Microeconomics Final Project

Topic:

“Pepsi”

Submitted to:

Sir Usman Elahi

Submitted by:

M Adil Javed (L1F18BBAM0026)

Haseeb Javed (L1F18BBAM0018)

Muhammad Nabeel (L1F18BBAM0006)

Qalb e Hassan (L1F18BBAM0014)

Zaid (

Date of Submission:

27 June, 2019
Introduction:

Pepsi Co:

Pepsi co incorporated is a global American beverage and snack company. The company
manufactures, markets and sells a variety of carbonated and non-carbonated beverages, as well
as salty, sweet and grain-based snacks, and other foods. Besides the Pepsi-Cola brands (including
mountain dew), the company manufactures Quaker oats, Gatorade, Frito Lay, Sobe and
Tropicana. The company formed for distribution and bottling is “The Pepsi bottling Group”

Pepsi:

Pepsi cola is a non-alcoholic carbonated beverage produced and manufactured by PepsiCo. It is

sold in stores, restaurants and from vending machines. The drink was first made in 1890s by
pharmacist Caleb Bradham in New Bern, North Carolina. The brand was trademarked on June
16, 1903. There have been many Pepsi variants produced over the years, including Diet Pepsi,
Crystal Pepsi, Pepsi Twist, Pepsi Max, Pepsi Samba, Pepsi Blue, Pepsi Gold, Pepsi Jazz and
Pepsi Ice Cucumber.
Why did you choose this product?

Pepsi is a worldwide leading food and beverage company. Pepsi today has many different

international locations including Middle East, Latin America and Europe. The reason we chose

this product is that we wanted to know about the firm of which products we are using in our

daily life. Also we wanted to know more about the comparison of Pepsi and Coca Cola. PepsiCo

has more than 20 products that we use in our daily life. So we wanted to know if they are

healthier to consume or what is their composition.

Market Structure:

Oligopoly:

 The beverage market is particularly an oligopoly with few sellers and many buyers
offering a slightly differentiated products.
 PepsiCo and coca cola particularly offer the same product with slightly different features.
 R.C cola is also their competitor, so a few firms dominate the market and are particularly
price makers.
 These companies have been established from a very long time and are therefore
achieving economies of scale prohibiting entry of competitors.

Pepsi and coke are in oligopoly market. They are offering the homogeneous item so they can
control over the cost yet they will consider their activity when they might want to change the
cost of their goods. They are using cut throat competition to attract more potential customers.
Nor coke neither Pepsi exit from this market, another firm will become a monopoly. The soft
drink price will become higher.

Monopoly:

 Pepsi is not a monopoly. The main competitive force in the market are substitutes.
 Soft drinks are cheap. People will only pay a certain amount for this sugar water and it is
not a necessity.
 This is because if Pepsi were to raise their prices, people would just buy juice and water:
the list is endless.
Demand and Supply of Pepsi:

Demand Side Factors:

1. Substitute: Demand of Pepsi depends on many factors and price of substitutes is one
of them. When the price of a substitute i.e. Coca Cola increases, the demand for Pepsi
will increase. This is a demand side phenomenon.

2. Income: Income plays an important role in demand side. When income of people
increases it increases demand for goods so people would buy more and vice versa.
Similarly because Pepsi is considered normal good, as income increases, demand for
Pepsi will also increase.

Supply Side Factors:

1. Technology Improvements: Technology is an important factor when discussing

supply side. New technology improvements helps increase production of firm at the same
cost which helps in gaining profits. As technology improvements occur, the supply for
carbonated fizzy drinks may increase. If there is a technological advancement in the
production of Pepsi products, the supply for Pepsi will also increase.

2. Taxes: Taxes affect supply side in a way that it increases cost of raw materials and other
ingredients which results in decrease in supply. If taxes on inputs increases, the supply
for Pepsi will decrease. For example if there is a high tax on plastic the supply of bottles
of Pepsi may decrease.
Cost Structure of Pepsi:

Fixed Costs:

Some examples of fixed costs in companies like Pepsi includes , rent on lease payments for the
Pepsi factories, salaries given to executive workers, insurance on machines used to create the
drinks and property taxes that must be paid on factories.

Variable Costs:

Examples of variable costs for companies like Pepsi include raw materials such as plastic for the
bottles, metal for the cans etc. Delivery charges to grocery stores, restaurants etc. Hourly wages
for the workers who sell merchandise at the factories, such as Pepsi factory in Atlanta and
utilities for the factories and stores such as lights, electricity etc.

Future Prospects of Pepsi:

Pepsi is a multinational company. If we talk about future prospects of Pepsi by looking at the
stats of previous few quarters we come to know that it is showing no or less growth in Pepsi
carbonated drinks. So I think it will go towards the healthier products to increase their sales.
There are many reasons that it is showing no growth in soda industry out of which one is their
competitor Coca Cola. It is all based on taste and preferences of customers. According to an
article, Pepsi is generating only 12% of its revenue from carbonated drinks. It shows that people
are changing their preferences.

Second thing that I see by looking at the stats are people are moving towards healthier products.
With the growth of its beverage business slowing down, as a result of sluggish soda sales, the
healthy products segment will be a focus for the company in the future to drive its sales.
PepsiCo’s tea portfolio, with brands including Lipton and Pure Leaf, has grown retail sales in the
range of mid-single digits to as high as 21% over the past 17 quarters. In enhanced water, both
LIFWTR and the newly launched Bubly have grown nicely. KeVita, PepsiCo’s line of premium
organic live probiotic beverages, grew retail sales 50% in Q1, following 66% growth for the full
year 2017. The growth of these brands is highly important for the company, as significant growth
here may help to offset some of the weakness in the core portfolio. These stats show that Pepsi
will go for healthier products in future to increase their profit.