How can PEPSICO improve its diversification strategy in 2008?

Strategic Diagnosis • External analysis • Internal company analysis Alternatives Recommendations



often global palate .•Diet and reduced calories food •Non-carbonated beverages •Great-tasting •Gourmet flavor •Styles Consumer health and wellness concern Consumers want to reward themselves Ready to eat and ready to drink consumption Consumer desire to escape from the norm and taste snacks from a wider.

  Political    Protectionism in emerging markets High growth potential of emerging markets But…strong competition to enter Healthier lifestyles promote different patterns of consumption and represent new product opportunities But…less interest in sodas with high sugar content Strong R&D departments to develop new products Economic Social       Technological  Ecological    Environment friendly packaging solutions More and more protected consumers Stricter legislation to defend against obesity Legal Source: Xerfi. and case study .

cholesterols. simple carbohydrates “China and Brazil would be the 2 largest international markets for snacks” Potential growth of markets: • Increasing consumption of water bottles in US • Increasing consumption of savory snacks like Cheetos cheese (expectation: +27% by 2013) • Broadening the products: Avoid the dependence on US markets by going abroad . India. Mexico. Brazil • Developed countries: growing markets in healthy snacks outside US : new consumers needs and expectations: reduce saturated fats.Consumer lifestyle: • “Better for you” – “Good for you” opportunities • Changing lifestyles of consumers • Taste preferences from country to country: adaptation to the local tastes International Expansion • Emerging markets: developing countries China. trans fats. Russia.

and safety may force a reorganization in the industry Intense Competition • Fast-food industry: fierce price competition and low profit margins • High rivalry between powerful global companies (The Coca-Cola Company. Nestlé. Kraft Foods.Awareness for healthy. Danone. advertising.. health.. sales promotion initiatives Potential Disruption Due to Labor Unrest • In 2008 a strike in India shut down production for nearly an entire month . Risk of influence on pricing pricing. sugar and salt free meals  Decline in Carbonated Drink Sales Potential Negative Impact of Government Regulations • Legal barriers to enter new markets : protectionism • Legislation involving environmental.).

Threat of new entrants -Low power of new entrants Few multinational groups own the largest part of the market share Possible entrants for niche markets or local markets ++ Very high bargaining power (retailers) -Power of brand recognition as an argument to attract the final customer who is loyal -Depends on the size of the retailer +/Medium bargaining power -Dependence on raw materials -But…a lot of suppliers available Bargaining power of suppliers Rivalry among existing competitors Bargaining power of buyers + High -All kind of food depending on the taste -Pay attention to healthy and wellness categories Threat of substitute products ++ Very high rivalry -High diversification from each competitor -Few strong groups control the market .

 Share information and be transparent regarding the stakeholders  Be able to forecast the trends at a local and global level  Adapt to customer lifestyle and needs  Product innovation and diversification  Be visible everywhere  Good control over the manufacturing process to achieve economies of scale .


798 Quaker Foods North America $10. PepsiCo’s organizational structure & Net Revenues for each Business Segment (in $ millions) in 2007: $11.230 PepsiCo Beverages North America $1.860 Pepsi International Salty Snacks brands Oat Food and Cereals brands Non Alcoolics Beverages brands Organizational profile: Diversification strategy = multi products & multi markets .586 Frito-Lay North America $15.

Market Research R&D: Product Innovation Efficient Information System International expansion Strategic acquisitions • PepsiCo constantly improved its knowledge on the consumer behaviour by identifying trends such as healthier products: • New brand value: PepsiCo’s better-for-you & good-for-you products • Launch of less saturated fat and less salted products answering to the trends found it by « Consumer Insight dept » • Introduction of Lay’s traditional flavour with 50% less saturated fat • Close relationships with suppliers & customers under the Power of One program that allow PepsiCo to have direct information from both retailers & customers • PepsiCo has succeed in creating an international exposure especially with Beverages & Salty snacks (increase of 22% in 2007) • Those acquisitions allowed PepsiCo to gain synergy in its whole business .

A wide and deep range of products Competitive Advantages .Brand equity Differentiation: -High value products -Strong positioning Differentation Brand equity: -Awareness -Recognition -Perception Product diversity Product diversity: .3 Business Units .

Wide range of products Efficient identification of trends  Proactive instead of Reactive International Exposure High profit margins Total control on the several steps of the supply chains (allow them to control & reduce the production and delivery costs) .

Relatively unsuccessful in increasing the worldwide awareness of Quaker Foods Wide In 2006. only 6 countries represented 75% of Quaker Foods International sales out of US Difficulties to find a synergy between their restaurants & beverages they sold .

from 1998 to 2007: increased by approximately 77% Net revenues by activity (2004-2007): Frito-Lay North America=21% PepsiCo beverages North America=23% Pepsi International=60% Quaker Foods North America=22% Price in the stock exchange was about $33 in 1999 & about $64 in 2008 (+ 120%) GOOD FINANCIAL HEALTH WHICH ALLOWS THEM TO SELF FINANCE THEIR GLOBAL EXPANSION .Total Net revenues of PepsiCo Inc.


1997 Restructuration of PepsiCo Focus on snacks and beverages Since 1997 Diversification and acquisition strategies Result 2008 Strategic realignment in order to improve the PepsiCo Profits .

Strategic International acquisitions Strong presence in mature and emerging markets Focus on snacks and beverages Large diversification of PepsiCo’s products Relevant innovations in R&D Make healthy and wellness products .

 Product differentiation to respond to health concerns (use of healthier oils. natural salty snacks) Research on new flavors and new recipes: in order to attract more customers With International acquisitions. PepsiCo offers a different kind of food and beverages   A GREAT SUCCESS .

health and wellness products . Middle East. Africa & Asia To innovate in order to improve the quality of their products while keeping going through the large diversification •new flavors. PepsiCo Americas Beverages.•China and Brazil would be the two largest international markets for snack •Understand local taste To increase the market share in developing countries and continue the strong development in emerging countries To succeed in adapting to the customer tastes of customers worldwide To manage efficiently the new six reporting segments •Frito lay North America. Latin American Foods. UK and Europe. Quaker Foods North America.

 Stock Price: in 2008 PepsiCo Drops his stock price in order to improve overall profitability brand: under distributed in international market only one brand in growing market. it‟s not enough! margin are not maximized  Quaker  Gatorade:  Operating .

5 1.9 industry attractiveness rating is a bit more than the average (all SBUs has been taken together).4 0. political .05 1.75 0.20 Industry attractiveness rating 5.15 0. and environmental factors Industry uncertainty and business risk Sum of weights 0.15 0.05 0.1 0.45 0. .15 0.00 4 2 3 4 0. a result of 5.9 According to the rating scale.15 Emerging industry opportunities and threats Seasonal and cyclical influences Social.regulatory.90 Market size and projected growth Intensity of competition Strategic fits and resource fits with other industries in portfolio Resource requirement 0.20 0.10 0.Industry Attractiveness Factor Weight Attractiveness Rating 7 8 5 6 Weighted Industry Rating 1.6 0.

 We have defined 3 SBUs: • • • Frito Lays Beverages Quaker  We considered both american and international markets .

high Frito lays AMERICA Question marks Market Growth Rate LEGEND GREY : AMERICA BUSINESS Pink: INTERNATIONAL BUSINESS Frito lays Int Bever ages Int Stars Beverages AMERICA Quaker AMERICA Quaker Int Low Cash cows 1 Garbage can dogs Relative Market Share .


Increase International Sales Improve operating margin Reinforce the international presence Manage the stock price .

Choice number 1: • Adapt their products to the local customers Choice number 2: • International acquisitions Choice number 3: • Forecast new trends: • Improve the healthy products or make ecological packaging for egs .

 Adapt their products to local customers Understand the consumer taste preference Key to expand into international market Taste are different in function of each country Follow the customer „s taste in order to attract them. in Mexico : spicy food. in Europe: healthy food with less saturated fat .

 International acquisitions Increase PepsiCo presence Reinforce their presence on new markets = Internationalization Increase the relationship with local companies in order implement easier New target: emerging countries .

the customer‟s taste is changing: PepsiCo has to focus on healthy products in order to respond to consumer health and wellness (reduce the consumption of statured fats.  Improve the packaging in order to follow more and more environmental criteria  Communication more about the sustainable efforts  . trans fat. and simple carbohydrates). Forecast the trends: Rely on marketing intelligence and research & development  New customers expectations  Nowadays. cholesterol.


65/10 5 8 4 3 5 10 9 6.Criteria COST CONTROL RISK TIME INTERNATIONALIZATION BRAND EQUITY FOLLOW CUSTOMERS‟ NEW NEEDS Weight Alternative 1 Alternative 2 Alternative 3 0.20 1 4 6 3 5 9 8 5 5.20 0.10 0.05 0.2/10 TOTAL .20 0.15 0.55/10 1 7 2 2 10 9 4 4.10 0.

ALTERNATIVE 1. Forecast the trends ALTERNATIVE 2. Adaptation to local customers ALTERNATIVE 3. International acquisitions .

According to our analysis. the best choice for the company would be: To try to forecast customer‟s trends and to anticipate by providing new products through innovation How to do it ? Rely on marketing research in order to detect new customer‟s needs Rely on R&D to create new products suiting the needs .

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