PepsiCo-2005

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Introduction: An international food and beverage company with sales of $29.3 billion and net income of $4.0 billion in 2004. PepsiCo has grown from being solely a soft drink company in 1960 to being the third-largest food and beverage company in the world, behind only Nestle and Kraft Foods. PepsiCos mission statement

To be the worlds premium consumer products company focused on convenience foods and beverages.

History in summary:
1898 Caleb Bradham (pharmacist) formulated Pepsi as a cure for indigestion 1903 Pepsi-Cola registered as a trademark. 1914- 1918 Stock piled sugar anticipating increase sugar prices after WW-I After WW-I On the verge of bankruptcy (sugar prices plunged) 1931 1933 Pepsi-Cola sold to Loft Candy Company (LCC) as a subsidiary Coca-Cola refused an opportunity to buy it

(Increased the size of bottles to 12 ounces but kept the price at 5cent) 1941 Name changed to Pepsi-Cola Company on merging

1963

Growth started under CEO Donald Kendall (Introduced Pepsi Generation)

Acquisitions: Under CEO Donald Kendall 1964 Mountain Dew (carbonated drink) 1965 Frito-Lay (potato chips and other snack foods) (Name of parent company was changed to PepsiCo) Under 1977 1978 1986 1990 CEOs Andrall Pearson (1971-1984) and Wayne Calloway (1984-1996) Pizza Hut Taco Bell Kentucky Fried Chicken (KFC) Hot N Now

1995 PepsiCo ranked 21st in Fortunes listing of the 500 largest U.S. corporations under CEO Wayne Calloway

More acquisitions: 1998 Tropicana Orange Juice 2001 Quaker Oats (with Gatorade under Quaker Oats) South Beach Beverage Company (specialty beverages) Pepsi Challenge (1975-1983) PepsiCo conducted it highly successful Pepsi challenge, a blind test between Coca-Cola and Pepsi in which most participants expressed a preference for Pepsi. Unsuccessful diversifications PepsiCo was less successful with its attempts at unrelated diversification. Acquiring North American Van Lines in 1968 and Wilson Sporting Goods in 1970 and sold both of them in 1985.

Market Summary of PepsiCo

3000
Coke classic Pepsi Diet Coke Mountain Dew(pepsi) Diet Pepsi Sprite(coke) Dr pepper(cadbury) CF diet Coke Diet Dr pepper(Cadbury) Sierra Mist(pepsi)

2500 2000 1500 1000 500 0 2002 2003 2004 FLNA PBNA PI QFNA

2.Net Division Operating Profits for PepsiCo Divisions (in $ million), 2002-2004.

Market share (%)

1. Market share of top10 soft drinks (U.S.A)

50
30 25 20 15 10 5 0

40 30

2003 2004

PepsiCo Coca Cola

2004 income

20 10 0
Co ke P epsi Cadbury Co tt

2004sales

3.Net sales and income of PepsiCo and Coca-Cola (in $ billion) in 2004

4. Market share (%) of the top 4 carbonated soft drink companies in the U.S.A in year 2004 in comparison to year 2003.

STRENGTHS Worlds 3rd largest food and beverage company Pepsi is the worlds 2nd most popular drink Market leader in snack foods Markets more than 200 varieties of food and beverage products in more than 200 countries. Possesses a strong strong distribution system. Has removed trans fats from snack foods

WEAKNESSES Does not posses a clear strategic plan Not doing enough for international market Over reliance on customers i.e. retailers to serve ultimate consumers Weekly visits to 450,000 retail accounts by Frito Lays staff Over diversification The international markets are overlooked by only one central division

OPPORTUNITIES Growth opportunity in emerging markets Sales of non-carbonated soft drinks are increasing in all over the world Non alcoholic beverages comprise 87% of U.S. beverage market Growing markets for non carbonated soft drinks and energy drinks

THREATS Business in U.S. in maturity stage. Adverse changes in global conditions. Conflict of objectives between local regulatory requirements and PepsiCo. Coca cola and Cadbury Schweppes in beverage industry Kraft Foods, Kellogg and General Mills in snack foods and cereals industry Less than 1% overall growth in carbonated drinks market Decreasing market share and growth of PepsiCo in U.S.A, and U.K and Canada

Issue
How to revive the position of PepsiCo in the industry

Strategic aims
To increase revenue and net income. To achieve 15% and above growth in the earnings

Recommended Strategies
Market Development: Continue to milk the U.S market, but invest to develop the growing markets as South America and Asia Pacific region
Leverage on strong distribution system and presence in most of the parts of the world to accelerate the international growth Enhance relationship with retailers by giving them financial and non financial incentives based on local practices Do aggressive but ethical lobbying with local governments and regulatory authorities(ST)

Blue Ocean Strategy:

Follow Blue Ocean strategy for natural and energy drinks and foods business,

while keep on milking the existing carbonated drinks business

Soft drinks and snack foods business

Shift in focus

Natural and healthy drink and food businesses

Continue milking

High High

Relative market share position Low

Rising Star
Healthy drink and food business

Question Marks
Cash flow from cash cows channeled to support rising star

Industry growth rate

Cash cows
Soft drinks and snack food

Dogs

Low

Product growth strategies

Organic
Increase R&D budget for development of new products Focus on developing new healthy foods and drinks

M&A
Inorganic growth to achieve speed to market Setting up of M&A team to look into potential business initiatives

Bundling: Offer all breakfast related products in the form a bundle at

relatively low price
Market

Penetration: In order to materialize above strategies, pursue Market penetration so that the

rivals could be contained

Joint Ventures: Establish Joint Ventures only for carbonated drinks markets; establish JV with Cadbury
Schweppes in the U.S.A and U.K

Related Diversification: One of the reason of decreases sales, profits and market share is PepsiCos
unrelated diversification, thus it should strive for related diversification

Retrenchment: Install ERP and extend to customers, to avoid the cost related to visits made by
sales staff to retailers

Organizational Structure: Change in to matrix structure in order to manage

vast product line in more than 200 countries

Thank You