Executive Summary

Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is oneof the strongest
beverage and convenient food companies in the world. Originally startedin 1898, Pepsi Cola
became the first branded soft drink in the world. Its brand isavailable in over 200 countries
around the world and generated sales in excess of $92 billion last year. Headquartered in
Purchase, New York, PepsiCo is the number two beverage company in the world behind the
Coca-Cola Company.Financially, 2006 was a year of progress with an overall growth of
5.5%, revenueof nearly 36 billion USD and a return on investment of 26%. These numbers are
all wellabove the industry average, with their main competitor still being the CocaColaCompany. PepsiCo has continued their brand image by appealing to Generation
Y and becoming synonymous with music, entertainment and sports. In addition to their financial
success, PepsiCo is also dedicated to ethics and social responsibility in thecommunity. They have
invested heavily in recycling programs and in developing nationsin Africa. PepsiCo even has a
sustainability mission that states PepsiCos responsibilityis to continually improve all aspects of
the world in which we operate- environmental,social, economic- creating a better tomorrow
than today.They believe that they have the competitive, sustainable advantage in the
industry because of three things: big brands, proven innovation and differentiated products,
and powerful go-to markets. With their strong brand, socially responsible employees
andcorporate beliefs and focus on the younger generation, PepsiCo will continue its stance asone
of the most powerful companies in the world.

Current performance

Pepsi Co is a worldwide corporation that has been in existence since the late 19
th
century when Caleb Bradham, a pharmacist from New Bern, North Carolina first
startedexperimenting 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.
1
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.
2Financially 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 whichoffers additional revenue from emerging markets. As will be discussed
later, Pepsi Costill remains second in the international beverage industry, with CocaCola maintainingits strong market share.
1PepsiCo Company Website. History Overview.http://www.thecocacolacompany.com/heritage/chronicle_birth_refreshing_idea.html. Last updated January 2007.
AccessedMay 10, 2007.
2PepsiCo Rankings Worldwide. Hoovers. http://0premium.hoovers.com.bianca.penlib.du.edu/subscribe/co/ops.xhtml?ID=ffffrfyhsffytsjrkh. Last
updated January 2007. Accessed May 5, 2007.
3 Financial Releases of PepsiCo. Phoenix Corporate.
http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-financial_releases. Accessed May 10, 2007.

-PepsiCo announces it will acquire New Zealand snack company

B l u e b i r d Foods
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Strategic Posture
Pepsi Cola has a very concise mission statement which offers its employees,shareholders and
consumers a clear offering of what Pepsi Co embodies. We haveabsolute clarity around what we
do: We Sell Soda. We commit ourselves to theseOperating Principles: Rules of the Road 1. Drive

local market success 2. Act Now. Do ittoday. Get Results. 3. Set Targets. Keep Score. Win. 4
Respect Each other. Our successwill ensure: Customer build their business, Employees build
their futures, ShareholdersBuild their wealth.
5
Each of the operating principles of Pepsi Co deliver the actions thatall employees are expected
to perform and the quality that shareholders and consumersalike should come to expect. In the
paragraphs below, their operating principles will bedetailed to clarify their current strategic
posture in the market and in the industry.Drive local market success. Pepsi Co, an American
company since its inception,continues to expand into developing markets while maintaining its
major stronghold of the United States. To drive domestic market success, Pepsi Co has three
main sub-objectives: 1. To compete locally 2. To be a small company within a
big company,insuring that the company remains maneuverable, and not a stagnant giant and, 3.
to havevisible community leadership. Pepsi Co continues to be a client centric company,focusing
on this objective now more than ever. Due to the recent trend of healthyliving, PepsiCo has
been forced to expand into other markets to meet the healthconscious demand of its consumers.
Carbonated beverages remain the most popular beverage category, with some 85% of U.S.
households purchasing them. However, non-carbonated beverages represent a fast-growing
category- a place where consumers aremigratingWe recognized the need to broaden our
portfolio early on and moved toextend our presence in non-carbonated beverages in 1992
Providing consumers withchoices has long been a part of our mindset
Annual Review 2007 for Pepsi Company. AngelFire.http://www.angelfire.com /ga/struitt
/pepsi.html. Accessed May 9, 2007.
PepsiCo Objectives.http://pepsico.com/PEP_Company/BrandsCompanies/index.cfm.Last updated
January 2007. Accessed May 9, 2007.

Diet Pepsi in 1964 and its Reduced Fat Ruffles in the mid 1980s. In 2006 Pepsi Costated, Its
about growing a business profitably for the long term.We believe we cando this in ways
directly related to our business, beginning with our productsHumansustainability, and were
continuously transforming our portfolio of products to meetconsumer needs. Weve improved the
nutritional profiles our global and flagship brands by changing to healthier oils, reducing sugar
and sodium content, and by expanding therange of products we offer. This includes products
ranging from indulgences or treats-to good for you products that offer functional benefits like
hydration or heart healthWhat we call Smart Spot eligible products represented over twothirds of our growth in North America in 2006And weve set a goal of deriving 50% of all our
U.S. revenueswith Smart spot eligible products by 2010.
6

Secondly, Pepsi Co focuses on its strategy for result: Act Now. Do it today. GetResults. This
objective is designed to accomplish tasks with a sense of urgency, to fix problems before they
become major issues, and to build upon passion.Third, Pepsi Co accomplishes goals by setting
targets, keeping score, andwinning. They created five simple rules to promote this
idea throughout the company:Every front-line job has tarots, reinforce goals, plan performance,
protesting, focusing,and simplifying, clear accountability for result and no excuses. These
objectives are goaloriented with emphasize on how individual actions can affect the entire
corporation, positively or negatively.Their fourth objective focuses on the employees
relationships within the companyand throughout their daily lives: Respect each other by treating
everyone fairly, and withdignity, operating with integrity and justice, and keeping in mind that
everyone isimportant.It is crucial to note that the current mission, objectives, strategies and
policies of Pepsi Co reflect the corporations attempt to progress in international operations.
PepsiCo follows a relatively simple strategy with the four objectives that can be applied toalmost
any corporation around the world, offering a base concept to all of its employeesand consumers.
The mission statement We sell Soda is only three words, but it speaks
6PepsiCo Strategies and Objectives. PepsiCo Corporate Site.http://www.pepsico.com/PEP_Investors/AnnualR
eports/06/PepsiCo2006Annual.pdf .Last updated January 2007. Accessed May 9, 2007.
volumes in it meaning. It projects the idea that this company has developed a businessthat they
are exceptional at and will not pretend to be anything more than what their corecompetencies
can offer.
Corporate GovernanceBoard of Directors
The members that make up the directors are very diversified in their skills,experience, and
knowledge. Members are from various places of the world and have heldcontrasting positions
from CFOs to Medical Professors. Although the ages of themembers are similar, the experience
and knowledge of the diversified group is a greatasset for PepsiCo. One interesting fact is the
CEO is a woman that has been involved inmany facets of the business from Strategic
Planning President to Corporate Strategy.Committees within the group are the Nominating and
Corporate GovernanceCommittee, an Audit Committee, and Compensation Committee which are
all comprisedof individuals from the Board of Directors. The directors have performed very well
in the past and have received many awards for their performance and
leadership.Successful performance by the board members may be attributed to the fact that some
are financiallyinvolved in PepsiCo and others are not associated with the firm.The combination
of thetwo groups serves as an excellent medium between serving the companies interests
whilemaintaining ethical and responsible decisions.
External 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 emergingcompetitors 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 whocontrols the international market share of
beverages and confectionary goods. Inaddition, 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 detailedaccording to their financial statements, management
schemes, marketing campaigns andrecent acquisition
Financial
As a company that employs over 71,000 individuals around the world andengages in the
manufacturing, distribution, and marketing of non-alcoholic beveragesworldwide, Coca-Cola
remains Pepsi Cos most aggressive and threatening competitor inexistence. In 2006, Coca-Cola
maintained revenues of nearly 25 billion USD and a gross profit of nearly 16 billion USD.Their
return on equity remains one of the strongest inthe industry and in the market, at a staggering
31.15% (compared to the industry averageof 14.3%) in 2006. Pepsi Co has managed to
maintain nearly 97,000 more employeesand 10 billion USD more in revenue in 2006, yet their
net incomes remain comparable at5.5 billion USD. This statistic shows that while Coca-Cola
may employ fewer individuals and therefore generates smaller revenue, they are still able to
remaincompetitive with Pepsi Co in regards to their net income. Coca-Cola is the number
onesoft drink company in the world and owns four of the five top selling brands. AlthoughCocaCola does not do its own bottling, it does own 35% of Coca-Cola Enterprises, 32%of Coca-Cola
FEMSA, and 23% of Coca-Cola Hellenic Bottler (the largest European bottler). Coca-Cola was
also ranked number 94 in Fortune 500, while Pepsi ranked at63.Coca-Cola Company.

Management
Coca-Colas current CEO and chairman is E. Neville Isdell, a 63 year old who hasremained at
this position since 2004. Prior to his current position, Isdell was aninternational consultant to the
company and has held a variety of positions within thecompany since 1966. Isdell has proven to
understand the company values and theindustry in which it deals, and provides the glimpse of an
opportunity for others in thecompany to work their way through the ranks. He has also offered an
internationalviewpoint which has increased awareness and sales overseas.
11
In 2007, Coca-Cola re-structured their business units for a more strategic approach, organizing
them into thesparkling beverages, still beverages, and emerging brands.
12

This will allow their functional areas to focus on what kind of marketing to do and other issues
based on thetype of product it is.
Marketing
As the classic cola brand in America, Coca-Cola tends to focus its marketingefforts on the
baby boomer generation and the loyal Coca-Cola consumers. Unlike Pepsi,Coca-Cola does not
feel the need to expand into industries that are not of its corecompetencies and continues its
marketing scheme to that of what theyre good at: makingsoda. Coca-Cola does not attempt to
recreate its image as something new and hip that theentertainment industry can play off of, they
simply portray themselves as the best beverage maker in the world. They have also recently
began a campaign called EveryDrop Counts, and have announced that they are retooling their
Atlanta headquarters toconserve natural resources and combat global climate change. Recently,
Coca-Cola hasalso initiated a clean water program in Africa by creating a chlorine purifying
substanceand gave jobs to people in the community to create these products. Coke is not well
Coke Overseas Sales Bolster Turnaround. Wall Sreet Journal. February 17, 2007.Page A14.http://0proquest.umi.com.bianca.penlib.du.edu/pqdweb?
index=6&did=1216359421&SrchMode=1&sid=5&Fmt=3&VInst=PROD&VType=PQD&RQT=309&
VName=PQD&TS=1179373335&clientId=48347.
Hoovers.http://premium.hoovers.com/subscribe/co/overview.xhtml?
ID=ffffrfyhsffytsjrkh.Updated January 2007. Accessed May 10, 2007.out by Americas Hershey
brand and that the value of the product will decrease.However, this move was made after careful
consideration and the belief that the twodivisions would be better off splitting than
being together.
There are also a few mergersthat may be in the works for the beverage side of Cadbury,
including Canadas Cotts.This would join the number 3 and 4 beverage producers in the United
States and bring thecompetition even close to PepsiCo and Coca-Cola, capturing nearly 20% of
the marketshare.
Internal EnvironmentCorporate Culture
PepsiCos corporate culture is based on performance and quality of their products, services,
and social responsibility. The guiding principles and commitmentconsist of:
Jargon, Julie. The case for a Hershey-Cadbury Romance; Play for UK firm May pinchStock Now,
But Set Stage for Growth. Wall Street Journal. April 19, 2007. Page C1.Accessed May 12, 2007.McKay,
Betsy. Canadas Cotts Explores Cadbury.http://0-proquest.umi.com.bianca.penlib.du.edu/pqdweb?
index=1&did=1253948821&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&
VName=PQD&TS=1179377829&clientId=48347. Wall Street Journal. April 15, 2007. Page C3.
Accessed May14, 2007.

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
heavilyinvesting 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 saidabout the way employees are treated and what expectations
and responsibilities aretowards them. Programs exist that help employees take part in the
community, and alsofuture employees by offering school programs and scholarships. However,
little effort isdirected towards the responsibility of the company to employees. Coinciding with
their values, objectives, and commitment, employees are left out of the grand scheme and
mayeven be considered a means to an end. The limited focus on employees may be a problemin
the long-run due to retention issues and resulting lack of quality.
Corporate Resources
Marketing
Due to the many product lines PepsiCo markets, there are many differenttypes of marketing
strategies, but can all fall into several main categories. Much of themarketing 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 especiallymarketed 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, butis apparent with sponsorship of athletic events and teams, as well as in
accordance withtheir website and target market.However, PepsiCo is missing a huge market that

could largely add to revenueswhich is the baby-boomer generation. As much of the marketing is
generated with a
PepsiCo. Company
Values.http://pepsico.com/PEP_Citizenship/pepsicoValues/index.cfm. Last updated January2007.
Accessed May 11, 2007.
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 productare 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 internationallyANALYSIS OF STRATEGIC FACTORSPepsi 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 liquidnature of Pepsis product, it is necessary that a solid and
non-porous container be used tostore the products. In way to the recover, their position in the
minds of the publicexternally, and with employee satisfaction internally. In light of the

variousdiscrimination lawsuits brought on in 2001 and 2004, the company has been faced
withthe task of how to improve from within themselves, thus portraying a more positiveexternal
image. Their mission clearly their dedication to client satisfaction through theintegration 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. Thesematerials 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 thrownaway, rather than recycled. In November 2000, the boards of
Pepsi and Coke passedresolutions for future container recycling targets. The resolutions call
upon management

ANALYSIS OF STRATEGIC FACTORS

Pepsi Co has been consistently living up to its mission and objectives, as they offer the most
valuable products and beverages to their clients. The main areas they need to 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 tos tore 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 be carried 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
Form 10-K Annual Report." U.S. Securities and
Review of Mission and Objectives
According to the companys official website, PepsiCo Incorporateds mission is tomake this
company: the worlds premier consumer products company, focused onconvenient foods and
beverages. PepsiCo strives to produce healthy financial rewards toinvestors as it provides
opportunities for growth and enrichment to its employees, So theoverall mission of PepsiCo is
to increase the value of shareholder's investments. This isachieved through sales growth, cost
controls and wise investment of resources. PepsiCo believes that their commercial success

depends upon offering quality and value to their consumers and customers; providing products
that are safe, wholesome, economicallyefficient and environmentally sound; and providing a fair
return to their investors whileadhering to the highest standards of integrity.
25
Objectives
Concentration of resources on growth of businesses through internal growth andcarefully
selected acquisitions PepsiCo has adopted a plan for growth by continuallyaddressing the
opportunities and risks associated with the global marketplace. Thecorporation's success reflects
their continuing commitment to growth and a focus onthose businesses where they can drive
their own growth and create opportunities.Contribute to the quality of life in communities.
PepsiCo believes that as acorporate citizen, it is responsible to contribute to the quality of life in
the communities itserves. This policy is implemented through support of social agencies,
projects, and programs. The company also supports employee volunteer activities
throughcontributions of time, talent, and funds. Each PepsiCo division is responsible for its
owngiving program with corporate giving focused on supporting employee volunteer activities.
26
The strategic objectives seem to address most of the strategic problems facing PepsiCoInc. For
example, the risk that demand for PepsiCos products may be adversely affected by changes in
consumer preferences is addressed by the strategic objective of caring for