue what it’s doing but not over extend themselves to where they lose focus on what started them in the first place, their number one product, the Pepsi. Which happens to be my favorite soda!

References

1. PepsiCo, (n. d. ). PepsiCo. Retrieved from http://www. pepsico. com/ on December 12, 2012 PepsiCo, (n. d. ).
2. PepsiCo. Retrieved from http://www. pepsico. om/Download/PepsiCo_Quick_Facts. pdf on December 12, 2012 Bary, A. , (2011).
3. Don't Rule Out a Pepsi Breakup Yet. Barron's, 91(47), 20. Retrieved from http://proquest. umi. com/pqdweb? index=0&did=2526832001&SrchMode=1&sid=9&Fmt=3&VInst=PROD&VType=PQD& RQT=309&VName=PQD&TS=1323732097&clientId=74379 on December 12, 2011, (Proquest Document ID: 2526832001).
4. Gamble, J. E. , & Thompson, A. A. , (2011). Essentials of Strategic Management: The Quest for Competitive Advantage. (2nd ed. ). New York: McGraw-Hill

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