Paulo Nazario, Onur Saka and Juliette Clark

International Business Policies and Strategies, Winter Quarter 2011

11/29/11

CASE 11: PepsiCos Diversification Strategy in 2008

Page 1

1. BACKGROUND INFORMATION
Time Country(s) Involved Key Individuals &
frame MileStones
Titles
1965- Headquarters in
Indra Krishnamurthy
2008
Purchase, New York, Nooyi, Chairman of
USA. Operations
the Board and CEO
(2006-).
global in scope.
Steven Reinemund
(CEO 2001-2006).
Roger Enrico (CEO
1996-2001).
Donald Kendall and
Herman Lay,
Founders.

1965

Merger with Frito-Lay CEO of Pepsi Cola,

and engineer of
PEPSICO
Merger, Donald
Kendal

1970s
1980s

Diversification
outside snacks and
beverages
Acquisition of Pizza
Hut, Taco Bell, KFC

1990s

Acquisition of 7UP,
Mug Root Beer,
SunChips,
Introduction of
Aquafina - 1993

Wayne Colloway,
CEO (1986-1996)

Company Type & Size

PepsiCo is a publicly traded
company, listed on the NYSE,
NASDAQ, and as a component of the
S&P 500. In 2010 it had 294,000
employees worldwide. As of
November 2011, it had a market cap
of $101.02 billion.

"Potato chips make you thirsty; Pepsi

satisfies thirst." Donald Kendall on

merger.

Balanced three leg stool describes

Wayne Colloway, however, strategic
fit problems occurs

Bottled water business starts.

1997

Portfolio
Reconstruction

Roger Enrico, CEO

(1996-2001)

Due to several strategic fit problems,

restaurant businesses have been
spun off to form Tricon, later Yum!
Brands.

2001

Acquisition of
Quaker Oat
Company, Adding
Gatorade to arsenal

Steven Reinemund
(CEO 2001-2006)

FTCs bans to jointly distribute

Gatorade with Pepsi for ten years.

2008

Re-Organization of
Structure

Indra Krishnamurthy
Nooyi, Chairman of
the Board and CEO
(2006-).

Three division model. Strategic

realignment.

Page 2

2. BRIEF SUMMARY OF CASE SITUATION

Business or Industry Description
Particular Company Situation
The case concerns the international
In 2008, PepsiCo was the largest snack and
food and beverage industry. The
beverage company in the world, with a broad
situation and position of PepsiCo, in
portfolio of businesses and a focus on growth
addition to the evolving corporate
through acquisitions and innovation. However, even
strategy. The case is important for
a strong company like PepsiCo deals with several
showing the related diversification
challenges, to name few, low international profit
strategy.
margins, product innovation, supply chain decisions
and fierce competition.

Page 3

3. ORGANIZATIONAL ANALYSIS
Company Strengths
Company Weaknesses
The 'Power of One' retailer alliance
Relative lack of success at
strategy meant close collaboration
internationalizing the Quaker brands.
between PepsiCo's marketing team and
International operations had a low
retailers, helping PepsiCo to understand
profitability, relative to US operations.
consumer needs and reinforcing sales of Despite making up some ground,
both Pepsi and Frito-Lay products.
PepsiCo's share of the US carbonated
PepsiCo's management team is
soft drink market was still considerably
responsive and proactive, and willing to
lower than that of its traditional rival in the
restructure the organization to achieve
industry, Coca-Cola.
more profitability internationally.
PepsiCo remains highly dependent on the
The CEO, Indra Nooyi, is from India and
US market for revenues; profitability of its
retains strong ties to her home of
domestic businesses is still far greater
Chennai; she is therefore better able to
than that of its international units.
understand the dynamics of the important The continuing changes in the company's
Indian market than an outsider might be.
organizational structure hints at a
Product innovation is a major company
possible internal weakness and instability.
strength.
PepsiCo is responsive to consumer and
governmental concerns about health: the
company had begun to reformulate and
repackage products to lower salt, fat and
sugar content.
The broadness of PepsiCo's portfolio is a
major strength, as is the fact that the
company has leadership across many
product categories.
PepsiCo has an excellent ability to
integrate acquired companies, turning
them into profitable business units
quickly.
Dominant in the US salty snack segment
with its Frito-Lay brand; also the largest
seller of nonalcoholic beverages in the
US, with 26% market share in 2006.
PepsiCos Corporate Strategy
The strategy was to achieve dominance in the category in which PepsiCo's products
were competing, and by 2008 most PepsiCo brands were either the leader or the number
two player in their category.
The key was sustaining the momentum that followed the company's post-1997
restructuring, in order to maintain PepsiCo's impressive performance.
To further PepsiCo's corporate goals, a vigorous acquisition strategy has been followed.
In addition, a key part of corporate strategy is innovation, and the continuous introduction
of new products.
The company took the challenge of developing 'better-for-you' snack foods very
seriously, and prioritized this in its strategic vision.
PepsiCo saw major growth potential overseas and was focused on increasing market
share and relative profitability outside of North America, especially in emerging markets.
By utilizing the 'Power of One' retailer alliance strategy, PepsiCo aimed to exercise
greater control over how its products were displayed in stores, helping to boost sales.
Page 4

PepsiCos Business Strategy Among Its Divisions

All of the four business divisions followed the general strategic approach laid out by
PepsiCo's corporate team.
Frito-Lay North America: this was a major component of PepsiCo's overall business,
accounting for 29% of total revenues and 36% of operating profits. Management was
concerned with maintaining Frito-Lay's strong market dominance by keeping pace with
consumer demands and trends including the continuing desire for convenience, the
increasing awareness of nutritional content, and the developing demand for 'indulgent'
snacking. Frito-Lay's products underwent reformulations to improve their health credentials,
and packaging was changed to allow smaller portion sizes. Strong growth was seen in the
'better-for-you' products offered, like SunChips and Quaker rice cakes, and strategic
acquisitions of healthy snackfood companies like Flat Earth allowed PepsiCo to continue its
push into the health-conscious segment of the market.
PepsiCo Beverages North America: As the largest seller of nonalcoholic beverages in the
United States, PepsiCo controlled 26% of the market in 2006. This was also an extremely
profitable part of PepsiCo's overall business, accounting for 28% of the corporation's total
revenues and 31% of its profits. Revenue growth had been strengthened through a
broadening of the product line to include not only Pepsi but Gatorade, Tropicana, Lipton tea,
and other strategic acquisitions. This positioned PepsiCo well for future shifts in
consumption, as although carbonated beverages still accounted for almost half of all
nonalcoholic refreshments sold in the US, the segment was losing ground to apparently
healthier options like juices, enhanced water products, and energy drinks. Pepsi's ongoing
battle with Coke for the carbonated soft drink market was in essence a battle lost (Coke
vastly outsells Pepsi in cola sales in the US), but as seen as part of the larger war for overall
beverage market share, PepsiCo appears to be positioned well as consumer tastes
transition towards healthier options. Still, Pepsi sales were bolstered by the use of the
'Power of One' program, which entailed the cross-promotion of Pepsi and Frito-Lay products
and made use of the strong relationships PepsiCo had built with its retailers.
PepsiCo International: PepsiCo followed a strategy of pushing aggressively into
international markets, and was rewarded with strong growth in international snack volume
(up 9% in 2007 on average, with much higher growth rates in newly emerging markets such
as Russia, the Middle East and Turkey). Frito-Lay's salty snack market share was strong in
most international markets, and PepsiCo's share of the carbonated soft drink market was
much larger in most international markets than in the US. The fastest growth in beverage
volumes occurred in the Middle East, China and Pakistan. This overall growth experienced
by PepsiCo internationally was spurred in large part by multiple acquisitions across many
markets; the company also saw the potential for the implementation of the 'Power of One'
strategy in order to increase the market share of certain weaker brands by piggy-backing on
the popularity of stronger ones.
Quaker Foods North America: The growth story of the Quaker family of foods in North
America was not as strong as the other business divisions, although for the most part
volumes increased through this period (the exceptions were sales of Aunt Jemima products
and Rice-A-Roni and PastaRoni kits, which experienced declines in sales volumes). This
portion of the business was probably the most natural fit for PepsiCo's strategy to bring more
'good-for-you' foods to market, and more than half of Quaker Food's 2007 revenues were
generated by these products.
In 2008, PepsiCo underwent a strategic realignment. It was split into three divisions:
PepsiCo Americas Foods: All food and snack businesses in North America and Latin
America.
Page 5
PepsiCo Americas Beverages: All beverage businesses in North America and Latin America.

Overall Organizational Assessment

PepsiCo is in a strong position. Its dominance across the beverage and snack food industry
worldwide has given the company strong revenues and enviable growth rates which have
been supported by a series of strategic acquisitions, allowing the company to keep up with
trends in the market, shifts in consumer wants and needs, and to place itself in a position in
which it can leverage its sophisticated supply chains and distribution networks globally to
foster further growth and to insulate itself from the risks inherent in the global food and
beverage business. The strength of the company is reflected in its stock price, which has
consistently outperformed the S&P 500 average over the past decade and, even through a
period of economic contraction and crisis, has remained relatively stable.

Page 6

4. EXTERNAL SITUATION
Opportunities
The company is present in fast growing international markets: PepsiCo's international
sales of snack foods grew by 9% in 2007, with even stronger growth rates in developing
markets like Russia, Turkey and the Middle East.
There is room for significant growth in the international noncarbonated beverage market.
The growing desire for healthy food options among consumers in many of PepsiCo's
markets means that the company's strategy to reformulate snack foods and to focus on
functional beverages and water products was well-timed; this market will continue to
grow. This presents a good opportunity for the Quaker Foods brands, which are largely
characterized by 'better-for-you' qualities.
PepsiCo will be able to use the same distribution channels for Gatorade as for its other
beverage products once the FTC's 10-year prohibition on bundling beverage contracts
with retailers and jointly distributing Gatorade and the company's other soft drinks come
to an end. This will provide an opportunity to increase Gatorade sales by leveraging the
company's existing distribution and retail networks and achieving efficiencies of scale in
marketing.
PepsiCo can use its flagship products as a way to introduce consumers to other products
in its range: for example, if Pepsi-Cola sells well in one market, but Lays chips do not, the
company can use the 'Power of One' strategy in retail outlets to achieve effective crosspromotion.
The economic crisis can be an opportunity as PepsiCo can offer consumers small
indulgences that are affordable.
PepsiCo can seek further cost efficiencies by capturing strategic fit benefits within
PepsiCo's stable of businesses, achieve economies of scale through global coordination
of marketing, distribution, procurement, and so on.
Threats
Risks/Constraints
Increasing concerns about health: even
PepsiCo is a convenience food company,
though PepsiCo is reformulating
so how legitimate can their 'good for you'
products, salty and sweet snack foods
food really be?
can still be the target for government
PepsiCo's best established brands
legislation.
(including Pepsi and Frito-Lay) are
Growing environmental concerns may
unhealthy snack foods; they must
lead consumers to reject buying bottled
continue to profit from these brands in
water, canned drinks, and prepackaged
order to preserve shareholder value.
food.
Ongoing risk of shortages or disruption in
Economic crisis may erode household
supply of key raw materials.
budgets and result in less expenditure on As an international operator, exchange
unnecessary snack foods.
rate risk is a concern.
Volatile commodity prices may make it
Changing consumer preferences may
difficult for PepsiCo to control margins
lead to a rejection of PepsiCo's product
and may necessitate price rises.
offerings.
New entrants to the market pose a
significant threat. Barriers to entry to the
food and beverage industry are relatively
low.

Page 7

6. STRATEGIC ANALYSIS
SWOT Analysis (graph + narrative)

PepsiCo is a company with substantial internal

strengths, including the vision of its management
team, the integration between business units that
allows for the realization of significant efficiencies
throughout all levels of operations, and an enviable
worldwide reach. The environment in which it
operates can be risky, but PepsiCo does a good job at
minimizing this risk by investing in research and
development and spreading its interests across many
market segments. There are many opportunities for
PepsiCo in this environment, and the company is well
poised to take advantage of them. Therefore, PepsiCo
should continue to follow a strategy of aggressive
diversification, placing it on the borderline between
cells 1 and 2.

Page 8

7. MODELS
Industry Attractiveness Assessment
Attractiveness
Measure
Market Size &
Growth Rate
Industry
Profitability
Intesity of
Competition

Emerging
Opportunities &
Threats
Resource
Requirements
Product
Innovation
Social Political
Environmental
Factors

Totals

Soft
Drinks

Weight

Bottled
Water

Chilled
Juices

Isotonic
Beverages

Salty
Snacks

Hot
Cereals

0.25 9

2.25

1.5

2 5

1.25

1.2

1.1

0.9

1.05

1 7

1.05

0.15 5

0.75

0.6

1.1

7
1
0

1.5

1 8

1.2

0.2 7

1.4

1.6

1.2

1.4

1 5

0.05 9

0.45

0.4

0.4

0.4

0 8

0.4

0.15 8

1.2

10

1.5

1.2

0.75

1 7

1.05

0.05 7

0.35
7.6

0.4
7.5

0.4
6.6

0.35
6.45

0 7
7

0.35
6.3

0.15 8

Competitive Position/Business Strength

Competitive
Position /
Business
Strength
Relative Market
Share
Market &
Promotion
Product
Innovation
Distribution
Resources
Brand Name /
Image

Totals

Weight

PepsiCola

Tropicana,
Dole, Sobe

Gatorade

0.6

0.5

1.5

1.5

Aquafina

Quaker
Oatmeal

0.25

0.2

1.4

1.2

1.6

1.2

0.1
0.15
0.1

6
7
8

0.6
1.05
0.8

6
6
8

0.6
0.9
0.8

8
6
8

0.8
0.9
0.8

8
7
8

0.8
1.05
0.8

7
7
7

1
1
1

6
6
8

0.6
0.9
0.8

0.2

1.2
5.8

1
4.9

1.4
5.6

1.6
7.35

2
7

1.2
6.2

0.75 2.5

FritoLay

Page 9

Nine-Cell Industry
Attractiveness/Business Strength Matrix

Competitive Strength/Business Position

Strong
Long-Term Industry Attractiveness

10

7.6 7.5

Average

6.6 6.45 6.3

Weak

High
FritoLay

7.35
7

6.2
5.8
5.6

Medium

4.9

PepsiCola

Gatorade

Tropicana
Dole, Sobe

Quaker
Oatmeal

Aquafina

Low
1

Narrative summary of model analysis results

All of PepsiCo's businesses are relatively attractive, although some trump others. Over the long
term, the carbonated soft drink market may see significant loss of the beverage market share to
other refreshments, and Pepsi-Cola is weaker in key markets than its main rival, Coca-Cola.
Bottled water sales may also come under pressure due to increasing environmental concerns.
PepsiCo's star business units, according to these analyses, are Frito-Lay, Gatorade, and
Tropicana; Quaker Oatmeal is also a standout performer. The key reasons for the strength of
these business units are their dedication to R&D, their excellent brand names, and the fact that
they offer products that appeal to consumers seeking healthier options for snacks and drinks.

Page 10

Strategic Fit Potentials Between PepsiCos Business Units

PepsiCos Related Diversification Strategy and Strategic Fits in Value Chain
PEPSICO

Value Chain Activities

Business Unit
Pepsi Cola

CS with Aquafina

CS/ST with all

carbonated
beverages

CS with all carbonated

beverages/ST with FritoLay snacks

Cross-selling with Frito-Lay

products/ST with all
convenience products and

Potential BS with
Frito-Lay

BS

Frito-Lay

Some potential
CS with Quaker
products

Potential CS/ST
with Quaker
products

ST with Pepsi Cola and

other carbonated
beverages, CS with
Quaker branded products

Cross-selling with Frito-Lay

products/ST with all
convenience products
And BS

Potential BS with
carbonated
beverages, ST/CS
among all FritoLay products

Tropicana/Dole/ Some potential

CS with hot fill
SoBe

CS among hot fill

beverages

operations

CS with all convenience

beverages/ST with
convenience snacks

Cross-selling among all noncarbonated healthy

drinks/Potential ST with
healthy snacks

Potential ST/CS
among fruit juices
and healthy
beverages

Aquafina

CS with Pepsi

CS among hot fill

operations

Potential CS with all

beverages

CS/ST with Gatorade

None

Cola

Gatorade

Some potential
CS with hot fill
beverages

None

Potential CS/ST with

other beverages, except
Pepsi-Cola.

Potential CS with all

beverages/ST with healthy
snacks

Potential CS with
other beverages

Quaker hot
cereals

CS with Quaker
Snacks

CS/ST with other

Quaker snacks

ST with other PepsiCo

products, CS/ST wth
Frito-Lay

None

ST/CS with Quaker

branded products

CS = cost sharing benefits

ST = skills transfer opportunities BS = brand sharing

Does PepsiCos portfolio exhibit good strategic fit? What value-chain match-ups do you see? What
opportunities for skills transfer, cost sharing, or brand sharing do you see?

PepsiCo's portfolio does exhibit good strategic fit. It seems as though, for the most part, PepsiCo
has pursued a strategy of acquiring businesses that have certain elements in common in terms of
production, distribution, and marketing. The areas of the business in which PepsiCo has
demonstrated particular success in exploiting strategic fits in the value chain are in purchasing,
where Aquafina and Pepsi-Cola enjoy cost-sharing benefits, operations, where cost sharing
benefits are achieved among hot fill operations of Tropicana, Dole and SoBe, distribution, in
which cost sharing and skills transfer may be achieved among the longer-established beverage
units and Gatorade, and in sales and marketing, where Frito-Lay products and all other
convenience products (especially soft drinks) can be cross-marketed using brand sharing.
PepsiCo should continue to explore new opportunities for skills transfer, brand sharing and cost
sharing benefits across all business units, in order to maximize its advantage as a diversified
company.

Page 11

Narrative summary of model analysis

results

Model of Grand Strategy Clusters

PepsiCo's strong competitive position

and the rapid growth of the global
market for food and beverages
indicates that the company fits into
cell I. This applies across its business
units; some, which are experiencing
particularly strong growth rates (FritoLay, for instance), are well-matched
to a concentrated growth strategy,
while other units would benefit from
further diversification into related
products.

Narrative summary of model analysis

results

Grand Strategy Selection Matrix

PepsiCo has considerable strengths

as a company, which it can maximize
to enable further growth. It can do this
by leveraging both its internal and
external advantages, such as its
ability to innovate quickly in response
to market needs, the ability to growth
market share in key products, and the
strong company will that exists to
open up new markets for PepsiCo's
businesses. It can also engage in
concentric diversification to continue
to add new, complementary
businesses to the company's
portfolio. Therefore, PepsiCo fits
between cells III and IV.

Resource Fits: Cash Flows for 2007

Resource Fits: Cash Flows for 2007
Frito-Lay
North America
2007
Operating profit
$
2,845
Depreciation / other amortization $
437
Amortization of intangible assets $
9
Interest expense(1)
$
(80)
Income taxes (2)
$
(579)
Capital expenditures
$
(624)
Dividend payments (3)
$
854
Estimated free cash flow
$
2,007

PepsiCo Beverage
North America
$
2,188
$
302
$
11
$
(62)
$
(512)
$
(430)
$
656
$
1,498

Pepsi
International
$
2,322
$
564
$
38
$
(66)
$
(790)
$
(1,108)
$
697
$
960

Quaker Foods
North America
$
568
$
34
$
$
(16)
$
(93)
$
(41)
$
166
$
452

Total
Division
$ 7,923
$ 1,337
$
58
$ (224)
$ (1,974)
$ (2,203)
$ 2,377
$ 4,917

Corporate
$ (193)
$
31
$
$
$
$ (227)
$
$ (389)

Total
$ 7,730
$ 1,368
$
58
$ (224)
$(1,974)
$(2,430)
$ 2,377
$ 4,528

Narrative summary of analysis results

PepsiCo presented an excellent result in terms of free cash flow. This approach is allowing the
company to continue put money in Acquisitions, dividends, share repurchases, capital spending,
short-term investments and borrowing.
Frito-Lay North America has generated more than 40% of total free cash flow. While the
International business has the worst result among the business segment.
Page 12

Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007

Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007
Division
2004
2005
2006
2007
Frito-Lay North America
25%
25%
24%
25%
PepsiCo Beverages North America
23%
22%
21%
21%
Pepsi International
13%
15%
16%
15%
Quaker Foods North America
31%
31%
31%
31%
Total Division
21%
21%
21%
20%
Narrative summary of analysis results

PepsiCo has an outstanding operating profit margin compared with competitors in its market.
Company as a whole has a operating profit margin of 18%.
Its four business segments: Frito-Lay North America, PepsiCo Beverage North America, Pepsi
International and Quaker Foods North America presented stability in its results from 2004 to
2007.
Although Quaker is the smallest division, its operating profit margin was the best of all divisions in
these years with 31%.
On the other hand, Pepsi international presented the worst result among divisions. This point has
made the company to concentrate efforts to enhance this business results.
Resources Fits: Revenue Contribution by Business Segment: 2004 - 7
Resources Fits: Revenue Contribution by Business Segment: 2004 2007
Division
2004
2005
2006
2007
Frito-Lay North America
33%
32%
31%
29%
PepsiCo Beverages North America
28%
28%
27%
26%
Pepsi International
34%
35%
37%
40%
Quaker Foods North America
5%
5%
5%
5%
Revenue growth by Business Segment: 2004 2007

Division
Frito-Lay North America
PepsiCo Beverage North America
Pepsi International
Quaker Foods North America
Total Division

2004/20052005/20062006/2007
8%
5%
7%
10%
5%
7%
15%
14%
22%
13%
3%
5%
11%
8%
12%

Narrative summary of analysis results

With a CAGR of 10% from 2004 to 2007, PepsiCo showed that its growth strategy through
acquisitions and business improvement were in a good way.
However, there are two questions to its internal segmentation: Quaker was so smaller than
others and international business was less lucrative than others divisions.
Besides this, international business presented the biggest opportunity to grow with 22% between
2006 and 2007and Quaker seemed stagnated in the US market in the last two years.
Page 13

9. MODEL GUIDANCE (What do the models suggest?)

SWOT: PepsiCo should pursue a highly aggressive strategy, due to its current market position,
its internal strength, and its ability to cope with the risks inherent in the environment and to
take advantage of the many opportunities for growth, especially into emerging markets.
9-cell Analysis: The strongest of PepsiCo's business units going forward will be those best
poised to take advantage of shifts in consumer demand and those most responsive to
changing pressures due to government policies regarding the nutrition contend of food. FritoLay, Tropicana, Gatorade and Quaker Oatmeal are the star players here.
Value Chain Match-ups: This is an area in which PepsiCo should focus, so that they can
maximize their advantage as a diversified company. By choosing new companies to acquire
based upon their relevance in the overall corporate value chain, PepsiCo can achieve a lasting
competitive advantage. Maximizing cross-promotional potential should be a priority.
Grand Strategy Clusters: PepsiCo enjoys market leadership across growing segments of the
food and beverage industry. A concentrated growth strategy is recommendable for the
strongest business units, and the company should aim to continue its diversification into
related business areas in order to maintain its leadership.
Strategy Selection Matrix: Following a strategy of aggressive diversification combined with a
focus on innovation and market development for its existing businesses will ensure that
PepsiCo remains competitive over the longer term.
Resource Fits: PepsiCo faces a significant challenge in that its revenues from the North
American units are very strong, yet the company must invest heavily in much less profitable
international markets in order to plan for the future. PepsiCo must address this issue, and it
must also address the issue of exactly where Quaker Foods fits in its structure; the smallest
but also the most profitable division, it is set to play an important role in the company's future
growth.

10. STRATEGIC ALTERNATIVES GOING FORWARD

#1
#2
CONCENTRIC DIVERSIFICATION
VERTICAL INTEGRATION
Continue actively acquiring new businesses and Pursue a strategy of acquiring key players in
the value chain, such as bottlers, agricultural
diversifying into new (but strategically related)
producers, or biotechnology companies.
market areas. Acquisition of an alcoholic
beverage maker is a possibility.
#3
#4
HORIZONTAL INTEGRATION
MARKET DEVELOPMENT
Move aggressively to buy Kraft Foods and
Continue moving into international market,
become the new leader in the global market,
restructuring their organizational structure .
overtaking Nestle.

Page 14

11. Evaluating Alternatives Tests of a Winning Strategy

How do these alternatives rate?
Does the strategy fit the situation (Y/N)?
Will the strategy achieve a sustainable
competitive advantage (Y/N)?
Will the strategy result in better company
performance (Y/N)?
Summary (Good or Poor choice?)

Alt #1
Yes

Alt #2
Yes

Alt #3
No

Alt #4
Yes

Maybe Yes

Yes

Yes

Maybe Yes

Maybe

Yes

Good

Poor

Good

Good

12. RECOMMENDED STRATEGY/POLICY

PepsiCo should continue its aggressive growth strategy, utilizing concentric diversification
where possible in order to grow into emerging market segments and also to achieve meaningful
expansion into international markets. In the North American market, PepsiCo should increase
profit margins by means of a vertical integration strategy, acquiring bottlers and perhaps other
key players in the value chain. In the future, the company can consider horizontal integration, in
order to growth its overall dominance in the food and beverage industry.
13. SUGGESTED ACTIONS
What strategic actions should Indra Nooyi take to sustain the corporations impressive financial and market
performance? Should its free cash flows be used to fund additional share repurchase plans, pay higher dividends,
make acquisitions, expand internationally, or for other purposes? What other strategic actions should be pursued
by corporate level management?

Indra Nooyi and her team should focus on the aggressive expansion of the Pepsi brand
internationally, aiming for market dominance in sodas in the international arena. In the US, the
best strategy to compete with Coca-Cola in this market segment is to engage in vertical
integration (in order to realize economies of scope) and also to build on the company's
famously strong relationship with retailers. Furthermore, the company can strengthen its other
soda brands, and perhaps introduce Miranda onto the US market in order to compete with
Fanta.
PepsiCo should increase international growth and profits by changing the organizational
structure in a way that focuses on markets other than North America, and enables the company
to ensure that new acquisitions are made profitable rapidly.
PepsiCo should retain its strong focus on innovation and keep investing heavily in research and
development, in order to keep ahead of the curve in this competitive industry.
The aggressive diversification strategy is a major strength of PepsiCo. The company should
continue along this path, but should also seek to specifically acquire companies that can offer it
excellent strategic fit benefits, in order to capture efficiencies in the value chain.
In terms of cash allocation, PepsiCo should seek to increase spending on R&D , acquisitions of
companies that are a good fit for its portfolio, and pay higher dividends to shareholders, thus
having a positive impact on the company's share price. The company should reduce
expenditure on share buybacks.

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