Course Name: Strategic Management

TITLE: Case study on “PepsiCo”

Submitted to:

MD. Wahidul Islam Chy

Associate Professor

East Delta University

Submitted by:

Name ID
Md. Ashab Azam Chowdhury 193003506

Internal Analysis:
Internal analysis is concerned with strengths and weaknesses of the company Internal analysis
is a technique combined with the company's external situation, providing managers with the
knowledge they need to select the business model and tactics that will make it easier for their
business to gain a long - term competitive advantage.

Resources:
Resources can be defined as the assets of the company. Usually, a company’s resources can be
divided into two categories:

 Tangible
 Intangible

PepsiCo is an American food, snacks and Beverage Company. It is one of the most successful
consumer products in the world. During the years, PepsiCo has obtained numerous brands,
acquire companies, and merge with companies. PepsiCo have huge manufacturing plants in
different parts of the world. They also have many skilled, talented employees around the world.
The company always organize the training and skill development for the employees to develop
their skills so that they understand the changing demand, intense competition from around the
world better. Here from the case we can see a upward trend in terms of PepsiCo’s total assets
about $35,994 billion comparing two years 2006 and 2007.

Tangible assets:
1. Physical existence assets: PepsiCo have numerous tangible assets all around the world
that have physical existence such as manufacturing plants, equipment, lands, buildings,
inventory and money. PepsiCo builds few factories in china in 2009 and plans to have five
manufacturing plant in china as their strategy to overtake coke, which is their only
competitor in the cola market.

2. Huge cash and inventories: They have huge cash in hand around $2064 billion in 2008
more than the past two years (2006 and 2007). They also have more inventories ($2,522
billion)in stock so that they can easily deliver the products as soon as getting customer
order, and other current assets ($10,806 billion) by which they can operate daily activities
very efficiently.
3. Bottler companies: PepsiCo recently retake ownership two largest independent bottlers
for $7.8 billion Pepsi Bottling Group (PBG) and Pepsi Americans (PAS). They deliver nearly
75 percent of Pepsi in US that enable the company to create demand for its product and
lower the cost relative to its competitors.
 4. Wide variety of brands: Apart from soft drinks Pepsi, the company is the owner of many
world’s recognize brands such as Mountain Dew, slice, Aquafina, Dole juices etc. In snack
industries they have brands like Lay’s potato, Doritos, Cheetos and in food industries they
owned Quaker and energy drinks like Tropicana and Gatorades.

Intangible assets:
Like tangible assets, PepsiCo also consist of different kinds of intangible assets.

1. Goodwill: PepsiCo has great amount of reputation globally which is their massive strength.
Their amortizable intangible assets around $732 billion. PepsiCo’s iconic symbols, slogans,
patent, make them unique and differentiate from others.

2. Skilled Employees: Vast majority of skilled and experienced employee helped them to
maintain a sustained competitive advantage. They also have unique trademarks which
make them different from others.

Capabilities:
Capabilities refers to having skills to utilize resources in order to productive use. They utilize
their manufacturing plant so efficiently and effectively that will produce its beverage products
at low cost. The new plant uses less water and energy than the average Pepsi plant in china
which is the result of motivate and manage its workforce in such a way that leads to high
productivity employee and lower cost. Pepsi has manages its distribution network so strongly
results in helping the brand sustain its global presence and build a loyal customer base, sales
and revenue. Pepsi has also operated a comprehensive and diverse supply chain involving
thousands of vendors from various parts of the world. The organization has developed a code
of conduct applicable to all its suppliers for the management of a sustainable supply chain and
for the procurement of high quality raw material. PepsiCo’s excellent human resource helps the
company to organize and manage the organization very effectively. It provides its employees a
lot of benefits to keep the talented employees for longer.
Distinctive competency:
Distinctive competencies enable a business unique strength to differentiate its goods from
those provided by competitors.

 PepsiCo provide a high quality citrus soft drink using Pepsi company’s unique and
healthy ingredients and one calorie soft drink to attract and increase tastes for these
products.
 Using flexible and effective manufacturing and distribution systems the company deliver
these soft drinks to the customer that uphold the quality standard of PepsiCo.

Strategy:
Here PepsiCo follows two types of strategy at different times of period and they are:

 Cost leadership strategy

 Differentiation strategy

Cost leadership strategy:

Loft increased the size of bottle to 12 ounces and this strategy enables them a big and
successful player in the market. This strategy focuses on minimization of cost in order to
improve financial condition and maximize shareholder value. They sold products at low prices
and produces at low operating cost.

Differentiation strategy:
In the meantime, Nooyi the CEO of Pepsi in 2006 uses the differentiation strategy to attract and
hold customer and also distinguish the company from the competitor itself.

Competitive Advantage:
Like all other company PepsiCo have multiple competitive advantage. They are following below:
Global presence:
PepsiCo’s global presence is one of its main sources of competitive advantage. Its worldwide
distribution network has played a vital role in helping the firm gain a critical source of
advantage. It has divided its business into five market segments:

 Frito-Lay North America (FLNA)

 Quaker Foods North America (QFNA)
 Latin America
 Middle East and North Africa, Asia (MEAA)
 United Kingdom and Europe (UKEU)

PepsiCo has established a strong presence on all these continents and it helps them gain a
competitive advantage than other competitors through expansion and product innovation.

Wide variety of products:

Pepsi has brought a vast variety of goods to the market consist of both regular and low calorie
product. Pepsi, Mountain dew, Lays, Gatorade, Quaker oats, Aquafina etc. are all the leading
brands in the world. As people are becoming more health conscious PepsiCo made products of
zero calorie for them to avoid obesity. This high range of products has made the company
successful and help to gain a competitive advantage for the company.

Large customer base:

PepsiCo’s large customer base is also an important source of firm’s competitive advantage. In
order to retain its loyal customer PepsiCo must attract the customer through expanding
marketing activities. Its major customers are most of retailers such as Walmart. They advertise
their high range of products by working nearly with their bottlers and retailers worldwide. In
order to attract more customers and remain in the consumers mind, PepsiCo spent huge
amount on sales and discounts.

Superior Profitability: After combining and analyzing all resources, capabilities, competency
and competitive advantage lead a firm sustained and superior profitability. Like PepsiCo’s profit
is over $5,142 billion and still growing which helps them an established brand image around the
whole world.
External Analysis:
The goal of external analysis is to examine the opportunities and threats in the firm and use
those opportunities and threats that enable the company to outperform rivals. It begins by
identifying the industry within which a compete.

Industry:
There are few models to examine the external analysis of the industry. Among them Michael E.
porter’s five forces model is one of them.

Potter’s Five Forces Model

1) Risk of entry by potential competitors: Low

Potential competitors refer to the companies that have the ability to compete but
choose not to compete in an industry currently.
a) Entry barriers is so high in beverage industry such as economies of scale through
mass production, high initial cost so no new company wants to enter the market.
b) A few multinational company like Coca-Cola, Pepsi holds the largest market share all
around the world so new competitors are not interested to enter the market. Coca-
Cola and Pepsi holds the largest share in the US market at 23 and 25 percent
respectively.
c) Brand loyalty of Pepsi, Coca-Cola is so high that the loyal customers don’t want to
switch for the new product.

2) Rivalry among established companies: High

a) In terms of number and size distribution of companies like Coca-Cola is the huge
competitor in the beverage industry. the company enjoys the huge market share in
north America as well as whole world.
b) In the snack and breakfast industries PepsiCo have largest share among others such
as Kraft’s, Kellogg’s etc.
3) Bargaining power of buyers: Medium
a) Although PepsiCo’s major customers are large retailers such as Walmart and target
and other convenience store Pepsi must retain the individual loyal customer. Even
though the large retailers have the high bargaining power by purchasing Pepsi’s
large amount of carbonated soft drinks, its high brand loyalty does not affect its
individual loyal customers.
b) As there are many substitute products in the industry and customers are more price
sensitive they can switch other products.

4) Bargaining power of suppliers: Low

a) Huge companies like PepsiCo, Coca-Cola have diversified suppliers from different
countries of the world. By establishing strong ties with suppliers through
diversification these companies reduce the high bargaining power from suppliers.
There are suppliers for the beverage and food industry and this intense competition
among suppliers keep the bargaining power low.
b) Moreover, many supplier do not want to lose huge companies like PepsiCo, Coca-
Cola, Kraft’s etc.

5) Threat of substitutes: Medium

Nowadays people have become more health conscious. They are more aware of taking
carbonated soft drinks and prefer fresh fruit and vegetable juice, coffee and tea which
are all the substitute of soft drinks. As consumers tastes and preferences changes
PepsiCo spend huge amount of money for improve its product by spending in R and D
and as a result they introduce high quality nutrition low fat juice like Tropicana,
Gatorade etc. and also they produce high nutrition breakfast cereals which has a great
demand in the market and keep the threat of substitute power medium.
 Particular Low Medium High

Risk of entry by Low - -

potential competitors

Rivalry among - - High

established companies

Bargaining power of - Medium -

buyers

Bargaining power of Low - -

suppliers

Threat of substitutes - Medium -

Microenvironment (pestle analysis):

1. Macroeconomic forces:
Economic forces influence the general health and welfare of a nation which in turn
affect the industries to earn the profit. The crisis in economy affected sales of colas as a
result the customers switched to other cheaper brands as alternatives. Economic
growth like developed countries (USA and Europe) as well as developing countries
(Asia) increases the buyers purchasing power which is a opportunity for the industry.
According to a survey, about 99 percent of American households spend $80 on these
products. Here world demand for nonalcoholic beverage market are growing steadily
which is a opportunity for the beverage industry.

2. Social and Demographic forces:

People all over the world have become more health conscious than ever before. They
prefer more low or zero calorie non-carbonated fresh juice than carbonated soft drinks.
It can be a both opportunity and threats for the PepsiCo Company. For products like
Pepsi, lays should target the young age groups and for the health conscious adults
healthy meals like Quaker oats, fresh Tropicana juice etc. Demand changes by
demographics such as age, lifestyle and health considerations and also this busy world
 shape our impression of the first meal of the day. Ready to eat cereals encompasses 90
percent of the total industry revenue. Thus PepsiCo have great opportunity in this
industry to grow.

3. Environmental forces:
A current environmental movement against plastic containers has influenced bottled
water sales and prompted producers to produce more eco sustainable containers which
can be both advantages and risks. Then news of contamination of water can affect to
the customers preferences in a company’s ability to provide a safe, healthy product.
PepsiCo has initiated programs aimed at increasing the use of recyclable plastic and
reducing the materials used in packaging, which is an opportunity.
4. Technological forces:
Technological forces is also an important forces in pestle analysis. PepsiCo uses unique
promotion and advertising through technology such as YouTube, web pages to attract
young generation though the youngsters most of their time spend on internet, social
medias etc. so it is a great opportunity and strength for them. Snack companies
compete with each other through enormous publicity, promotional campaigns and
product development. As advancement of technology people are more aware to get the
product on home delivery through the company’s web site. So this is another great
opportunity for the PepsiCo.

5. Political and Legal Forces:

There are so many laws in different countries of the world such as tax laws, labor union,
and environmental laws. As PepsiCo operates in different parts of the world, they
should consider all this types of laws of the countries in which it operates. Again major
economies and politically stable countries like USA and Canada have growth
opportunity for PepsiCo. Moreover, many govt. are against the soft carbonated drinks
because of health issues and this causes threats to the beverage industry like PepsiCo.

Industry Life Cycle:

Industry life cycle has been divided into 5 stages:
 Embryonic stage
 Growth stage
 Shakeout
 Mature stage
 Declining stage
Beverage industry:
The carbonated beverage market is made up of soft drinks, juices from fruits and vegetables,
sports, and diet drinks. Here, Beverage industry is on the maturity phase and the reason are
following below:

 Generally at matured stage industry growth rate become slower than before or even
zero. The growth rate rises at a decreasing rate, demand is replaced by other products
demand and market is totally saturated. World demand is experiencing a relatively
slow but consistent overall growth in the beverage industry.
In the USA, there is a decline rate of 0.4 percent in carbonated soft drink market in the
year 2007 because the customers are diverting to energy drinks and fresh drinking
water. As a result, demand is replaced by other product. Moreover, in the USA, the
carbonated soft drink market shrank to $63.4 billion in 2007.

Savory snack industry:

Although US savory snack market is comprised of 400 firms but this industry is dominated with
the 50 companies contributing 75 percent of the market. As many companies are competing
with in terms of advertising, promotions and innovative product. As consumers tastes changes
companies like PepsiCo introduce the snacks chips with less salt, zero fat, organic, and made of
vegetables which brought great opportunity for them to earn profit in this industry. The
massive shareholder in this industry encompasses PepsiCo’s Frito-Lay, Kraft’s Nabisco and
Kellogg’s snack division. The global chips market is over $32 billion with an annual growth rate
of 6.35 percent. In summation, there are so intense competition in this industry so we can say
that this industry is on the way to maturity.

Breakfast Cereal Industry:

The global breakfast food market is composed of bread, pastries, breakfast bars and spreads.
Here we can see that growth rate is slower in bread at 1.6 percent, pastries and cereals at 3.5
and 2.6 percent respectively. As the growth slows companies compete for each other for
market share develop and often produce a price war. Here the competition are intense in the
US breakfast market and they are Kellogg and general mills. The market is highly concentrated
with 4 companies captured the 80 percent of the food market. The stable demand allowing the
companies price leadership agreements in order to reduce intense rivalry and earn greater
profitability. In summation the breakfast and cereal industries are also in matured phase.
SWOT Analysis:
SWOT analysis is used to evaluate the internal strength and weakness, and external
opportunities and threats. They are explained below:

Strengths:
 The vast diversified company in the globe based on net revenue estimated at $43,251 in
2008. PepsiCo holds the largest share of the US market about 25 percent 2 percent
more than their competitor Coca-Cola and 39 percent in snack industries.
 PepsiCo male alliances with different groups to hold the confidence in a company’s
ability to provide a safe and healthy product.
 PepsiCo’s global presence make them stronger than other competitors. The company
sell their products in overall 200 countries in the world with total revenue over $43
billion and net profits over $5 billion in 2008.
 Their wide range of product is another strength for them. As consumer’s tastes are
changing PepsiCo introduced and have innovated new healthier products that are more
health effective and flavored. Snacks and food are also healthier for health conscious
people.
 PepsiCo’s efficient manufacturing system, diversified distribution network made their
operating cost low and lead a greater profitability.

Weakness:
 PepsiCo’s competition with Coca-Cola is so intense that Coca-Cola holds the largest
share of the US cola market at 41 percent. They also major competition in food industry
like Kellogg, General mills.
 According to income statement 2008, PepsiCo’s current liability, ($8,273 billion) long
term debt and interest expense ($329) are rising every year. Their expenditure like cost
of sales has increased from 41.32 percent of sales and net income has decreased from
$5.6 billion to $5.1 billion.
 As PepsiCo’s major customers are large retailers such as Walmart, target they have to
depend heavily on them for majority of their sales volume.
Opportunity:
 In 2009, Pepsi acquired its major two bottler companies for $7.8 billion PBG and PAS.
 Pepsi extends their business by applying merger and acquisition strategy in different
industries in the market.
 As the competition in beverage industry is greater, PepsiCo developed and expand its
product line in snacks and other food industry to keep them in the market active. New
product are designed in order to keep in mind consumer’s health concern.
 In late 2009, PepsiCo acquired Brazil’s largest production of coconut water drinks to
create its brand image in the vast nation of South America.
 PepsiCo uses web media such as YouTube and other social media to attract the younger
customer and to create brand awareness.

Threats:
 Due to economic issues economic troubles customers prefer drinks and snacks at low
cost. It has also affected the cola sales as customers divert to the other brands.
 Huge competition with Coca-Cola in advertising and building place in the consumer’s
mind and also shares in cola industries in USA.
 As Beverage industry is almost on the mature stage this is the big threat for the PepsiCo
in beverage industries.
 News of contamination of water can destroy the consumers preference on beverage
industry which also a big threat for PepsiCo company.
 Strength
1. High revenue
Internal 2. Make alliance with numerous
project.
3. Global Presence
4. Wide range of products.
5. Efficient manufacturing and
diversified distribution
system.
Opportunities
1. Acquired two largest bottlers.
2. Expansion of business in
External
various industries.
3. Expand the product line
4. Increase its global expansion
5. Use web media for
advertising.
Weakness
1. High competition with Coca-Cola.
2. High expenditure and liability
3. Depend heavily on large retailers.
Threats
1. Economic downturn.
2. Huge competition with Coca-Cola in
advertising and shares in USA in cola
industries.
3. Maturity stage of beverage industry.
4. News of contamination of water.