Professional Documents
Culture Documents
PepsiCo 25 %
Kraft Foods 12
Hershey 9
Kellogg 6
Master Foods 5
General Mills 2
Proctor & Gamble 1
Private Label 7
Others 33
100
Soft Beverages Market in North America
Middle East 75 %
India 49
Thailand 49
Egypt 47
Venezuela 42
United States 39
Nigeria 38
China 36
Russia 24
PEPSI Salty Snacks – International Market Shares
Country/Region Snacks Market Shares
Mexico 75 %
Holland 59
South Africa 57
Australia 55
Brazil 46
India 46
United Kingdom 44
Russia 43
Spain 41
China 16
PEPSICO – 22 Top Brands ( > $ billion revenue)
WEAKNESSES
Too dependent on the US market; over 12% of all sales are with WalMart
Hurt by bad publicity over Aquafina scandal, Aunt Jemima and Tropicana recalls
International markets have been difficult to develop… some acquisitions have been poor.
International profits are badly hurt by currency exchange rates and strong US dollar
Some stockholders are pressuring PepsiCo to spin off the food divisions from beverages
STRATEGIC ASSESSMENT
Through acquisitions, PepsiCo grew from primarily a beverage company
into the second-largest food and beverage company in the world. Using a
concentric-diversification strategy, they acquired businesses which were
complimentary to their beverages… notably Frito-Lay (salty snacks), Taco
Bell and Pizza Hut restaurants. While they weren’t necessarily experts on
how to make pizzas or chips, they did know that they could sell their
beverages to these same customers, so marketing and distribution channel
synergies were achieved. Pepsi continued to acquire food and snack
companies, and built a brand portfolio of over 100 products worldwide…
most of which go well with one or more of their beverages. In the 1990’s it
became apparent that the fast-food restaurant business was becoming very
competitive, and with increasing stockholder pressure, Pepsi spun off its
restaurants to YUM Co. (Taco Bell, Pizza Hut, Kentucky Fried Chicken).
Since that time, the company has continued to focus on its core businesses…
beverages and snack foods. Their current portfolio of products is so
extensive that they don’t worry about consumer taste shifts or switching,
because most consumers will simply switch from one Pepsi product to
another product item owned by PepsiCo.
STRATEGIC ASSESSMENT - contd
Current plans are to expand into global markets, particularly China and
India, where the company will invest $ 1 billion and $500 million,
respectively in 2016. Pepsi has also recently acquired the largest juice
company in Russia, Lebedyansky, has acquired VW Water and True North
Nuts in the UK, and has a new agreement with Unilever to distribute
Lipton Tea.
Stock Price/Share
(at year end) $99.92 $82.94 $77.32
COMMON SIZE BALANCE SHEET – PEPSICO
(in millions $) 2015 2013 2007
CASH PROVIDED
FROM INVESTING (3569) (2625) (3744)
CASH PROVIDED
FROM FINANCING (3828) (3789) (4006)
POSITIVE TRENDS
Cash is increasing
Revenue + profits are up for Frito-Lay and NA Beverages
Dividends have been increased
WORRISOME TRENDS
Revenue + profits are down in all international divisions
Big problem in Venezuela… impairment costs > 2 Billion/2 yrs
Operating profits and Net profit are both down
Long-term debt is up; Debt/Asset ratio is too high
Stockholder Equity is way down…why?
Interest expense is up
Altman’s Z is getting critically low…
SCENARIO 1 - PESSIMISTIC OUTLOOK
Over the next three to five years, the world economy remains stagnant, with
little disposable income growth. England exits the European Union, creating
more economic and financial uncertainty. Interest rates creep up as the US
Federal Reserve raises concerns about inflation. The US dollar remains strong
relative to other currencies, creating more currency fluctuations and
uncertainties for US companies. Disputes with China and Russia continue to
muddle trade growth with those countries.
The public interest in exercise and health grows, and laws are passed banning
sugar in sodas and limiting salt in snacks, especially for children. Sales of
carbonated soft drinks in the US continue to decline. Demand remains very
modest for fruit juices, energy drinks and snacks, and natural sweeteners.
Coke overtakes Pepsi in the North American soft drink market, and Dr. Pepper
launches a snack foods division to compete with Frito-Lay.
SCENARIO 2 – OPTIMISTIC OUTLOOK
Over the next three to five years, the world economy rebounds significantly,
with notable gains in income and trade. Interest rates remain low, as a new
Republican administration takes control of the US Federal Reserve. The US
dollar remains relatively strong compared to other currencies, but currency
fluctuations diminish and uncertainties in the European Union subside as
England decides to stay in the Eurozone. China and Russia enact favorable
legislation that encourages foreign investment and trade growth.
The public interest in exercise and health continues to grow, and demand for
healthy snacks, energy drinks, fruit juices and natural sweeteners explodes.
Sales of carbonated soft drinks stabilize in the US, and show signs of increasing
growth in Brazil, China, and Russia. The RTD coffee market in China expands
rapidly, as ginseng and acai berry flavors really catch on with the public.
Pepsi maintains its dominance in the North American soft drink market, and
Quaker Oats Breakfast Flats is a big hit with the working women in the USA.
Dr. Pepper launches a snack foods division, but only gains a 1.5% market share.
SCENARIO 3 – MOST LIKELY OUTLOOK
Over the next three to five years, the world economy rebounds gradually, and
disposable income increases modestly worldwide. Interest rates remain relatively
low, as fears of inflation ease. The US dollar remains relatively strong compared to
other currencies, but currency fluctuations and uncertainties continue, with the
departure of England from the European Union. Trade with China continues to
muddle along, as their economy switches over from an export economy to domestic
consumption. Trade growth with Russia continues to be impaired because of
ongoing disputes over the Ukraine and Russia’s involvement in the Syrian conflict.
While there is public interest in exercise and health, no legislation is enacted about
sugary drinks or salty snacks. A notable segment of the population wants healthy
snacks, energy drinks, fruit juices and natural sweeteners, so that market is
expected to grow in the US. Sales of carbonated soft drinks stabilize in the US,
and soft drinks and the RTD coffee market in China are expected to grow
significantly.
Pepsi will maintain its dominance in the North American soft drink market, but
their international divisions will continue to face difficulties and market challenges.
KEYS TO SUCCESS – A Comparison
Efficient Operations 8 8 7
Strong Marketing/Sales 8 9 6
Launch the healthy snacks and drinks, and start using stevia and other natural
sweeteners which appeal to the health-conscious public.
Consider exiting markets where the economy is in chaos, like Venezuela. This
operation has cost the company $2 billion in lost profits over the past few years.
Maybe this is a place we don’t need to be, even if we have a 42% market share there.
Cautiously pursue the China market. Certainly it has huge potential, but will the RTD
coffee be a big hit? There is plenty of room to grow both traditional soft drinks and
salty snacks in China, where we currently have just 36% of the soft beverages and only
a 16% of the salty snacks market.
Reduce long-term debt, which seems to be a burden the company doesn’t need right
now, given the uncertainty in the international marketplace.
Keep the North American beverages and snacks divisions healthy, and try to improve
performance in the international divisions.