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1. Economic Factor:

The key elements taken into consideration are the principal market risks,
which PepsiCo is exposed to interest rate, foreign exchange rate and
commodity prices. These are specified as :

(a)Interest rate on PepsiCo¶s debt as well as it short-term investment


portfolio: PepsiCo can manage its overall financing strategies in term of
balancing investment opportunities and risks. The company is using interest
rate and currency swaps to effectively modify the interest rate in order to
reduce the overall borrowing costs.

(b)Foreign exchange rate and other international economic conditions:


Operating in international markets involve exposure to movements in
currency exchange rates, which typically affect the economic growth,
inflation, interest rate, government actions and other factors. Once these
changes occur, they will cause PepsiCo to adjust its financing and operating
strategies. Changes in currency exchange rates that would have the largest
impact on translating PepsiCo¶s international operating profit include Mexican
peso, British pound, Canadian dollar and Brazilian real. Through years,
macro-economic conditions in Brazil, Mexico, Russia and across Asia Pacific
have adversely impacted on PepsiCo¶s operations. Especially, the economic
turmoil in Russia which accordingly resulted in the devaluation of the ruble in
1998 caused the significant drop in the soft-drink demand.

(c)Commodity prices that affect the cost of raw materials: PepsiCo is subject
to market risk with respect to commodities because its ability to recover
increased costs through higher pricing will be limited by the competitive
environment in which it is operating.
a. Technological Factor:

Development of additives such as sugarless sweeteners, caffeine free


products, and new flavorings enables PepsiCo to provide products that meet
changing customer tastes and preferences. In addition, computerized
manufacturing technologies are great contributions to higher efficiency and
quality in bottling operations. For Pepsi, a critical business challenge is
ensuring that the distribution processes can deliver the right products to the
right place at the right time. According to Jerry Gregoire, Vice President,
Information Services, ³The competitive advantage will go to the company
that can apply technology to areas such as logistics, getting costs out of the
distribution pipeline and getting products into the stores less expensively
while increasing the availability of sales information.´ Pepsi NA¶s data
communication network is an important element in the company¶s efforts to
address sales and distribution challenges with technology. Connecting nearly
330 manufacturing, distribution, and sale sites around the U.S. and Canada,
the Pepsi NA network transports data help management in controlling
inventory. For instance, sales data helps managers identify regions where
certain products are not selling well, and move any excess inventory to
areas where those products are in demand. Sales data also helps Pepsi¶s
managers make decisions about products before they reach the freshness
date and must be pulled from the shelf and discarded.

3. Political/Legal Factors:

(a)The Human Right Issue: Few years ago, PepsiCo did business in Burma
(Myanmar) under the brutal SLORC regime, the State Law and Order
Restoration Council.. What PepsiCo did at the time was patronizing the
SLORC regime in what they called ³rebuild the country¶s infrastructure´.
PepsiCo also said it helps the economy by buying "products such as mung
beans, sesame seeds and rattan from small, local farmers." The issue
addressed is whether these products were made by forced labors. In fact,
PepsiCo must export their products for hard currency because it cannot use
Burma's nearly worthless currency to buy imports of supplies for its bottling
plants. As the result, PepsiCo had lost contracts at Harvard, Stanford,
Colgate and other universities because it refuses to name the sources of
these farm products.
4. Socio-cultural Factor:

Consumers today are not as much joyous to cola products as they were
before. Age and ethnicity are two main characteristics that affect consumer
preference for soft drinks and alternative beverages. With age, health
concerns become more of a factor when choosing a beverage. To illustrate,
some studies show that cola products or soft drink in general may cause
kidney stones and other related diseases. In contrast to older consumers,
younger consumers²particularly teens and those in their twenties²have
less attention spans for products and are more likely to prefer products that
seems to be fun and different . Although PepsiCo is the number one seller in
carbonated beverages, it lost is market share in a000 as consumers seek for
alternative beverages. As the matter of fact, PepsiCo switches to non-cola
products such as bottle-water, ready-to-drink tea and sports drinks. In turn,
bottled water gained the market share up to 1a.8% in unit sales.
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1. Market size and Growth rate:

The soft drink industry is reaching its maturity, with the overall grwoth rate
of less than 1%.

The market size of the U.S beverage industry is been divided into alcoholic
and nonalcoholic beverages. With the soft drink market accounting up to
a8% and noncarbonated being 1a% of the total nonalcoholic industry size of
87%.

a. Scope of competitive rivalry

The scope of market is very aggressive, with all the players competing
globally. All the players have a global presence with manafacturing and
distribution being the part of the parent company.

3. Number of rivals

The industry is dominated by few large companies like Coca Cola, Pepsi and
Cadburry Schweppes.

4. Buyer needs and reqirements:

The carbonated market in the beveage industry is grwoing at a very slow


pace, as the consumers prefrences are changing towards a healthier and diet
conscious. The non carbonated products are in demand like water, sport
drinks, milk, juices etc.
Ô. Degree of product diffrentiation

There are not much difference among the products. Beverage industry have
look alike (in temrs of ingrediants and tase) products. All the players are
competing with similar strategies in the corbonated beverage industry.

6. Product Innovtion

Bevarage industry has a rapid innovation rate. As the produts are low in
differentiation and the product lines are also similar, innovation is being
made at a very fast pace.Continous Product inovation is being made to
develop new markets and consumers.

7. Vertical Integration

The dominant industry players are partially intrgrated with manafacturing


and distribution partially being done by company.
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Beverages

Coca Cola & Pepsi Co.

Product Categories: Soft Drinks, Diet Soft Drinks, Non- Cola, Root Beer,
Ready to Drink Tea, Sports Drink, Bottled Water & Juice.

Snacks:

Kraft Foods & Frito Lay.

Product Categories:Snack Foods, Cookies, Crackers & Cheese Products.

Cereals:

Quaker Oats (PepsiCo), Kellogg¶s, General Mills & Kraft Foods.


   

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Threat of New entrants has varied during the business cycle of Pepsi
co. As observed in early

Eighties there was less competition to be faced among these soft drink
companies as compared

To these days with number of energy drink invaders. Now the soft
drink market is not that

Attractive both profit earning wise and a huge amount of capital


expenditure is required to

Compete In this industry against existing firms like coca cola and
PepsiCo itself.

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The Barriers to Exist for the firms already operating in this industry is
high because of the huge

Capital investments b y these gigantic firms to strengthen their


existence here.

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The buyers of pepsi are most lagre grocers and discount stores
and restaurant

The buying power of buyers is evident and very strong .

Larges grocers and discount stores buy large volumes of soft drink,allowing
them to buy lower

Prices,restaurants have low bargaining power because they do not order in


large volumes.
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Supppliers for the soft drink industry do not hold much competitive
pressure

Pepsi co owns about Ô0 % of pepsi bottling group(pbg),which is the


worlds largest bottler of pepsi cola beverages

Since pepsi co owns the majority of the bottling company the


particular supplier does not hold much bargaining power.

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Substitutes products for Pepsi are those competitors that are not in
the soft drink industry.

Such substitutes for PepsiCo are bottled water, soft drinks, coffee and
tea.

It is very cheap for consumers to switch to these substitutes making


the threat for the substitute products very strong.

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The greatest rivalry the PepsiCo faces in the soft drink industry is Coca
Cola and Cadbury Schweppes originated from Britain.
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There are also numerous key success factors that every major competitor
must have in order to survive. To endure the crucial competitiveness within
this industry companies must: be able to compete with low prices, product
diversity and meeting the consumer's wants and needs. Location is an
essential factor in order for competitors to survive in the tough nature of this
industry. PepsiCo has an exclusive agreement with the fast food giants Taco
Bell, KFC and Pizza Hut to only sell Pepsi products. PepsiCo is exploiting its
unique relationship with these restaurants to gain more recognition and
popularity for its various products. Another important aspect of surviving in
the food and beverage industry is the requirement to adequately advertise
products. By doing this, companies attract the attention of their prospective
consumers and maximize brand awareness. The more the consumers
visually see the product, the more likely they are to buy and use that
specific product. Brand loyalty is vital to surviving in this industry. The
companies' goal is to ultimately reach the point where their customers are
consistently and faithfully using their products.
    

Amidst the most challenging global macroeconomic environment in decades,


Pepsi demonstrated the strength and resilience of both their HR and portfolio
by delivering solid operating performance and generating significant
operating cash flow.
‡ Net revenue grew Ô% on a constant currency basis.

‡ Core division operating profit rose 6% on a constant


Currency basis.*

‡ Core EPS grew 6% on a constant currency basis.*

‡ Management operating cash flow, excluding certain items,


Reached $Ô.6 billion, up 16%.*

‡ And, we raised the annual dividend by 6%.

Various Ratios:

a004 a003
Current Ratio 1.a7 times 1.08 times
Return on Equity 1Ô% 14.08%
Return On Equity 31.03% 30 %
Profit Margin 14.39% 13.a %
Working Capital $ 1887 M $ Ô1Ô M
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In order to ensure a good value chain strategy, Pepsi co. plans two years in
advance. It has several contracts with manufacturers, and receives raw
material on a convenient basis. The company also decides where production
plants are to be placed. The production process is 6Ô% automated. The
company has to provide and manage transport for the delivery of products
as well as the arrangement of third party services for the procurement of
products. The shipping department handles orders and the transport
department decides the vehicles for safe delivery.
Material planning and sourcing is carried out as well. Sources of supply of
raw material both local and foreign are identified and terms and conditions
are negotiated. Capacity planning is also done at this stage. Sales
forecasting and production planning depends upon the capacity of the
organization with respect to:

1. Production
a. Storage: Raw and packing
3. Storage: Finished goods

The supplier is audited by the most cost efficient quality control department.
Distributors are also decided by the company, keeping in mind past
performances.

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Pepsi has a seasonal demand. Just in time concept is applicable in non-
seasonal period and not applicable in seasonal period. All processes that are
part of the procurement cycle, manufacturing cycle, replenishment cycle,
and customer order cycle are push processes.
Pepsi Sales order and processing: The Shipping Manager receives sales order
from Sales Team, distributors through telephone, fax & email one day before
dispatch. The sales are made to base distributors on advance payment
against orders then shipping manager plans according to the demand of
distributors on daily basis.

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V Healthier life style


V Environmental Issues
V Stagnant/Mature local market

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V Exploring developing countries and markets


V New product development
V Acquisition of smaller companies and brands in regional markets