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Indra nooyi project Indra nooyi project Document Transcript

  • ACKNOWLEDGEMENTwe owe my sincere thanks and heartfelt gratitude to Mr. Pankaj Upadhyaya (faculty), whogave time to share their thoughtful criticism and suggestions to improve the work. Theircontribution gave me valuable insights into this project and immense knowledge of the area.I am thankful to Mr. Pankaj Upadhyaya (faculty), JAGANNATH INTERNATIONALMANAGEMENT SCHOOL for his help and guidance at every stage to help me complete thisdissertation on time.Last but not the least, I would also like to thank my institute JAGANNATH INTERNATIONALMANAGEMENT SCHOOL for inculcating in me the management knowledge and skills and thenproviding me with the best faculty. JEET BAHADUR KUMAR VERMA 1
  • EXECUTIVE SUMMARYThe scope of the project is to study about Indra nooyi‘s risk and fall in Pepsi. From the last 20days or so our group is in the process of a continuous research on marketing functions andstrategies adopted by Pepsi under Indra. These marketing functions mainly include themarketing mix i.e., Product Strategy and OPPORTUNITY MAPPING as well as other marketstrategies.By looking into this study, the company will be able to take corrective measures to avoid theloopholes provided by the company in earlier period as a result the market share of the companywill increase.Moreover the project also discusses the analysis of competition, market growth and trend,opportunity analysis and strategies for creating competitive advantage adopted by Pepsi.We will like to add that the project will provide the readers and listeners very high profileinformation about the marketing strategies as a whole and also about the Pepsi Company.Therefore the company is the market leader among all beverages in 21st century.In the end we hope that the project will result very profitable for the readers and Coca Cola.Your feedback in the end either critical or substantial will be very highly appreciated 2
  • CONTENTAcknowledgeExecutiveAbout Indra Nooyi 4Her entry in to PepsiCo 7The position of Pepsi when she joined and at present 8Change in the strategy of Pepsi after Indra 9Strategic alliances undertaken by Indra in Pepsi 11Strategy of Pepsi after and before Indra 18Tough time and good time of Indra 25Growth of Pepsi v/s coke after Indra and before Indra 28Shareholders value before Indra and after Indra 30BCG matrix application of Pepsi under Indra 43Should she be allowed to continue or not 49Opposition faced by Indra 55Future of Pepsi under Indra 58Future of Pepsi without or after Indra 63 3
  • About Indra NooyiIndra Nooyi is Chairman and Chief Executive Officer of PepsiCo. In its global foodand beverage portfolio, PepsiCo has 22 brands that generate more than $1 billioneach in annual retail sales. PepsiCos main businesses include Quaker, Tropicana,Gatorade, Frito-Lay and Pepsi-Cola. With more than $65 billion in annual netrevenue, PepsiCo makes hundreds of enjoyable foods and beverages that are lovedthroughout the world.Mrs. Nooyi is the chief architect of Performance with Purpose, PepsiCo‘s promise todo what‘s right for the business by doing what‘s right for people and the planet. It‘sthe company‘s commitment to sustained growth with a focus on Performance,Human, Environment and Talent Sustainability. In keeping with this commitment,PepsiCo is proud to be listed on the Dow Jones Sustainability North America Indexand Dow Jones Sustainability World Index.Mrs. Nooyi was named President and CEO on October 1, 2006 and assumed the roleof Chairman on May 2, 2007. She has directed the companys global strategy formore than a decade and led its restructuring, including the divestiture of itsrestaurants into the successful YUM! Brands, Inc., the acquisition of Tropicana andthe merger with Quaker Oats that brought the vital Quaker and Gatorade businessesto PepsiCo, the merger with PepsiCos anchor bottlers, and the acquisition of Wimm-Bill-Dann, the largest international acquisition in PepsiCos history.Prior to becoming CEO, Mrs. Nooyi served as President and Chief Financial Officerbeginning in 2001, when she was also named to PepsiCos Board of Directors. In thisposition, she was responsible for PepsiCos corporate functions, including finance,strategy, business process optimization, corporate platforms and innovation,procurement, investor relations and information technology. Between February 2000and April 2001, Mrs. Nooyi was Senior Vice President and Chief Financial Officer ofPepsiCo. Between 1996 and 1999, Mrs. Nooyi was Senior Vice President ofCorporate Strategy and Development. 4
  • Before joining PepsiCo in 1994, Mrs. Nooyi spent four years as Senior Vice Presidentof Strategy and Strategic Marketing for Asea Brown Boveri, a Zurich-basedindustrials company. She was part of the top management team responsible for thecompanys U.S. business as well as its worldwide industrial businesses, representingabout $10 billion of ABBs $30 billion in global sales.Between 1986 and 1990, Mrs. Nooyi worked for Motorola, where she was VicePresident and Director of Corporate Strategy and Planning, having joined thecompany as the business development executive for its automotive and industrialelectronic group. Prior to Motorola, she spent six years directing internationalcorporate strategy projects at The Boston Consulting Group. Her clients ranged fromtextiles and consumer goods companies to retailers and specialty chemicalsproducers. Mrs. Nooyi began her career in India, where she held product managerpositions at Johnson & Johnson and at Mettur Beardsell, Ltd., a textile firm.In addition to being a member of the PepsiCo Board of Directors, Mrs. Nooyi servesas a member of the boards of U.S.-China Business Council, U.S.-India BusinessCouncil, The Consumer Goods Forum, Catalyst, and Lincoln Center for thePerforming Arts, The Peterson Institute for International Economics and TsinghuaUniversity. She is also a member of the Foundation Board of the World EconomicForum, Successor Fellow of Yale Corporation and was appointed to the U.S.-IndiaCEO Forum by the Obama Administration.She holds a B.S. from Madras Christian College, an M.B.A. from the Indian Instituteof Management in Calcutta and a Master of Public and Private Management fromYale University. Mrs. Nooyi is married and has two daughters.Membership and associationNooyi is a Successor Fellow of the Yale Corporation. She serves as a member of theFoundation Board of the World Economic Forum, International RescueCommittee, Catalyst and the Lincoln Center for the Performing Arts. She is also amember of the Board of Trustees of Eisenhower Fellowships, and has served asChairperson of the U.S.-India Business Council.Nooyi serves as an Honorary Co-Chair for the World Justice Project. The WorldJustice Project works to lead a global, multidisciplinary effort to strengthen the Rule ofLaw for the development of communities of opportunity and equity. 5
  • Honours, award and international recognitionForbes magazine ranked Nooyi fourth on the 2008 and 2009 list of The Worlds 100Most Powerful Women. Fortune magazine has named Nooyi number one on itsannual ranking of Most Powerful Women in business for 2006, 2007, 2008, 2009 and2010. In 2008, Nooyi was named one of Americas Best Leaders by U.S. News &World Report. In 2008, she was elected to the Fellowship of the American Academyof Arts and Sciences.In January 2008, Nooyi was elected Chairwoman of the US-India Business Council(USIBC). Nooyi leads USIBCs Board of Directors, an assembly of more than 60senior executives representing a cross-section of American industry.Nooyi has been named 2009 CEO of the Year by Global Supply Chain LeadersGroup.In 2009, Nooyi was considered one of "The Top Gun CEOs" by Brendan WoodInternational, an advisory agency. In 2010 she was named 1 on Fortunes list of the"50 Most Powerful Women" and 6 on Forbes list of the "Worlds 100 Most PowerfulWomen‖. After five years on top, PepsiCos Indian American chairman and CEOIndra Nooyi has been pushed to the second spot as most powerful woman in USbusiness by Krafts CEO, Irene Rosenfeld.Nooyi was named to Institutional Investors Best CEOs list in the All-AmericaExecutive Team Survey in 2008 to 2011. 6
  • Entry of Indra in PepsiCoEarly life and careerNooyi was born in Madras (presently Chennai), Tamil Nadu, India. She was educatedat Holy Angels Anglo Indian Higher Secondary School in Madras. She received aBachelors degree in Physics, Chemistry and Mathematics from Madras ChristianCollege in 1974 and a Post Graduate Diploma in Management (MBA) from IndianInstitute of Management Calcutta in 1976.[4] Beginning her career in India, Nooyi heldproduct manager positions at Johnson and textile firm Mettur Beardsell. She wasadmitted to Yale School of Management in 1978 and earned a Masters degree inPublic and Private Management. While at Yale, she completed her summerinternship with Booz Allen Hamilton.[5] Graduating in 1980, Nooyi joined the BostonConsulting Group (BCG), and then held strategy positions at Motorola and AseaBrown Boveri.PepsiCo executiveNooyi joined PepsiCo in 1994 and was named president and CFO in 2001. Nooyi hasdirected the companys global strategy for more than a decade and led PepsiCosrestructuring, including the 1997 divestiture of its restaurants into Tricon, now knownas Yum! Brands. Nooyi also took the lead in the acquisition of Tropicana in 1998, andmerger with Quaker Oats Company, which also brought Gatorade to PepsiCo. In2007 she became the fifth CEO in PepsiCos 44-year history.According to Business Week, since she started as CFO in 2000, the companysannual revenues have risen 72%, while net profit more than doubled, to $5.6 billion in2006.Nooyi was named on Wall Street Journals list of 50 women to watch in 2007 and2008, and was listed among Times 100 Most Influential People in The World in 2007and 2008. Forbesnamed her the 3 most powerful women in 2008. Fortune ranked herthe 1 most powerful woman in business in 2009 and 2010. On the 7th of October2010 Forbes magazine ranked her the 6th most powerful woman in the world.While CEO of PepsiCo in 2011, Nooyi earned a total compensation of $17 millionwhich included a base salary of $1.6 million, a cash bonus of $2.5 million, pensionvalue and deferred compensation was $3 million. 7
  • Position of Pepsi when she joined at between and at presentSince 1994, Nooyi took up different roles and transformed PepsiCo into the world‘sleader in food and beverages; with a turnover of around $43bn. Her boundless hardwork, strong determination, apt and quick decision making and ability to connect thecircumstances in the corporate and the outside world pushed PepsiCo way beyondimagination into 19 product lines like Quaker Oats, Tropicana, Gatorade, Frito-Lay,and Pepsi-cola. It is nothing amazing to tell that PepsiCo products entered theshelves of every family in 200 countries. This all happened because of concrete longlived vision of Mrs.Nooyi.After joining PepsiCo in 1994, Nooyi took up role of President and the Chief FinancialOfficer in 2001 and Chief Executive Officer on 14th August 2006 as fifth CEO in fortyone -year history of PepsiCo.Top on compensationNooyi is the top-paid woman on the Forbes 2010 list, with $19.53 million incompensation in 2010, which was prestigious to PepsiCo.The Indian origins CEO of PepsiCo was stated to ea 81 times more than the world‘srichest man Warren Buffet, in 2007 by search firm Equilar for the New York Times. Atthat time Nooyi’s compensation was $14.74mn.Pepsi is moving to deepen its management bench and line up a potential successorto Chairman and Chief Executive Indra Nooyi, tapping an outsider for a senior roleand an internal candidate to a new post following investor frustration with thecompanys recent performance.PepsiCo said last month it will focus much of its redoubled sales push on a dozenmajor global brands. It plans to roll out its first-ever global marketing campaign for itsflagship Pepsi-Cola brand in coming weeks and to increasingly market its most-popular drink and snack brands, such as Mountain Dew and Doritos, together.Mrs. Nooyi signaled in February that the company could revisit its business strategyin 18 months if performance doesnt improve. PepsiCo executives insist that breakingup the food and beverage businesses would put PepsiCo at a big disadvantage andthat it needs the combined scale to compete effectively in developing markets aroundthe globe. But it hasnt ruled out eventually selling its U.S. bottling operations. 8
  • PepsiCos Indian-born CEO has been named in recent media reports as a potentialcandidate to head the World Bank, but she hasnt been approached about theposition, according to a person familiar with the matter.CHANGE IN THE STRATEGY OF PEPSI AFTER INDRAThis case examines the importance of strategy and leadership in the transformationof a company. It highlights in the strategy vision and leadership style of PepsiCo‘sCEO indra k. Nooyi. Nooyi started her career at PepsiCo in 1994 as senior vicepresident (strategic planning). She rose to the post of CFO in 2001 and later becomethe CEO in 2006. During her tenure at PepsiCo, she undertook a number of strategicinitiatives, Nooyi recommended spinning off taco bell, KFC and Pizza hut, arguingthat PepsiCo couldn‘t bring enough value to the fast food industry with restaurantbusinesses as it required dedicated services industry management. Nooyi also ledthe acquisition of Tropicana in 1998 ad merger with Quaker Oats Company in 2001.When Nooyi became the CEO of PepsiCo, the primary goal advocated by her was toachieve "Performance with Purpose." She implemented a number of measures toimprove the sustainability of the companys operations and image by focusing onimprovements in the health implications of PepsiCos products. She expandedPepsiCos business into developing markets worldwide and focused on increasingthe composition of healthy foods in PepsiCos product portfolio.Issue» Understand the role of strategic and transformational leadership in management.» Compare and contrast different styles of leadership.» Appreciate the strategic vision of Indra Nooyi.» Study and comment on the leadership style of Indra Nooyi.» Understand the importance of sustainability in the management of a company.In 2006, Nooyi became the fifth CEO of PepsiCo. As CEO, she continued to steerPepsiCo based on the vision of "Performance with Purpose."She implemented a number of measures to improve the sustainability of thecompanys operations and image by focusing on improvements in the healthimplications of PepsiCo products.Measures such as removing trans-fats from PepsiCo snacks, product innovations inthe Quaker Oats brand to come out with a range of consumer perceived healthy 9
  • snacks, categorization of its snacks into three categories named fun for you, good foryou, and better for you were undertaken under her leadership.Nooyis strategic measures to tackle the slow-down in the beverages and snack foodindustry included a productivity improvement program, the benefits of which wereexpected to the tune of US$ 1.2 billion over the next three years beginning2009.8 Other measures under her leadership included aggressive expansion into theemerging markets of Brazil, Russia, China, and India and product and processsimplification across the organization.When Nooyi was SVP, the strategic measures that she planned and implementedresulted in a growth in PepsiCos sales and profits. The companys overall salesincreased from US$ 20,337 million in 1996 to US$ 26,935 million in 2001 and netprofit doubled from US $ 1,149 million to US$ 2,662 million in the same period. Aftershe became the CFO and However, Nooyi also had her share of critics, who foundfault with what they called her lack of operational skills, her mercenary handling of thePepsiCo pesticide content issue in India, as also her portraying PepsiCo products ashealthy while according to the health experts, they were not...President, salesrecorded a further growth from US$ 25,112 million in 2002 to US$ 35,137 million in2006 when she was promoted as the CEO.The companys overall sales increased from US$ 20,337 million in 1996 to US$26,935 million in 2001 and net profit doubled from US $ 1,149 million to US$ 2,662million in the same period. After she became the CFO and President, sales recordeda further growth from US$ 25,112 million in 2002 to US$ 35,137 million in 2006 whenshe was promoted as the CEO.Nooyi as A StrategistWithin two months of Nooyi joining PepsiCo as SVP, the companys restaurantbusiness, which it had acquired a decade earlier and in which it had invested billionsof dollars to build up, entered a sluggish phase with lower sales, volumes, and profits.Nooyi worked with Roger Enrico (Enrico), Chairman and CEO of Frito-Lay, who hadbeen asked to take charge of PepsiCos restaurant business as Chairman and CEOof PepsiCo Worldwide Restaurants, and turn it around. Together, they investigatedthe problem and made efforts to analyze what was wrong with the business. Theyconcluded that the problem was with PepsiCo trying to adopt a management anddistribution model that was more suitable for a packaged goods industry rather than arestaurant chain in the services industry... 10
  • Strategic Alliance A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk. Stages of alliance formation A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliance‘s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partner‘s strengths and weaknesses, creating strategies for accommodating all partners‘ management styles, preparing appropriate partner selection criteria, understanding a partner‘s motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partner‘s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. 11
  •  Alliance Operation: Alliance operations involves addressing senior management‘s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance. Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere. The advantages of strategic alliance include:1. Allowing each partner to concentrate on activities that best match their capabilities.2. Learning from partners & developing competences that may be more widely exploited elsewhere.3. Adequate suitability of the resources & competencies of an organization for it to survive. There are four types of strategic alliances: joint venture, equity strategic alliance, non- equity strategic alliance, and global strategic alliances. Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments. 12
  • Tingyi Holding and PepsiCo Finalize Strategic Alliance in ChinaTIANJIN, China and PURCHASE, N.Y., March 31, 2012 /PRNewswire/ -- Tingyi(Cayman Islands) Holding Corp. (Tingyi) (0322.HK), one of the leading food andbeverage companies in China, and PepsiCo, Inc. (NYSE: PEP), the worlds second-largest food and beverage business, today announced they have completed theirtransaction to create a strategic beverage alliance in China, which is projected tobecome the worlds largest beverage market by 2015.The alliance was approved by the shareholders of Tingyi in February and receivedregulatory approval on March 29, 2012.As part of the alliance, Tingyis beverage subsidiary – Tingyi-Asahi BeveragesHolding Co Ltd (TAB), one of the countrys leading beverage manufacturers – is nowPepsiCos franchise bottler in China. TAB will partner with PepsiCos current bottlersto manufacture, sell and distribute PepsiCos carbonated soft drink and Gatoradebrands. In addition, PepsiCo and TAB will begin co-branding their respective juicedrink brands using the Tropicana brand name under license from PepsiCo. PepsiCowill retain branding and marketing responsibilities for these products.Under the terms of the alliance, PepsiCo has contributed its indirect equity interestsin its company-owned and joint venture bottling operations in China to TAB andreceived as consideration a five percent indirect equity interest in TAB. PepsiCo hasan option to increase its indirect holding in TAB to 20 percent at its sole discretion by2015. The shareholdings of PepsiCos existing Chinese joint venture partners in thejoint venture bottling operations will not change as a result of the transaction.The PepsiCo-Tingyi beverage system now provides Chinese consumers with some ofthe countrys most popular beverage products, including:Pepsi, Chinas top-selling colaMiranda, Chinas top-selling flavored carbonated soft drinkGatorade, one of Chinas top-selling sports drinksChinas top-selling tea and water brands, sold under TABs Master Kong brand nameChinas second-largest juice portfolio 13
  • PepsiCo and Ocean Spray Announce Strategic Alliance in LatinAmericaPURCHASE, N.Y. and LAKEVILLE, Mass., Jan. 17, 2012 /PRNewswire/ -- PepsiCo(NYSE: PEP) and Ocean Spray Cranberries, Inc. today announced they have formed astrategic alliance in Latin America. As part of the alliance, PepsiCo will have exclusiverights to manufacture and distribute a portfolio of cranberry- and blueberry-basedbeverages through its Latin America Beverages division. The companies will sharemarketing responsibilities for the products and intend to collaborate on productinnovation.PepsiCo and Ocean Spray have enjoyed a successful business relationship in the U.S.since 2006, when Ocean Sprays single-serve juices and juice drinks entered thePepsiCo bottling system. As a result of this relationship, which utilizes PepsiCos marketleadership and expertise in the convenience and gas (C&G) channel, Ocean Spray hasearned a five percent share of the C&G single-serve juice market and grew volume by 20percent in 2011."We see tremendous opportunities to grow our beverage business in emerging marketsthroughout Latin America, and we continue to take steps to strengthen our brandportfolio through product innovation, marketing and strategic partnerships," said LuisMontoya, President of PepsiCos Latin America Beverages Division. "Ocean Spray isalready a great PepsiCo partner in the U.S., and we believe this will be a winningcombination for Latin American consumers and customers. It positions us well tocontinue to gain share of the growing juice category.""We are eager to continue building on our successful partnership with PepsiCo, as it willhelp us expand consumer access to Ocean Spray products in important internationalmarkets like Latin America," Ocean Sprays COO of Global Partner Operations, StewartGallagher, said. "We believe this is a great opportunity to further promote and deliver thehealth and nutrition benefits of the cranberry to consumers in Latin America."The Latin America alliance between PepsiCo and Ocean Spray includes key countries inthe Caribbean, Central America and South America and has a term of 20 years.Financial terms of the transaction were not disclosed. 14
  • Significant Strategic Advantages to Drive GrowthThe alliance is expected to create long-term value for PepsiCo and Tingyishareholders, employees and local bottling partners while also encouraging thecontinued growth and development of Chinas competitive beverage industry.Each company, as well as PepsiCos existing joint venture partners, expects to gainsignificant benefits that will enhance business performance in the near-term whilemaximizing future growth potential. These important benefits include:Bringing innovative new products to market faster and improving choice for Chineseconsumers across the countryImproving operating efficiency and reducing costs by combining local and globalexpertise in manufacturing and distributionProviding better service to PepsiCos retail and food service customers in Chinathrough TABs distribution expertiseSupporting new opportunities to develop local economies in interior and westernChinaExtending the national distribution of PepsiCos carbonated soft drink and non-carbonated beverage brandsIncreasing the investment made in PepsiCo brands and marketing in ChinaTingyis Chairman Wei Ing-Chou said, "We wish to thank the Chinese governmentand all parties concerned for their understanding and support for the strategic alliancebetween Tingyi and PepsiCo. The approval of this strategic alliance demonstratesthat we can work more closely with Chinas beverage industry to embrace a newopportunity for further development. We believe that this alliance will not only lay agood foundation for Chinas beverage market to lead the world in developing theglobal beverage industry, but also improve our ability to better serve our consumers,employees, shareholders and partners and importantly, create a better environmentfor the healthy development of the beverage industry in China.""China will soon surpass the United States to become the largest beverage market inthe world. As a result of this new alliance with Tingyi, PepsiCo is extremely wellpositioned for long-term growth in China," said PepsiCo Chairman and CEO IndraNooyi. "Tingyi is an outstanding operator with a proven track record of success. Byleveraging the complementary strengths of each company, well be able tosignificantly enhance our beverage business in China, reach millions of new 15
  • consumers throughout the country, and create value for Tingyi and PepsiCoshareholders."This transaction involves the companies respective mainland China beverageoperations. Both PepsiCo and Tingyi will continue to independently operate theirrespective food businesses.About Tingyi HoldingTingyi Holding Corp. is Chinas leading food and beverage company that specializesin the production and distribution of instant noodles, beverages and baked goods inthe PRC. Tingyi started its instant noodle segment in 1992 under the brand of MasterKong, and expanded into the bakery segment and beverages in 1996. Thephilosophy of Tingyi is to provide consumers with safe, tasty quality products withvalue for money. With sophisticated production processes, outstanding operation,innovative products and CSR campaigns, Tingyi is widely respected in Chinasconsumer industry. Continuous attention to operations at the community level in thepast 20 years has made "Master Kong" one of the most recognized brands. TheCompany has also made big contributions to rural, agricultural and farmersdevelopment. For three consecutive years from 2008 to 2010, Tingyi was named oneof the 50 best listed companies in Asia by Forbes for its solid financial track recordand excellent management and entrepreneurial skills. As of 31 December 2011,market capitalization of the Company was US$ 16.99 billion. For more information,please visitwww.masterkong.com.cn.About PepsiCoPepsiCo is a global food and beverage leader with net revenues of more than $65billion and a product portfolio that includes 22 brands that generate more than $1billion each in annual retail sales. Our main businesses – Quaker, Tropicana,Gatorade, Frito-Lay and Pepsi-Cola – make hundreds of enjoyable foods andbeverages that are loved throughout the world. PepsiCos people are united by ourunique commitment to sustainable growth by investing in a healthier future for peopleand our planet, which we believe also means a more successful future for PepsiCo.We call this commitment Performance with Purpose: PepsiCos promise to provide awide range of foods and beverages for local tastes; to find innovative ways tominimize our impact on the environment by conserving energy and water andreducing packaging volume; to provide a great workplace for our associates; and torespect, support and invest in the local communities where we operate. For moreinformation, please visit www.pepsico.com. 16
  • PepsiCo Cautionary StatementStatements in this communication that are "forward-looking statements" are based oncurrently available information, operating plans and projections about future eventsand trends. Terminology such as "believe," "expect," "intend," "estimate," "project,""anticipate," "will" or similar statements or variations of such terms are intended toidentify forward-looking statements, although not all forward-looking statementscontain such terms. Forward-looking statements inherently involve risks anduncertainties that could cause actual results to differ materially from those predictedin such forward-looking statements. Such risks and uncertainties include, but are notlimited to: changes in demand for PepsiCos products, as a result of changes inconsumer preferences and tastes or otherwise; PepsiCos ability to competeeffectively; unfavorable economic conditions in the countries in which PepsiCooperates; damage to PepsiCos reputation; PepsiCos ability to grow its business indeveloping and emerging markets or unstable political conditions, civil unrest or otherdevelopments and risks in the countries where PepsiCo operates; trade consolidationor the loss of any key customer; changes in the legal and regulatory environment;PepsiCos ability to build and sustain proper information technology infrastructure,successfully implement its ongoing business transformation initiative or outsourcecertain functions effectively; fluctuations in foreign exchange rates; increased costs,disruption of supply or shortages of raw materials and other supplies; disruption ofPepsiCos supply chain; climate change, or legal, regulatory or market measures toaddress climate change; PepsiCos ability to hire or retain key employees or a highlyskilled and diverse workforce; PepsiCos failure to successfully renew collectivebargaining agreements or strikes or work stoppages; failure to successfully completeor integrate acquisitions and joint ventures into PepsiCos existing operations; failureto successfully implement PepsiCos global operating model; failure to realizeanticipated benefits from PepsiCos productivity plan; any downgrade of PepsiCoscredit ratings; and any infringement of or challenge to PepsiCos intellectual propertyrights.For additional information on these and other factors that could cause PepsiCosactual results to materially differ from those set forth herein, please see PepsiCosfilings with the SEC, including its most recent annual report on Form 10-K andsubsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to placeundue reliance on any such forward-looking statements, which speak only as of thedate they are made. PepsiCo undertakes no obligation to update any forward-lookingstatements, whether as a result of new information, future events or otherwise. 17
  • Strategy of Pepsi after Indra and before IndraStrategy of Pepsi before Indra: -In 1993, Pepsi-Cola found itself in a crisis situation when a man in Tacoma,Washington claimed he had found a syringe inside a can of Diet Pepsi. Soon after thestory hit the news, claims surfaced all over the country. People claimed to find objectsfrom bullets to crack cocaine vials. Pepsi-Cola knew that the foreign objects had beeninserted by people outside the company who had tampered with the product.Pepsi-Cola decided to use a defensive strategy, claiming its innocence in the matter.Proving the company‘s innocence would be pivotal in protecting further damage toPepsi-Cola‘s brand name. Pepsi employed a variety of strategies to deal with theproblem.First, Pepsi attacked the accuser claiming that the objects had been inserted afterhaving been opened and that many people do this in order to earn money from asettlement. The company openly declared that it would ―pursue legal action againstanyone making false claims‖.Second, Pepsi used a denial strategy saying that there was no crisis. Pepsi PresidentCraig Weatherup made appearances on television and gave interviews to radiostations and newspapers saying that Pepsi‘s bottling line was secure. Pepsi evenbrought video cameras into their bottling factories to show the bottling process andthe impossibility of inserting a foreign object into a can of Pepsi before it is sealed.The Pepsi crisis turned out to be a hoax. Individuals who had purposely insertedforeign objects into cans were brought to court. Pepsi was able to rebound from thehoax using an effective crisis public relations campaign which combined variousstrategies.Pepsi-Cola handled the situation exquisitely. The company communicated with thepublic across virtually all media. Investigations took place in order verify the integrityof Pepsi-Cola‘s bottling plants. When it became clear that there was no possible waythat there could have been foreign objects inserted before being sealed, the crisis 18
  • had ended.In this case, there was no substance to the crisis. This can occur when false claimsare made, such as the ones made in this situation. While there might not even be anactual crisis, the perception of a crisis can stir enough negative sentiment from thepublic to significantly damage the company‘s image. The Pepsi case study showsthat the perception of a crisis is as important to manage as an actual crisis.In order to show that a perceived crisis does not actually exist, it is important tocommunicate with the public and show them that no crisis actually exists. Honestyand open communication facilitates the management of a public relations crisis.Additionally, communication must occur during the early stages of the crisis andcommunication must occur often. A crisis, whether real or perceived, requires theimplementation of a crisis public relations planUnderstanding the branding strategy of Pepsi goes beyond the listing of a set ofsteps which can effectively summarize their strategy. The entire strategy revolvesaround the company‘s response to the changing dynamics of consumer psychology.This article makes an attempt to unscramble the complexities involved in thebranding steps undertaken by Pepsi and the impact of the marketing campaignsundertaken by the company.Before we try to study the competitive environment in which Pepsi operates, it isnecessary to understand the mechanics of PepsiCo‘s entry into India. This isessential because the pillars of the success of PepsiCo‘s brand were laid in the earlyyears of its entry. Till 1977, Coca-Cola was the leading soft drink company in India.However, the regulations in the country laid down by the Foreign ExchangeRegulation Act (FERA) and orders by the Indian government to reveal its secretrecipe forced Coca-Cola to exit the Indian market. PepsiCo entered India in 1988through a joint venture. The joint venture sold PepsiCo products under the Leharbrand (Lehar Pepsi). Post liberalization in 1991, the requirement for foreigncompanies to operate with a minority stake was relaxed, and PepsiCo bought out itspartners.Pepsi introduced its products in India at a time when the adoption of Westernproducts by Indian consumers was on a rise. It did not have any significantcompetition in the country at that time and the late entry of Coke (1993) enabled 19
  • Pepsi to establish a stronghold in the Indian markets. The Pepsi brand becamesynonymous with soft drinks and this helped the company in dominating the colacategory in the early years.Classification of Soft drink marketThe soft drink market can broadly be classified into cola and non-cola drinks. Thecola segment commands a market share of around 62%. The non-cola segmentconsists of soda, flavoured drinks and lemon drinks. For PepsiCo, while Pepsi is inthe cola category, 7UP, Mirinda, Mountain Dew and Nimbooz populate the non-colacategory. Other brands in PepsiCo portfolio include Aquafina (drinking water),Gatorade (sports drink), Tropicana (fruit juices), and Slice (juice-based drink). Thebrands operate independently but a change in the market patterns can make theparent company shift its focus from one brand to another.Positioning of PepsiSince its inception, Pepsi has always targeted the youth segment. The changingdemands and sentiments of the younger generation in the country have resulted inchanges in the positioning of Pepsi. This can be observed from the changes in thetaglines, logo, advertisement messages and means of communication of messages.From ‗The choice of a new generation‘ (1990), Pepsi has introduced a number of newtaglines reflecting a shift in focus of the youth. ‗Yeh hi hai right choice baby, Aha‘ wasintroduced in 1992, ‗Yeh Dil Maange More‘ in 1999, ‗Yeh Pyass hai Badi‘ in 2004 and‗Yeh Hai Youngistaan Meri Jaan‘ in 2008. The current Pepsi tagline is ‗Change theGame‘ which started with company‘s association with the 2011 Cricket World Cupand was successful in creating a prominent brand recall in the minds of theconsumers. Pepsi advertisements have also been targeted at the youngsters. Pepsifocused on two of the biggest obsessions of the Indian youth – Cricket and Bollywood– to design its advertisement campaigns. Even the hoardings, posters and print adsexpanded on this theme. Popular celebrities from these two domains were used togenerate a connect of the brand with the youth. These celebrities are treated as rolemodels and trend setters for the youngsters and Pepsi has tried to make use of thesedesired qualities to project its brand. Its youth focus can also be observed from thechange in its brand icon from Sachin Tendulkar to Mahinder Singh Dhoni. Thesuccess of the Indian cricket team in the recent times (specially the World Cup) hasgone a long way in strengthening its brand value in the minds of the consumers. 20
  • Pepsi has even tried to leverage its logo as a means of connecting with its targetconsumers. Recently the Pepsi logo was modified to create a connection with popularemoticons. These changes in logo were undertaken at the global level but as a resultof internet activities, they were also able to generate buzz among Indian youth.Pepsi has also used internet as an effective means of reaching its target consumers.It has run a large number of digital campaigns and contests (‗Youngistan Anthem‘being one of the examples). The Pepsi facebook page serves as another means ofconnecting with its customers. It runs various contests, polls and campaigns on itsfacebook page to create a constant buzz.Despite the evolving messages and communications, the central theme has alwaysrevolved around the youth and Pepsi has made sure that it stuck to the core theme ofbeing associated with what the youth represents. The impact of the brandingactivities has been such that it has been successful in creating a craving of Pepsi adsamong the youth.Other initiatives/incidents affecting Brand ImageApart from the marketing activities, PepsiCo has also taken up initiatives which helpin the enhancement of its brand image. The setting up of an agricultural researchcentre in India was one such measure. PepsiCo also helped in the setting up of foodand vegetable processing plants in Punjab which provided employment to farmers inthe region. Apart from showing the company (and its brands) in a positive light, it alsobenefitted PepsiCo in its processed food business.The Pepsi story has not always been one of positive brand building. In 2003, Pepsi,along with Coke, found itself in the midst of pesticide controversy. It was reported thatthe colas contained pesticides and insecticides in excess of what is allowed by theEuropean Economic Commission. Though they were later cleared, the images of thebrands suffered a huge negative impact. It took a substantial time for the companiesto restore the faith of the consumers in the brands. 21
  • Distribution networkA strong distribution network has gone a long way in making sure that the marketingstrategies have been converted to actual sales. In addition to branding strategies, thecompany also comes up with promotional strategies from time to time (E.g. freebieswith its 2L packs). These further help in boosting the sales of the product.Competitive landscapeIf we go by the market shares, Coke lags Pepsi in market share in the cola segment(according to Euro monitor). However, both these brands command a market shareless than that of Coca-Cola‘s other cola brand, Thumbs-Up. Overall, the colasegment has seen a reduction in growth in the recent years. Despite this, Pepsi hasbeen able to generate a healthy increase in sales (20% in 2011) as compared toother brands (8% for Coke).The brand trust rankings of the major brands are volatile and also vary amongdifferent surveys conducted. While Coca-cola brand was rated higher in one survey,Pepsi got higher ratings in another major survey.Challenges and TrendsIn light of the tough competition in the soft drinks segment, both Pepsi and Coca-colaexpanded their portfolios and ventured into other categories like fruit juices andmineral water. The companies are also foraying into tea and milk based drinks inresponse to the high preference of Indian consumer for non-carbonated drinks (tea,milk and coffee).The increasing health-conscious segment is also shifting from the cola drinks tohealthier alternatives. This can be one of the reasons for the declining growth rate ofthe segment. In response to these trends, Cola companies are coming up with newways to attract consumers. Diet Pepsi was a product innovation by Pepsi in responseto the changing requirements. 22
  • Strategy of Pepsi after Indra: -This case examines the importance of strategy and leadership in the transformationof a company. It highlights in the strategy vision and leadership style of PepsiCo‘sCEO Indra k. Nooyi. Nooyi started her career at PepsiCo in 1994 as senior vicepresident (strategic planning). She rose to the post of CFO in 2001 and later becomethe CEO in 2006. During her tenure at PepsiCo, she undertook a number of strategicinitiatives; Nooyi recommended spinning off taco bell, KFC and Pizza hut, arguingthat PepsiCo couldn‘t bring enough value to the fast food industry with restaurantbusinesses as it required dedicated services industry management. Nooyi also ledthe acquisition of Tropicana in 1998 ad merger with Quaker Oats Company in 2001.When Nooyi became the CEO of PepsiCo, the primary goal advocated by her was toachieve "Performance with Purpose." She implemented a number of measures toimprove the sustainability of the companys operations and image by focusing onimprovements in the health implications of PepsiCos products. She expandedPepsiCos business into developing markets worldwide and focused on increasingthe composition of healthy foods in PepsiCos product portfolio.Issue» Understand the role of strategic and transformational leadership in management.» Compare and contrast different styles of leadership.» Appreciate the strategic vision of Indra Nooyi.» Study and comment on the leadership style of Indra Nooyi.» Understand the importance of sustainability in the management of a company.In 2006, Nooyi became the fifth CEO of PepsiCo. As CEO, she continued to steerPepsiCo based on the vision of "Performance with Purpose."She implemented a number of measures to improve the sustainability of thecompanys operations and image by focusing on improvements in the healthimplications of PepsiCo products.Measures such as removing trans-fats from PepsiCo snacks, product innovations inthe Quaker Oats brand to come out with a range of consumer perceived healthysnacks, categorization of its snacks into three categories named fun for you, good foryou, and better for you were undertaken under her leadership. 23
  • Nooyis strategic measures to tackle the slow-down in the beverages and snack foodindustry included a productivity improvement program, the benefits of which wereexpected to the tune of US$ 1.2 billion over the next three years beginning 2009.Other measures under her leadership included aggressive expansion into theemerging markets of Brazil, Russia, China, and India and product and processsimplification across the organization.When Nooyi was SVP, the strategic measures that she planned and implementedresulted in a growth in PepsiCos sales and profits. The companys overall salesincreased from US$ 20,337 million in 1996 to US$ 26,935 million in 2001 and netprofit doubled from US $ 1,149 million to US$ 2,662 million in the same period. Aftershe became the CFO and However, Nooyi also had her share of critics, who foundfault with what they called her lack of operational skills, her mercenary handling of thePepsiCo pesticide content issue in India, as also her portraying PepsiCo products ashealthy while according to the health experts, they were not...President, salesrecorded a further growth from US$ 25,112 million in 2002 to US$ 35,137 million in2006 when she was promoted as the CEO.The companys overall sales increased from US$ 20,337 million in 1996 to US$26,935 million in 2001 and net profit doubled from US $ 1,149 million to US$ 2,662million in the same period. After she became the CFO and President, sales recordeda further growth from US$ 25,112 million in 2002 to US$ 35,137 million in 2006 whenshe was promoted as the CEO. 24
  • Tough time and good time of Indra in PepsiTough time of Indra in PepsiPepsiCos Nooyi Gets Tough as Cola Wars Heat UpAs it implements a global re-set of its Pepsi brand and corporate priorities, PepsiCo isgirding for even more pitched battle with a re-energized Coca-Cola. And if onlybecause PepsiCo plans to boost spending on its major brands by at least a half-billion dollars this year, the competition between the two giants should be thesharpest in some time.PepsiCo CEO Indra Nooyi and the companys board announced strategicinvestments during their business review last week that are aimed at the majorpressure points being applied lately by restive PepsiCo investors and others. In themeantime, Coca-Cola also announced massive overall as well as a decision to usethe savings of up to $650 million in marketing and brand building.The boost in marketing outlays announced by PepsiCo will be devoted to the largestbeverage brands, especially struggling Pepsi, as well as snack brands. But many ofthe agencies that have been serving the brands to date are being swept out in amassive 65% reduction in the number of partners used by the beverages business.And Pepsi will be culling many of the non-performers from its 400-plus global brands.At the same time, PepsiCo is shedding about 3 percent of its global workforce, some8,700 jobs across 30 countries, as part of a plan to reduce overall costs by $1.5billion between this year and 2014. That should help the bottom line where investorsconcerns have been focused.On the top line, Nooyi stressed that some of the more radical ideas for addressingPepsiCos financial woes, and its quiescent stock price, arent going anywhere. Thatincludes the notion of breaking PepsiCo into higher- and slower-growth companies,as Kraft announced last year. Nor is Nooyi leaving the CEOs post anytime soon. Butshe is going to intensify efforts to bring qualified executive help beneath her andflatten the companys management structure, as she says goodbye to retiring globalbeverage president Massimo d Amore and digital/social marketing head B. BoninBough, who oversaw the Pepsi Refresh Project and has just moved to Kraft Foods ina similar role.Fortune calls this the biggest challenge of her tenure at PepsiCo, commenting that"Nooyi has boldly changed Pepsis strategy to emphasize nutritious, good-for-youproducts like Quaker oatmeal in addition to its fun-for-you (read: bad-for-you)products like Mountain Dew and Fritos. The new strategy is visionary and clearly inharmony with societal changes. The trouble is that good-for-you products arentnearly as profitable as branded sugar-water." 25
  • Nooyi said she remains committed to the companys shift toward "better-for-you"foods, which now account for 20 percent of total revenues from 17 percent five yearsago. But clearly, the commitment of more marketing resources to Pepsi signals thatthe CEO might have to be more cautious in takings steps she has discussed tointensify the better-for-you push, such as developing a new yogurt brand in the U.S.Coke executives, meanwhile, waxed optimistic about their own plans to re-gird for apotentially leaner and more determined PepsiCo. "This program will further enableour efforts to strengthen our brands and reinvest our resources to drive long-termprofitable growth," Coca-Cola CEO Muhtar Kent stated during an earnings call withanalysts last week.Pepsi owners face the Indra Nooyi challenge Whenever a big new job opens up just about anywhere in the world, Indra Nooyisname enters the frame. Last year, scuttlebutt in Mumbai had the PepsiCo (PEP.N)chief executive returning to India to run the powerful Tata group. Earlier this year,Nooyi was floated as a candidate to run the World Bank. Her recent recruitment of aformer White House official even had some pegging her for a big job in Washington.As flattering as such prospects may sound, they make an already challenging jobmore difficult. Nooyi, who is determined to stay put, is still working to convinceshareholders to back her vision for an integrated Gatorade-to-Doritos snack-foodgiant. Not that her reign has been a disaster. Since she became the first female tolead Pepsi in late 2006, the companys earnings per share have gained around 36percent and its sales have nearly doubled to $65 billion. The problem is that the stockhas done relatively poorly - gaining just around 10 percent during that time. Bycomparison, Coca-Cola (KO.N) has done nearly 10 times better.Investors just havent given the high-margin, cash-generating soft-drink businesssufficient credit. In part, thats because Nooyi has actively worked to dispel the notionthat Pepsi is a junk-food pusher, emphasizing its healthier victuals. Yet its greatestrecent successes have been products like a 24-ounce can of Mountain Dew. As aresult, Pepsi suffers from what brokerage Sanford Bernstein called "a tale of twocompanies" problem. The analysts reckoned splitting food from soft drinks wouldcreate more than $10 billion of extra wealth for shareholders.As a consequence, when Relational Investors, a hedge fund run by activist investorRalph Whitworth, popped up with a $600 million position in Pepsi two months ago,Wall Street was atwitter with talk of a Pepsi breakup. So far, Whitworth has not saidmuch about his aspirations. But he has pushed for breakups before, occasionallyfighting to replace corporate directors with his own representatives to make thathappen.True, a carve-up doesnt have to spell the demise of a CEO. Irene Rosenfeld, whoonce ran Pepsis Frito-Lay arm, even championed one at Kraft (KFT.O). But a publicbattle with an uppity investor who galvanized Pepsis shareholders against her wouldundermine Nooyis leadership. And caving to a breakup would be a repudiation of her"Power of One" strategy. 26
  • Given this backdrop, a position working for a re-elected President Barack Obamamight appeal to Nooyi, a Democrat, as a chance for a graceful exit. But the betteroption for her manifold career possibilities is to stick it out and close the performancegap with Coke. To do that, she will need to stay another couple of years and ensurethat Pepsi, whose earnings are expected to decline some 6 percent this year fromlast, gets back in growth mode in 2013.Thats going to take selling a lot more Doritos Locos Tacos with Taco Bell washeddown with Mountain Dew. It may not be a recipe for good health, but unqualifiedsuccess is always satisfying.Good time of Indra in PepsiAchievements:CEO of PepsiCo; Ranked No.4 on Forbes magazines annual survey of the 100 mostpowerful women in the world.Indra Nooyi is the newly appointed CEO of PepsiCo-the worlds second-largest softdrink maker. She joins the select band of women who head Fortune 500 companies.Presently, there are only 10 Fortune 500 companies that are run by women, andIndra Nooyi is the 11th to break into the top echelons of power. Prior to becomingCEO, Indra Nooyi was President, Chief Financial Officer and a member of the Boardof Directors of PepsiCo Inc.Indra Nooyi spent her childhood in Chennai. Her father worked at the State Bank ofHyderabad and her grandfather was a district judge. She did her BSc. in Chemistryfrom Madras Christian College and subsequently earned a Masters Degree inFinance and Marketing from IIM Calcutta. Indra Nooyi also holds a Masters Degreein Public and Private Management from the Yale School of Management.Before joining PepsiCo in 1994, Indra Nooyi was Senior Vice President of Strategyand Strategic Marketing for Asea Brown Boveri, and Vice President and Director ofCorporate Strategy and Planning at Motorola. She also had stints at Mettur Beard selland Johnson & Johnson. At PepsiCo, Indra Nooyi played key roles in the Tricon spin-off, the purchase of Tropicana, the public offering of Pepsi Cola bottling group andthe merger with Quaker Foods.Indra Nooyi has been ranked No.4 on Forbes magazines annual survey of the 100most powerful women in the world. 27
  • Growth of Pepsi v/s coke after Indra and before Indra world widePepsiCo (NYSE: PEP) is one of the world‘s most familiar consumer food andbeverage companies, offering brands like Frito-Lay, Gatorade, Tropicana andQuaker.It‘s best known, of course, for is its flagship soft drink brand… and its rivalrywith Coca-Cola (NYSE: KO).The Coke vs. Pepsi conflict raged on for decades across the country on supermarketshelves, fast food restaurants and the like.Coke always held the bigger market share in this area. But at times, Pepsi – fueledby smarter and more aggressive advertising campaigns – moved ahead.Many investors believe the cola war is still going strong. But that‘s where they‘rewrong.Sure, the TV commercial designed to show that PepsiMax tastes better than CokeZero rather smacked of the blatant competition in the 1980s and 1990s. But in reality,Pepsi surrendered; the war was lost.Yet in comes Indra Nooyi, PepsiCo‘s CEO as of 2006, and the game completelychanges.A former management consultant, she decided not to duke it out directly with Coke.Instead, she‘s trying to redefine the playing field… Pepsi’s New Strategy: Better-For-You ProductsU.S. Consumption of carbonated soft drinks has steadily declined in the past decade.Part of that comes down to the array of alternative beverages the market now offers.Part of it comes down to health concerns in a nation with an obesity problem.But rather than buck the trend, Ms. Nooyi seeks to refocus Pepsi. ―Lifestyles havechanged,‖ she notes, ―And we have to modify our products.‖In that spirit, she‘s focusing the company more on water, juices, teas and sportsdrinks.Pepsi‘s top brands in those areas include Aquafina and Gatorade. And while it trailsin soft drink sales, it leads the world in ready-to-drink teas through Lipton, while itsTropicana wins out in juices/nectars.The company is betting big on creating healthy foods through its Quaker Oats,Gatorade and Tropicana divisions. And it just began the Global Nutrition Group todeliver breakthrough products. 28
  • Nooyi says the new Group ―is part of our long-term strategy to grow our nutritionbusiness from about $10 billion in revenues today to $30 billion by 2020.To further that goal, Pepsi hired several well-known nutritionists to direct its efforts atreducing fat, sodium and sugar in its products. Already, Lay‘s potato chips have 25%less sodium… and by 2011; they‘ll be made from 100% natural ingredients.As Caroline Levy, a CLSA analyst, noted, ―PepsiCo is currently focused on better-for-you‖ products.Coke’s Consistent Strategy Wins the Cola WarMeanwhile, Coca-Cola doesn‘t seem to care about what Pepsi has accepted. CEOMuhtar Kent not only continues to focus on selling soft drinks globally, but even vowsto rebuild Coke sales in the U.S. market.And admittedly, Coke‘s beverage volume in North America dropped only 2% lastyear. 2009 was extremely difficult economically on top of a relatively cool summer.In comparison, Pepsi‘s beverage volume in the same region plunged 8%.According to Beverage Digest, this makes Coca-Cola brand the uncontested U.S.heavyweight.Indeed, looking at all carbonated soft drinks, Coke brands commanded 41.9% of thetotal market last year compared to PepsiCo‘s 29.9%.The same goes for the companies‘ flagship brands. Through 2009, Coca-Colacommanded 17% of the U.S. soft drink market; Pepsi held only 9.9%.And while both brands have been declining, Pepsi is doing so at a slightly faster rate.Pepsi Admits Defeat… Goes On New Health KickAs far as Pepsi is concerned, the cola wars are over. It now needs to focus onconvincing investors that it has the right focus in this new health kick.Currently, the Global Nutrition Group is little but a nice marketing tool. Whether Pepsican really develop healthier foods and drinks while still coming up with new types ofchips and soda flavors… well, that‘s the question.It recently reduced the top end of its guidance for earnings growth this year from 13%to 11%. This may be due to increased investment in nutrition… or because of adifficult, competitive global environment.Coke, among others, continues to steal market share away from Pepsi.Ms. Nooyi should not neglect the company‘s core business. Carbonated beveragesstill produce much of the company‘s sales and for now, they‘re still key to Pepsi‘sfuture health. 29
  • Shareholder value before Indra and after IndraIN OCTOBER 1996 the cover of Fortune magazine showed Roger Enrico, then thechief executive of PepsiCo, trapped in a Coke bottle under the headline ―How Coke iskicking Pepsis can‖. Ten years later, just after Pepsi had surpassed Coca-Cola inmarket capitalization for the first time in their 108-year rivalry, the same magazine rananother big story on the cola giants. It admitted that it was wrong to have declaredPepsi defeated and lauded it as one of Americas best-run companies.Fast forward another six years and Coke is again kicking Pepsis can. Both are losingcola drinkers in America as consumers switch from fizzy, sugary drinks to healthierwater, tea, juices and sports drinks. But whereas Coca-Cola has lost on average 2%a year in like-for-like volume of fizzy drinks in America since 2004, Pepsi has lost 3%(see chart), according to Sanford C. Bernstein, an investment bank. That means itsAmerican drinks business has shrunk by about 20%. Cokes Simply juices and itslower-priced Minute Maid are taking share from the fruity concoctions of PepsisTropicana. And Cokes sports drink, PowerAde, is knocking spots off Gatorade,Pepsis brew for athletes.Faced with mounting investor dissatisfaction about Pepsis stagnant share price, thefood-and-drinks giant recently embarked on an effort to prelaunch the company. OnFebruary 9th the group announced that it was cutting 8,700 jobs, or 3% of itsworkforce. Having underinvested in its flagship beverage brands for years, it isincreasing investment in marketing and advertising by $500m-600m. It has somecatching-up to do: at the end of 2010 Pepsi spent 3.3% of sales on advertisingcompared with 8.3% of sales at Coca-Cola, according to Judy Hong, who followsdrinks makers for Goldman Sachs.Pepsi is also pinning its hope on the launch across America on March 26th of PepsiNext, a new soda sweetened with both high-fructose syrup and artificial sweetenerswhich has 60% less sugar than classic Pepsi. Angelique Krembs of Pepsi says thenew drink is aimed at consumers who are keen to imbibe less sugar with their colabut dislike the taste of diet drinks. She splits this mostly male group in two: ―dualists‖,who switch between regular and diet (and sometimes mix the two), and ―resistant‘s‖,who never touch either.Repeat performanceWill Pepsis reset be enough to win over investors? Pepsi Next is dividing opinions.―We have seen this movie before,‖ says Mark Swartz berg, a drinks analyst at StifelNicolaus, a bank. In 2004 Pepsi launched Pepsi Edge, a mid-calorie soda, whichCoca-Cola matched with a new mid-calorie brew called C2. Both disappeared fromthe shelves after a few years. Thats going to take selling a lot more Doritos LocosTacos with Taco Bell washed down with Mountain Dew. It may not be a recipe forgood health, but unqualified success is always satisfying. 30
  • Pepsis boss, Indra Nooyi, is seeking to revive the companys core business whilecontinuing her ambitious drive to transform the company into a maker of healthierdrinks and snacks, and a better corporate citizen. In the past few years Ms Nooyi hasspent disproportionate time and effort on promoting products that Pepsi calls ―goodfor you‖ (oatmeal, fruit juices and sports drinks), which make up about 20% of itssales. She is aiming nearly to triple the revenue of nutritious products, to $30 billion,by 2020.Ms Nooyi has also devoted resources to cultivating a corporate image focused onglobal social responsibility. In 2010 Pepsi skipped soda ads at the Super Bowl,launching instead a $20m online competition for the nomination of worthy causes thatPepsi might finance. The Refresh Project succeeded in gathering 80m online votesand helped numerous homeless shelters and orphanages. But it did not sell muchsoda, which is why Pepsi went back to its usual ads at the 2011 Super Bowl.It will take time for the revised strategy to bear fruit, as it did for Coca-Cola when itreset its course in the late 2000s after a series of management and marketingmishaps. Cokes bosses now feel they are on the right track with its offering of fizzydrinks, vitamin water, juice, coffee and tea. They think they are giving health-conscious customers sufficient choice. Of the 3,500 drinks Coke sells worldwide,more than 800 are zero- or low-calorie.If Ms Nooyis prelaunch does not work Pepsi may get a new chief executive. Thecompany seems to be preparing for a possible change at the top. On March 12th itrevamped its management structure, poaching back Brian Cornell—a former Pepsiman who went on to run the Sams Club division of Wal-Mart—to head PepsisAmericas Foods snacks division. It put John Compton, the current head of AmericasFoods, in charge of all the companys global groups, making him an heir apparent inthe newly created role of president. Another possible crown prince is Zein Abdulla,boss of Pepsis European business.Ms Nooyi may leave before she is pushed out. She is one of the contenders for thetop job at the World Bank. Though she says she loves her job, she has talked in thepast of her desire to spend some of her career in public service. And the World Bankmay suit her zeal to do good on a global scale rather more comfortably than themaker of popular but largely fatty, salty and sugary foodstuffs. 31
  • Letter from Indra K. NooyiDear Fellow Stakeholders,By any standard, this is an inspiring paragraph to read in an annual report: "Toensure a continuing climate in which it can prosper, the modern company . . . musttake an active role in civic, cultural and community programs. While results in thisarea are less tangible and harder to measure than sales or profits, they are no lessimportant."The idea that ethics and growth are connected is a broadly shared understanding intodays business world. But these words appeared in the PepsiCo Annual Reportback in 1968—just three years after the Pepsi-Cola Company and the Frito-LayCompany merged to form PepsiCo. It is a testament to how long we have treasuredthe belief that corporate capabilities and corporate character are not just integrated,but inseparable. Back then, it led PepsiCo to become early corporate leaders oneverything from civil rights to scholarships to recycling, while growing our belovedbrands in markets around the world.Today, PepsiCo is a $60 billion global food and beverage powerhouse offeringconsumers a wide range of choices. Our global beverage business is large and highlyprofitable, with brands that stand for quality and are respected household names—including Pepsi and Diet Pepsi, Pepsi Max, Mountain Dew, Sierra Mist, Gatorade,Lipton Iced Tea and popular local brands such as Mirinda in Europe and Nimbooz inIndia. Meanwhile, our global snack business is driven by equally iconic and deliciousbrands, such as Lays, Ruffles, Doritos, Fritos, Cheetos, Walkers in the U.K., andFandangos in Brazil and Gamesa in Mexico. And nested within our snack andbeverage businesses is a nutrition business focused on fruit, vegetables, grains anddairy, that is nearly $13 billion and growing.As the worlds second-largest food and beverage business, our ability to have apositive impact on the world is vast. We believe that building a healthier future forpeople and our planet is good for PepsiCos financial success and good for the world.This is the cornerstone of our Performance with Purpose mission: that our long-termprofitable growth (our Performance) is linked intrinsically to our ability to deliver onour social and environmental objectives (our Purpose).From a business standpoint, this is about both the short term and the long term,today and tomorrow. On one hand, Performance with Purpose has helped PepsiCobe competitive and profitable today: in 2010 alone, our net revenue grew by 33percent* and our core division operating profit rose 23 percent*—both on a constantcurrency basis—which enabled us to return $8 billion to our shareholders. On theother hand, Performance with Purpose keeps us ahead of the global challengesshaping our industry—which are articulated in the pages that follow—setting us up formarket leadership and profitable growth into the next decade. 32
  • As this report demonstrates through four case studies, Performance with Purpose isnot a stand-alone initiative. Instead, our sustainability goals, across the four planks—Performance, Human, Environmental and Talent sustainability—are woven into thefabric of our brands, guiding how they do business, while generating significantsourcing, operational and consumer impacts that improve both our top and bottomlines.Weve made progress. As you will see, in some areas, we have made more progressthan others—but we are moving in the right direction. Based on what we havelearned in this challenging process, we are also determining how to best focus ourefforts, in order to have the greatest impact. As with any complex initiative, itsimportant to be flexible and responsive to a changing world. As part of this learningprocess, we are working to create better measurements to track our progress; investin long-term research and development to expand our innovation; and build newpartnerships to help achieve our Performance with Purpose goals.The Promise of PepsiCo it is not about altruism. It is not about environmentalism. Itis, instead, about enlightened self interest: we believe these are the benchmarks thatPepsiCo must meet to succeed in todays economy while ensuring, as we said in1968, a continuing climate in which PepsiCo can prosper.John Kennedy once said that "the problems of the world cannot possibly be solved byskeptics whose horizons are limited by the obvious realities. We need people whocan dream of things that never were." I look forward to working together, buildingtogether and dreaming together in the days ahead to build an even bigger and betterPepsiCo. Pepsicos CEO Hosts 2012 Annual Meeting of Shareholders (Transcript)PepsiCo Inc. (PEP) 2012 Annual Meeting of Shareholders May 2, 2012 9:00 AM ETOperatorBefore we begin, please take note of our cautionary statement. This presentationincludes forward-looking statements based on currently available information.Forward-looking statements inherently involve risks and uncertainties that couldcause actual results to differ materially from those predicted in such forward-lookingstatements. Also, defined disclosures and reconciliations of non-GAAP measures thatwe may use when discussing PepsiCos financial results, please refer to the Investorssection of PepsiCos website under the Investor Presentation tab. And now pleasewelcome the Chairman and Chief Executive Officer of PepsiCo, Indra Nooyi.Indra K. Nooyi - Chairman and Chief Executive OfficerGood morning, everyone. On behalf of PepsiCos Board of Directors and our entiremanagement team, its my privilege to welcome all of you in the room and thosejoining us via webcast to PepsiCos 2012 Annual Meeting of Shareholders. 33
  • It was at a pharmacy counter right here in New Bern in 1898 that a pharmacistnamed Caleb Bradham set about making a fountain drink that was both delicious andrefreshing, what he originally called Brads Drink became Pepsi-Cola. And 110 yearsago this September, Bradham filed a trademark for his now world-famous drink.Since then, we have grown into a global food and beverage leader, but we havenever forgotten where we came from. We are absolutely delighted to be back in NewBern today.Even beyond New Bern, we have a rich heritage here in North Carolina and havecontinued to maintain incredibly close ties with the state over the years. In fact,former Governor Jim Hunt has been a longtime advisor to PepsiCo. We feel right athome here, gathered with members of our New Bern family, and we couldnt risk --we couldnt not accept the invitation Governor Bev Perdue extended to us to host ourshareholders meeting here in New Bern. Thanks to all of you for joining us here onthis occasion.Id like to begin today by acknowledging the shareholders who have taken the time tosubmit proposals for us to consider. Ms. Hannah Freedberg is here, representing theNew York State Common Retirement Fund. We welcome Mr. John Skinner, who willpresent a proposal on behalf of Ms. Betsy Krieger, and Mr. Anton Washington [ph] ishere on behalf of Mr. Kenneth Steiner. Thank you all for being here today.And its nice to see several of our partners and members of the PepsiCo family heretoday. Id like to welcome our former Chairman and Chief Executive Officer, thewonderful Don Kendall. Don? And it‘s a special pleasure to welcome Jan Calloway,whose late husband, Wayne Calloway, succeeded Don Kendall as our Chairman andChief Executive Officer. And Wayne Calloway was from North Carolina. JanCalloway.And we are happy to be joined by Jeff Minges, the President and CEO of MingesBottling Group, a respected leader of the local business community and our franchisepartner for many counties across the great state of North Carolina. Jeff, welcome,and Jeffs 2 sons. Welcome, all of you. All 3 look like sons.Next, Id like to welcome and introduce the members of our Board of Directors whowill each stand as your name is read. This year, we bid a fond farewell to ArthurMartinez, the brilliant former Chairman of the Board, President and CEO of Sears,Roebuck and Co., who served on our board with distinction since 1999. And thisyear, we also welcome Alberto Weisser, the Chairman and Chief Executive Officer ofthe agribusiness and food company, Bunge Limited, who joined our board in 2011.We also welcome here in New Bern today Ian Cook, Dina Dublon, Victor Dzau, RayHunt, Alberto Ibarguen, Jim Schiro, Lloyd Trotter, Dan Vasella, Shannon PercyRockefeller and Shona Brown. If youll please stand to be acknowledged. 34
  • Dividends and Shareholder ValueDoes Dividend Policy Enhance Shareholder Value?by Keisuke Nitta Financial Research Groupnitta@nli-research.co.jpWe approach dividend policy from the perspective of an interactive game betweencorporate managers and shareholders. While dividend policy in Japan has beenextensively discussed in connection with hostile takeover defenses, we look at themore basic issue of how dividend policy might affect shareholder value. Recenttheories suggest that dividend policy decisions carry concealed messages frommanagement that may influence share prices. We review the literature and exploreways for shareholders to assess dividend policy.1. IntroductionAhead of the new Corporation Law that takes effect in 2006, companies are busilystudying rational defense strategies to prepare against the anticipated increase inhostile takeovers. While dividend policy is often discussed in connection withtakeover defenses,1 in this paper we examine dividend policy at a more fundamentallevel to see how it can enhance shareholder value.2 However, difficulties arise intrying to link dividend policy directly to shareholder value. First, in measuringshareholder value, suppose we simply use the share price. Despite the clarity,standard theory would lead us to only one conclusion—that dividend policy has noeffect on share price—leaving little room to discuss why dividend policy matters. Thusto better understand the implicationsUnder the new Company Law, dividends are separated from earnings appropriation,and distributions no longer need be made annually at fiscal yearend. Moreover, thedistribution limit will change from earnings available for dividends (haito-kano rieki) toa distributable amount (joyokin no bunpai-kano gaku) that essentially refers to theretained earnings account. Practically, however, the changes are not significantenough to affect our dividend policy discussion. 2 Since the interests of shareholdersmay sometimes conflict with other stakeholders. 35
  • Main policies and initiatives Shareholder’s Office: The Shareholder‘s office provides detailed information on key indicators, financial and stock market data; corporate governance information; quarterly financial reports; information on dividends; the latest presentations to investors and analysts; the investors‘ agenda, including an annual calendar of scheduled events with analysts and investors and tentative dates for the release of quarterly financial reports; analysts‘ recommendations on Indra, including the latest published research reports; information on the upcoming and past General Shareholders Meeting, and details on how to attend the meetings online; and the Annual Report. Internal Regulations: the Regulations for the Board of Directors and its Committees, the General Shareholders Meeting Regulation and the Internal Code of Conduct in Matters Relating to the Securities Markets make up Indra‘s core governing rules. These internal rules are rounded out by other codes (e.g. Code of Ethics) and internal procedures, which are subject to ongoing revision in order to adapt to prevailing legislation and corporate governance recommendations. Shareholder’s magazine: Publication containing information on Indra targeted at retail shareholders. Indra is fully aware that responsibly managing its relationships with shareholders and investors is a pillar of its economic sustainability since, without shareholders, Indra would lack the capital resources necessary to conduct its business. Accordingly, the company aims to cement long-term relationships with shareholders and investors and understands that this inevitably involves offering: trust to investors, especially through a solid and sustainable business strategy that ensures the company‘s growth; a competitive remuneration policy that rewards the trust placed in it; a transparent, truthful and rigorous disclosure policy; and corporate governance regulation that ensures good governance. Indra on the Stock Market At 31 December 2010, Indra‘s share On 14 April 2000, Spain‘s official equity capital totaled €32,826,507.80, fully trading platform, MEFF Renta Variable, subscribed and paid up, and began trading call and put options on represented by 164,132,539 ordinary the company‘s ordinary shares. shares of the same class, each with a par value of €0.20. All the shares are Indra is also listed on major admitted to trading on the four Spanish international indices, such as the MSCI stock exchanges. IT (since July 2003), a benchmark for institutional investors in the sector, the The ordinary shares have been trading FTSE eTX, which includes the main on the Continuous Market since 23 European technology securities, and the March 1999, in the Electronics and Dow Jones STOXX Broad Market Software segment of the Information Indices, which features the top 36
  • and Communication Services sector. European listed companies. Since 18Similarly, since 1 July 1999, Indra has September 2006, Indra‘s shares havebeen listed on the Spanish blue chip been trading on the Dow Jonesindex, the Ibex 35, which includes the Sustainability World Index (DJSWI) andtop thirty-five listed Spanish companies the Dow Jones STOXX Sustainabilityby market capitalization and liquidity. Index (DJSI STOXX) which track theIndra‘s weighting at 31 December 2010 financial performance of leadingwas 0.60%. sustainability-driven companies from among the largest companies in the world and in Europe, respectively.Ownership structure (at 31 December 2010)The companydoes not keep anominal record ofits shareholders,so it only knowsthe composition ofits ownershipstructure throughthe informationthey submit to itdirectly or publishin accordancewith legislationconcerning the disclosure of significant shareholdings generally speaking,shareholders must report shareholdings in excess of 3% of total share capital- andthrough the information provided by the Spanish central securities depository,clearing and settlement company, Iberclear, which the company compiles ahead ofits General Shareholders‘ Meetings.Accordingly, based on the information available to Indra, its main shareholder at 31December 2010 was Caja Madrid, with a 20% stake, followed by CorporationFinancier Alba with 10%, Casa Grande de Cartagena with 5% and Coaster with 5%.Furthermore, according to the records held by the Securities Market Commission(Commission National del Mercado de Valores - CNMV), Fidelity Management &Research, Barclays Bank and Fidelity International Ltd reported that as at 17December 2010, 21 November 2005 and 12 December 2010, they held stakes of10.02%, 5.15% and 0.97%, respectively. 37
  • Distribution of capital The distribution of share capital by tranche, in accordance with data from the June 2010 General Shareholders‘ Meeting is as follows: , 932,071 Number of ordinary shares held by Shareholders Total shares Shareholding shareholders Up to 500 56,340 7,984,529 4.86% From 501 to 2,000 6,874 6,920,592 4.22% From 2,001 to 5,000 1,422 4,486,438 2.73% From 5,001 to 10,000 469 3,340,454 2.04% From 10,001 to 20,000 205 2 1.79% From 20,001 to 30,000 64 1,547,041 0.94% From 30,001 to 50,000 75 2,888,703 1.76% From 50,001 to 100,000 65 4,565,776 2.78% From 100,001 to 500,000 72 14,759,723 8.99% From 500,001 to 2.000,000 22 20,963,988 12.77% More than 2,000,000 11 93,743,224 57.11% Total 65,619 164,132,539 100.00% At 31 December, treasury shares totaled 1,368,400 , representing 1.03% of the company‘s total shares. Stock market indicators The main stock market indicators in the year were as follows: Total number of shares (31-12-10)  Minimum price in the year (29 164.132.539 November) 12,315 No. of ordinary shares outstanding -  Maximum price in the year (8 January) free-float- (31/12/10) 98,467,977 16,885 Par value per share 0.20 €  Year-end price (31 December) 12,785 Average daily trading volume (no. of  Average price 14,140 shares) 1,203,316  Market capitalization at 31 December Average daily trading volume 2,098.4 (thousands of Euros) 17,002  Earnings per share (EPS) (in euros) Trading days 256 1,161 Trading frequency 100%  Cash flow per share (CFPS) (in euros) Minimum daily trading (in shares) (28 (1) 1,877 38
  • December) 261,399  Book value per share (in Euros) (1) Maximum daily trading (in shares) (15 6,151 April) 11,983,054  Price / EPS (P/E) (2) 11.01 Total effective trading (million Euros)  Price / CFPS (P/CF) (2) 6.81 4,353  Price / Book value per share (P/BV) (2) Total trading in the year (in shares) 2.08 308,049,029  EEV/sales (3) 0.93 Total trading vs. total ordinary shares  EV/EBITDA (3) 7.25 188% Total shares traded vs. outstanding ordinary shares 313% (1) Based on the total number of shares in the company: 164,132,539 shares (2) Based on the share price at 31 December 2010 (Based on enterprise value (EV) at year-end: market capitalization at 31 December 2010 + the company‘s net debt on that date (€274.9M). Trading volume Trading frequency was 100% throughout the year (256 days). Average daily trading was 1,203,316 shares, 12% higher than in 2009. The figure for 1999 is for the period April-December, and excludes the extraordinarily high trading volume in the week following the IPO (23-30 March 1999), which distorts ordinary volume. 39
  • In 2010, 308 million Indra shares changed hands in the market, equivalent to 1.88times the total number of ordinary shares and 3.13 times the number of ordinaryshares outstanding (i.e. free float). The cash volume trading totalled €4,353M, 1.5%lower than the year before. Average daily volume and the monthly performance in2010 are shown in the following chart:Regarding the volume of options traded on Indra shares on the MEFF Renta Variablemarket, there were 51,988 contracts in 2010, of 100 options each, of which 27,580were call options and 24,408 put options.Indra’s share performanceThe following table shows Indra‘s high, low, average and final monthly share pricesfor each month of the year, and the chart below depicts overall share performanceduring the year: Lo Hi Av Mont w gh g h/EndJanua 15. 16. 16. 15.71ry 62 88 44 0 0 5 2Febru 14. 15. 14. 15.03ary 32 80 86 0 5 0 0March 14. 15. 15. 15.18 80 64 28 0 5 0 41st Q 14. 16. 15. 32 88 51 5 5 7April 15. 16. 15. 15.11 05 09 51 0 5 0 8May 13. 15. 14. 14.17 42 04 22 0 0 5 2June 13. 14. 13. 13.18 18 35 95 0 0 5 92nd 13. 16. 14.Q 18 09 57 0 0 2July 12. 13. 12. 12.54 40
  • 38 53 74 0 0 0 6Augu 12. 13. 12. 13.20st 69 20 92 0 0 5 8Septe 13. 14. 13. 13.99mber 39 40 93 0 0 0 03rd Q 12. 14. 13. 38 40 20 0 0 1Octob 13. 14. 14. 14.06er 41 53 04 0 5 5 5Nove 12. 14. 13. 12.33mber 31 12 32 0 5 0 5Dece 12. 13. 13. 12.78mber 53 60 00 5 0 5 44th Q 12. 14. 13. 31 53 44 5 5 0Source: BloombergInformation for net wealth tax return: The average share price for the final quarter of2010 was €13.4 (as published in the Official State Gazette no. 50, dated 28 February2011).Indra and the sectorEurope‘s stockmarkets showedmixedperformances in2010, withperipherals(including Spain)hurt by events insovereign debtmarkets. Thesecountries‘ flagging 41
  • economies and budget imbalances, not to mention the impact of the bailouts in Greece and Ireland, caused their country risk premiums to soar, prompting investors to unwind positions in equities of these countries throughout the year. To illustrate, France‘s CAC, Germany‘s DAX and the UK‘s FTSE indices rose an average of 7% in 2010, while Spain‘s IBEX and Italy‘s MIB slumped 17% and 13%, respectively. The information technology sector performed in line with the broader European indices. The FTSEeTX, one of the main sector indices, notched up a 9% gain. Indra‘s share price closed down 22%, in line with the performance of the overall Spanish market, with the IBEX 35 sustaining a 17% fall. The chart below shows Indra‘s performance compared to the IBEX 35 and the European IT services companies‘ average (base 100). Source : Bloomberg Between the date of its IPO (22 March 1999) and year-end 2010, Indra‘s share price rose 186%, while the IBEX 35 shed 1% and the Europe IT sector down 10%. Dividend in the year The dividend proposed by the Board of Directors for approval at the General Shareholders Meeting is 3% higher than the ordinary dividend charged to profit in the previous year. Accordingly: Dividend per share charged to 2010 profit Gross dividend per share 0.68 Increase vs. gross dividend per ordinary share in 2009 3% % net profit or EPS (payout) 59% Dividend yield 5.3% 42
  • BCG matrixMAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIXTheBCG GrowthShare Matrixisbasedon two dimensional variables:relative market share and market growth. They often are pointers tohealthiness of abusiness (Kotler 2003; McDonald 2003). In other words products with greater marketshare or within a fast growing market are expected to wield relatively greater profitmargins. The reverse is also true.The BCG matrix or also called BCG model relatesto marketing. The BCGmodel is a well-known portfolio management tool used inproduct lifecycletheory. BCG matrix is often used to prioritize which products withincompanyproduct mix get more funding and attention. The BCG matrix model is a portfolioplanning model developed by Bruce Henderson of the Boston Consulting Group inthe early 1970s.The BCG model is based on classification of products (and implicitlyalsocompany business units) into four categories based on combinations of marketgrowth and market share relative to the largest competitor.When should I use the BCG matrix model?Each product has its product life cycle, and each stage in products life-cyclerepresents a different profile of risk and return. In general, a companyshouldmaintain a balanced portfolio of products. Having a balanced product portfolio includes both high-growth products as well as low-growth products.A low-growthproduct is for example an established product known by the market. Characteristicsof this product do not change much, customers know what they are getting, and theprice does not change much either. This product has only limited budget formarketing. The is the milking cow that brings in the constant flow of cash. Anexample of this product would be regular Colgate toothpaste.But the question is, how do we exactly find out what phase our product is in, and howdo we classify what we sell? Furthermore, we also ask, where does each of ourproducts fit into our product mix? Should we promote one product more than theother one? The BCG matrix can help with this. The BCG matrix reaches furtherbehind product mix. Knowing what we are selling helps managers to makedecisions about what priorities to assign to not only products but also companydepartments and business units. 43
  • BCG MATRIX of food product 44
  • BCG MATRIX of beverages 45
  • These groups are explained below:Stars are the leaders in the business but still need a lot of support for promotion aplacement. If market share is kept, Stars are likely to grow into cash cows.BCG QUESTION MARKS(High growth, low market share)These are the opportunities no one knows what to dowith. They arent generating much revenue right now because you dont have a largemarket share. But, they are in high growth markets so the potential to make money isthere. Question Marks might become Stars and eventual Cash Cows, but they couldjust as easily absorb effort with little return. These opportunities need serious thoughtas to whether increased investment is warranted.•These products are in growing markets but have low market share.•Question marks are essentially new products where buyers have yet todiscoverthem.•The marketing strategy is to get markets to adopt these products.•Question marks have high demands and low returns due to low market share.•These products need to increase their market share quickly or they become dogs.•The best way to handle Question marks is to either invest heavily in them to gainmarket share or to sell them.BCG STARS(High growth, high market share)Here youre well-established, and growth is exciting!These are fantastic opportunities, and you should work hard to realize them. Starsare defined by having high market share in a growing market. 46
  • BCG CASH COWS(Low growth, high market share)Here, youre well-established, so its easy to getattention and exploit new opportunities. However its only worth expending a certainamount of effort, because the market isnt growing and your opportunities are limited.•Cash cows are in a position of high market share in a mature market.•if competitive advantage has been achieved, cash cows have high profitmargins andgenerate a lot of cash flow.•Because of the low growth, promotion and placement investments are low.•Investments into supporting infrastructure can improve efficiency andincrease cashflow more.•Cash cows are the products that businesses strive for.BCG DOGS(Low growth, low market share)In these areas, your market presence is weak, so itsgoing to take a lot of hard work to get noticed. Also, you wont enjoy the scaleeconomies of the larger players, so its going to be difficult to make a profit.•Dogs are in low growth markets and have low market share.•Dogs should be avoided and minimized.•Expensive turn-around plans usually do not help.Some limitations of the BCG matrix model include:The first problem can be how we define market and how we get data about marketshareA high market share does not necessarily lead to profitability at all timesThe model employs only two dimensions – market share and product or servicegrowth rateLow share or niche businesses can be profitable too (some Dogs can bemore profitable than cash Cows)The model does not reflect growth rates of the overall marketThe model neglects the effects of synergy between business unitsMarket growth is not the only indicator for attractiveness of amarketThere are probably even more aspects that need to be considered in a particular use of the BCG model. 47
  • Market Share and Market GrowthTo understand the Boston Matrix you need to understand how market share andmarket growth interrelates. Market share is the percentage of the total market thatis being serviced by your company, measured either in revenue terms or unit volumeterms. The higher your market share, the higher proportion of the market you control.The Boston Matrix assumes that if you enjoy a high market share you will normally bemaking money (this assumption is based on the idea that you will have been in themarket long enough to have learned how to be profitable and will be enjoying scaleeconomies that give you an advantage. 48
  • Should she be allowed to be continue or droppedShe should be allowed to continue because she is the top most ladywhich got a 4th rank in this world.CEO of PepsiCo; Ranked No.4 on Forbes magazines annual survey of the 100 mostpowerful women in the world.Indra Nooyi is the newly appointed CEO of PepsiCo-the worlds second-largest softdrink maker. She joins the select band of women who head Fortune 500 companies.Presently, there are only 10 Fortune 500 companies that are run by women, andIndra Nooyi is the 11th to break into the top echelons of power. Prior to becomingCEO, Indra Nooyi was President, Chief Financial Officer and a member of the Boardof Directors of PepsiCo Inc.Indra Nooyi spent her childhood in Chennai. Her father worked at the State Bank ofHyderabad and her grandfather was a district judge. She did her BSc. in Chemistryfrom Madras Christian College and subsequently earned a Masters Degree inFinance and Marketing from IIM Calcutta. Indra Nooyi also holds a Masters Degreein Public and Private Management from the Yale School of Management.Before joining PepsiCo in 1994, Indra Nooyi was Senior Vice President of Strategyand Strategic Marketing for Asea Brown Boveri, and Vice President and Director ofCorporate Strategy and Planning at Motorola. She also had stints at Mettur Beardselland Johnson & Johnson. At PepsiCo, Indra Nooyi played key roles in the Tricon spin-off, the purchase of Tropicana, the public offering of Pepsi Cola bottling group andthe merger with Quaker Foods.Indra Nooyi has been ranked No.4 on Forbes magazines annual survey of the 100most powerful women in the world. 49
  • Indra Nooyi Revive PepsiCo?In one of its biggest new product launches in years, PepsiCo this week unveiledPepsi NEXT -- a mid-calorie beverage that contains 60% less sugar than regularPepsi-Cola. The soda, which comes in Pepsis trademark peppy blue can, isaccompanied by an aggressive ad campaign targeting calorie-conscious customerswho in recent years have replaced carbonated soft drinks with teas, flavored watersand sports drinks. The company calls Pepsi NEXT a "game-changer in the colacategory" and has bestowed a hopeful tagline: "Drink It to Believe It."The question is: Will Wall Street?Its been a rough few years for PepsiCo. Indra Nooyi, chairman and chief executiveofficer, has diligently tried to transform the company from a purveyor of sugar-ladenbubbly beverages and salty snacks, into one that has healthier and more wholesomeofferings. But performance has -- pardon the pun -- fizzled. Shares of PepsiCo havebarely budged during her six-year tenure, while the stock price of rival Coca-Cola hasnearly doubled in that time. Perhaps most embarrassing for the once stalwartcompetitor in the cola wars, its flagship brand, Pepsi, no longer claims second placein market share of the carbonated soft drink market. In 2010, Diet Coke took over thenumber two spot and has remained there.Investors are impatient. Some accuse Nooyi of focusing too intensely on her nutritionstrategy while overlooking PepsiCos North American soft drink business. Earlier thismonth, the company announced management changes intended to restore theirconfidence in the company: John Compton, who most recently ran PepsiCos highlysuccessful Frito-Lay business in the Americas, was named president, while BrianCornell, a PepsiCo veteran, has been wooed back from running the Sams Club chainfor Wal-Mart Stores. He will fill Comptons previous position. The restructuring notonly gives PepsiCos board some options for potential successors to Nooyi, but isalso a clear statement that the company is attempting to return to its profitable past."Based on the management changes, it appears that the company will be back toemphasizing its sugary beverages and snack foods," says Jason Schloetzer, aprofessor of accounting at Georgetown Universitys McDonough School of Business."This is kind of like Pepsi saying to its investors, We understand we were veryprofitable in these areas, and now this is where we are going to refocus ourenergy.... Its hard to shake the past -- particularly when the past was moreprofitable."The renewed focus on high-margin drinks and snacks may assuage investorconcerns for now, but experts caution against trading a solid, long-term strategicrepositioning for a bit of short-term success: Nooyis goal of reinventing PepsiCosproduct line is sensible, but real and lasting change takes time. To increase marketshare and revive earnings, experts suggest, she needs to spend more money onmarketing top beverage brands -- a move that is already in the works -- and to put the 50
  • right people in charge of those divisions. Nooyi also must do a better job of managingWall Street expectations and courting institutional investors who care aboutsustainability and will give her more time and leeway to achieve her goals.Performance with PurposeA native of Madras, India, Nooyi joined PepsiCo in 1994 as the companys chiefstrategist. Seeing a bleak future for fast food, she pushed the company to makesome bold moves: In 1997, PepsiCo created a spin-off firm (now called Yum! Brands)to unload KFC, Pizza Hut and Taco Bell. The following year, Nooyi was promoted tochief financial officer and helped engineer a $3 billion acquisition of Tropicana. In2001, Nooyi -- who has an MBA from Yale -- co-orchestrated a $14 billion takeover ofQuaker Oats, which makes Gatorade. PepsiCos earnings skyrocketed, and Nooyibecame a force in the corporate world. In 2005, Forbes magazine ranked her the11th most powerful woman in business. She became PepsiCos first female CEO in2006.Her strategy -- to more than double PepsiCos revenue from nutritional drinks andsnacks to $30 billion by 2020 -- is no doubt ambitious. Through senior levelappointments and internal initiatives, she has pursued her cause. She enlisted DerekYach, a former World Health Organization official, as senior vice president of globalhealth and agricultural policy. Under Nooyis watch, the company also started workingwith farmers and scientists in developing countries, like Ethiopia, on sustainablegrowing techniques. In 2009, PepsiCo rolled out compostable bags made frombiodegradable plant material for one of its chip brands. (The bags were eventuallyscrapped because customers thought they were too noisy.)Nooyi has also worked to reformulate PepsiCos existing products, and has madecreative acquisitions to boost the nutritional quality of its offerings. The company hasreduced the fat, and taken out some of the sugar in many of its mainstream products,and it has added whole grains, fruits and vegetables to some of its snacks. Thecompany has also come up with entirely new products that are, at least arguably,healthier -- Pepsi NEXT, which contains high-fructose corn syrup and artificialsweeteners, has 60 calories to regular Pepsis 100. In 2010, PepsiCo acquired amajority stake in Russian dairy Wimm-Bill-Dann to give it more of a presence inyogurts and grain-enriched dairy products.In many ways, Nooyis strategy is aligned with the times. With 34% of adults in theU.S. classified as obese, and nearly one in three children considered overweight, themedia -- and indeed many Americans -- are paying closer attention to the importanceof healthy eating. It is a trend that has gotten the better of some businesses. Forexample, Hostess, the privately held company known for indulgent pleasuresincluding Twinkies and Drakes snack cakes, filed for bankruptcy in January.Whats more, corporate social responsibility -- once just a catchy phrase -- hasbecome an increasingly relevant issue for companies and consumers alike. 51
  • According to a recent survey by public relations firm Burson-Marsteller, more than75% of consumers say that social responsibility is an important factor in theirpurchase decisions, and 70% say they are willing to pay a premium for products froma socially responsible company."More companies and consumers are paying attention to greenness andsustainability," notes Georgetown McDonoughs Schloetzer, who is an expert oncorporate governance. "Companies are thinking about how their operations affect theend-to-end supply chain and are considering the recyclability of their packagingmaterials. Its an inventive way to run a business. As an impartial observer, itsperhaps noble for Nooyi to try to transform a large company in this manner."Michael Useem, a Wharton management professor and director of the Center forLeadership and Change Management, says Nooyi represents a new breed ofcorporate leadership. In a cover story for U.S. News and World Report on "AmericasBest Leaders" in 2008, he wrote that Nooyi "is attempting to move beyond the historictrade-off between profits and people. Captured in her artful mantra -- performancewith purpose -- she wants to give Wall Street what it wants but also, the planet whatit needs."Shortchanging Core Brands?Unfortunately for Nooyi, Wall Street is not getting what it wants. Last month, PepsiCowarned that its profit would drop 5% this year. Revenue at its Americas beverage unit-- which includes Pepsi, Mountain Dew, Gatorade, Tropicana and Lipton andaccounts for about a third of PepsiCos annual revenue -- was flat. Shares of PepsiCoare down about 2% for the past two years, while the S&P is up about 20% over thattime period. In spite of this, Nooyi received her first salary bump in five years as CEOlast year. Her total compensation was $17.1 million, up 6% from 2010, according toa regulatory filing.David Reibstein, professor of marketing at Wharton, says that much of Nooyisproblem is that she was trying to do too much too soon. "To a large degree, Nooyi isvery progressive in her thinking," he states. "She has a far-reaching vision of whatshe is trying to do. The obligation to be responsive to your shareholders and to alsobe thinking about societal and environmental impacts are [good goals], but you needto be able to get there from the here and now. Its going to take a considerableamount of effort over a sustained amount of time."Critics charge that Nooyi has allowed the firms core brands -- namely beverages inNorth America -- to languish. "Taking the central focus off your core brands can beproblematic," says Charles Taylor, professor of marketing at the Villanova UniversitySchool of Business. "When youre building a new line of business, or doing brandextensions, the risk is high, especially compared to keeping your focus on brandswith very high equity that have been effective for you for many years. I wouldnt say[core brands] have been neglected, but they havent been as aggressively marketed." 52
  • In 2010, for instance, PepsiCo elected not to advertise during the Super Bowltelecast, which is always one of the most-watched television events of the year. Asan alternative, the company in January of that year debuted The Pepsi RefreshProject, a social media campaign where customers proposed community serviceideas to invigorate and revive their neighborhoods. The company spent in excess of$20 million on the effort. In November of that year, Advertising Age ran a storyproclaiming that The Refresh Project "doesnt seem to have had a major influence onthe brands bottom line." Its impossible to draw a direct correlation, but 2010 wasalso the year that Diet Coke overtook Pepsi in market share.Coca-Cola, of course, is a formidable competitor. The company has been lauded formaking smart, calculated marketing choices. Its heavy investment in advertising inChina during the Beijing Olympics is one example. A full year before the Games,Coca-Cola advertised on thousands of Chinese billboards and bus shelters with amedia campaign highlighting the countrys homegrown athletes. Today, Coca-Colaholds about 17% of the Chinese beverage market, while PepsiCo has a 6% share,according to Euro monitor.Back in 2002, Coca-Cola made another good bet by sponsoring reality-TV talentcontest "American Idol" for less than $10 million. The 12-week television programcaptured 23 million viewers for its finale, prompting USA Today to run the headline:"Real winner of American Idol: Coke." The show has since become a ratingsjuggernaut. PepsiCo, which passed on the opportunity to sponsor "Idol," nowsponsors "The X Factor," another singing competition, spending up to $60 million forthe sponsorship of the show, according to Ad week.Cultivating a New Pepsi GenerationIn spite of these problems, PepsiCo remains a strong brand. "Your average loyalPepsi drinker isnt aware of the efforts to move toward nutritious foods, and Pepsi hasnot done anything that [has caused] long-term damage to the brand," says Taylor."Pepsi is still considered by Interbrand as one of the top brands in the world." (For therecord, PepsiCo stands at number 22 on Interbrands ranking, while Coca-Cola hasbeen named the worlds most valuable brand for the past 12 years.)PepsiCo has its work cut out for it., however. Already plans are taking shape to boostbrand awareness: In February, the company ran its first Super Bowl TV commercialfor Pepsi in three years. Nooyi also recently announced plans to increase PepsiCosmarketing budget by as much as $600 million this year, which represents about a15% increase over last year. Most of the new spending will be dedicated to the U.S.beverage business. The firm also plans to launch its first-ever global marketingcampaign for Pepsi.Nooyi has also made some strategic management changes that demonstrate hercommitment to PepsiCos beverages division. In September, Albert Carey, a PepsiCoveteran and head of the companys smaller, but more profitable, Frito-Lay North 53
  • America snacks unit, took over its Americas beverages unit. Carey succeeded EricFoss and Massimo dAmore, who co-ran the business. Foss left PepsiCo inDecember, while dAmore was essentially demoted; he still runs the Latin Americanbeverage business, but reports to Carey.Nooyis strategy to reinvent PepsiCos product line has proven tough to executebecause changing customer appetites is not easy. "You may have a vision for whatthe market will be wanting, but it doesnt mean it wants it now," says WhartonsReibstein. "You cant leave your customers behind." An effort by McDonalds tointroduce "good for you" menu items serves as a cautionary tale. Take the McLeanDeluxe, which it marketed in 1991 as a heart-healthy alternative to other hamburgers.The burger had 310 calories and only nine grams of fat. "A healthy breakthrough forthe American public," lauded a New York Times editorial. But customers complainedit lacked taste. In 1996, the company removed it from the menu."McDonalds has introduced some healthier foods over the years, and it has hadsome success here and there. But the majority of people are still buying Big Macs,"notes Taylor. "For the most part, consumers are set in their ways. Getting consumersto eat healthier food is going to take at least a generation - even in spite of bestefforts by companies."This does not mean Nooyi should abandon her plans, observers say. Rather, sheneeds to develop a strategy that better balances the short term with the long term,according to Yoram (Jerry) Wind, Wharton marketing professor and director ofthe SEI Center for Advanced Studies in Management. "Companies can be sociallyresponsible, provide more nutritional and healthier products and still be profitable, butit requires careful management of board and Wall Street expectations," he says.A deft touch as a manager -- and perhaps different investors altogether -- are alsoneeded, he adds, noting that Nooyi should put more effort into courting institutionalinvestors who value sustainability and who will give her more latitude to achieve thecompanys overarching goals. "There are opportunities for creative approaches here.She should show them that she has a plan to achieve financial objectives ... and stillbe socially responsible," he says. "It is doable."Whether Pepsi NEXT is the next big thing in cola, or whether it goes the way of theMcLean Deluxe, Wind suggests that Nooyis pursuit of aligning agriculture andnutrition is sound. "Maximizing long-term shareholder value and addressing some ofsocietys biggest problems, such as obesity, nutrition and health, is the right kind ofstrategy." 54
  • Opposition faced by Indra from PepsiWhenever a big new job opens up just about anywhere in the world, Indra Nooyisname enters the frame.Last year, scuttlebutt in Mumbai had the PepsiCo chief executive returning to India torun the powerful Tata group.Earlier this year, Nooyi was floated as a candidate to run the World Bank.Her recent recruitment of a former White House official even had some pegging herfor a big job in Washington.As flattering as such prospects may sound, they make an already challenging jobmore difficult. Nooyi, who is determined to stay put, is still working to convinceshareholders to back her vision for an integrated Gatorade-to-Doritos snack-foodgiant.Not that her reign has been a disaster.Since she became the first female to lead Pepsi in late 2006, the companys earningsper share have gained around 36 percent and its sales have nearly doubled to $65billion.The problem is that the stock has done relatively poorly - gaining just around 10percent during that time. By comparison, Coca-Cola has done nearly 10 times better.Investors just havent given the high-margin, cash-generating soft-drink businesssufficient credit.In part, thats because Nooyi has actively worked to dispel the notion that Pepsi is ajunk-food pusher, emphasizing its healthier victuals.Yet its greatest recent successes have been products like a 24-ounce can ofMountain Dew.As a result, Pepsi suffers from what brokerage Sanford Bernstein called "a tale of twocompanies" problem. The analysts reckoned splitting food from soft drinks wouldcreate more than $10 billion of extra wealth for shareholders.As a consequence, when Relational Investors, a hedge fund run by activist investorRalph Whitworth, popped up with a $600 million position in Pepsi two months ago, 55
  • Wall Street was atwitter with talk of a Pepsi breakup. So far, Whitworth has not saidmuch about his aspirations. But he has pushed for breakups before, occasionallyfighting to replace corporate directors with his own representatives to make thathappen.True, a carve-up doesnt have to spell the demise of a CEO. Irene Rosenfeld, whoonce ran Pepsis Frito-Lay arm, even championed one at Kraft. But a public battlewith an uppity investor who galvanized Pepsis shareholders against her wouldundermine Nooyis leadership. And caving to a breakup would be a repudiation of her"Power of One" strategy.Given this backdrop, a position working for a re-elected President Barack Obamamight appeal to Nooyi, a Democrat, as a chance for a graceful exit.But the better option for her manifold career possibilities is to stick it out and close theperformance gap with Coke.To do that, she will need to stay another couple of years and ensure that Pepsi,whose earnings are expected to decline some 6 percent this year from last, gets backin growth mode in 2013.She came, she spoke and she gave the answers. Well, some anyway. PepsiCosIndia-born Chairperson and CEO, Ms Indra Nooyi, had the tough job of speaking lastat the three-day long AdAsia2011. But she was not at loss for words in herconcluding keynote speech; she provided some solutions to dealing with uncertainty.Dressed in orange and sporting a black jacket, Ms Nooyi, who flew into New Delhifrom the Middle East in a private jet just for the keynote, stuck to the conferencetheme of dealing with uncertainty.―We are living in a period of negative uncertainty,‖ she emphasized, ―Creativity hasgiven way to fear and risk has triumphed over ingenuity,‖ she said, grimly pointing tohow companies today were grappling with a crisis of leadership, crisis ofgovernorship and severe crisis of expectations. 56
  • ―While I dont have all the answers, I do have five thoughts,‖ she said.FIVE LESSONSHer first tip to corporations was: recognize and accept that we are in a new era ofuncertainty, and adapt accordingly.Second, lead for today as well as tomorrow at the same time. ―It is companies with aclear long-term mission that will thrive. So, we have to work on two time scales atonce,‖ she said.Third, make big changes to big things. ―Disruption is now our friend, not our enemy,she told the marketers.―If you dont disrupt yourselves, the competition will,‖ was her warning.Fourth, nurture talent. ―In the time of volatility and uncertainty, the way we buy,broaden and bond our talent will be the key to whether we atrophy, just survive orthrive.‖And, her final piece of advice to heads of corporations was to be super-visible as aleader. ―We need to communicate all the time.‖.FIZZ IN EMERGING MARKETSMs Nooyi rued that the $60-billion PepsiCo, which employs 300,000, still had most ofits business volumes and revenues coming from the developed world.―I wish 60 per cent of our business was in emerging markets,‖ she said, saying shewas working on getting to a 50:50 situation in the next five years — ―50 per cent inemerging markets and 50 per cent in developed markets.‖―We are all evolving models, the book on this has not been written yet,‖ sheconcluded. 57
  • Future of Pepsi under Indra BRONX, N.Y., March 22 /PRNewswire-First Call -- PepsiCo (NYSE: PEP), the worlds second-largest food and beverage company, today announced new global goals in the areas of nutrition, the environment, and workplace practices at its investor conference here at the Legends Suite Club in Yankee Stadium. The goals are designed to advance PepsiCos commitment to deliver sustainable growth and they apply to the companys food and beverage businesses around the world, including Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade. PepsiCo calls this commitment Performance with Purpose. To encourage people to live healthier lives – and to address growing consumer desire for healthier, great-tasting products – PepsiCo is committing to achieve industry-leading nutrition goals, including: Increasing the whole grains, fruits and vegetables, nuts, seeds and low-fat dairy in its product portfolio Reducing the average sodium per serving in key global food brands in key markets by 25 percent by 2015 Reducing the average saturated fat per serving in key global food brands in key markets by 15 percent by 2020 Reducing the average added sugar per serving in key global beverage brands in key markets by 25 percent by 2020 "We believe that a healthier future for all people and our planet means a more successful future for PepsiCo," said Indra Nooyi, PepsiCo chairman and chief executive officer. "These commitments are shared by all of our businesses and reflect our focus on profitable, long-term growth and will guide us as we continue to build a portfolio of enjoyable and wholesome foods and beverages for consumers around the world." PepsiCo is among 10 leading food and beverage companies to sign the "Global Commitment to Action on the Global Strategy on Diet, Physical Activity and Health," a commitment addressed to the World Health Organization in 2008. The companys new global goals are action steps that directly address the key WHO commitments. Following is a sample of some of PepsiCos commitments: 58
  • Human Sustainability/Health and WellnessDisplay calorie count and key nutrients on food and beverage packaging by 2012Eliminate the direct sale of full-sugar soft drinks to primary and secondary schoolsaround the globe by 2012Expand PepsiCo Foundation and PepsiCo corporate contribution initiatives topromote healthier communities, including enhancing diet and physical activityprogramsInvest in business and research and development to expand offerings of moreaffordable, nutritionally relevant products for underserved and lower-incomecommunitiesEnvironmental SustainabilityProvide access to safe water to three million people in developing countries by theend of 2015Reduce packaging weight by 350 million pounds — avoiding the creation of 1 billionpounds of landfill waste by 2012Work to eliminate all solid waste to landfills from PepsiCos production facilitiesCommit to an absolute reduction in GHG emissions across global operationsTalent SustainabilityEnsure a safe workplace by continuing to reduce lost time injury rates, while strivingto improve other occupational health and safety metrics through best practicesEncourage associates to lead healthier lives by offering workplace wellness programsgloballyMatch eligible associate charitable contributions globally, dollar for dollar, through thePepsiCo FoundationFor more information and a full list of PepsiCos global goals and commitmentsplease go towww.pepsico.com/goalsandcommitments.About PepsiCoPepsiCo offers the worlds largest portfolio of billion-dollar food and beverage brands,including 19 different product lines that each generates more than $1 billion in annualretail sales. Our main businesses - Frito-Lay, Quaker, Pepsi-Cola, Tropicana andGatorade - also make hundreds of other nourishing, tasty foods and drinks that bringjoy to our consumers in more than 200 countries. With annualized revenues of nearly$60 billion, PepsiCos people are united by our unique commitment to sustainablegrowth, called Performance with Purpose. By dedicating ourselves to offering a broadarray of choices for healthy, convenient and fun nourishment, reducing ourenvironmental impact, and fostering a diverse and inclusive workplace culture,PepsiCo balances strong financial returns with giving back to our communitiesworldwide. In recognition of its continued sustainability efforts, PepsiCo was named 59
  • for the third time to the Dow Jones Sustainability World Index (DJSI World) and forthe fourth time to the Dow Jones Sustainability North America Index (DJSI NorthAmerica) in 2009. For more information, please visit www.pepsico.com.Cautionary StatementStatements in this communication that are "forward-looking statements" are based oncurrently available information, operating plans and projections about future eventsand trends. They inherently involve risks and uncertainties that could cause actualresults to differ materially from those predicted in such forward-looking statements.Such risks and uncertainties include, but are not limited to: changes in demand forPepsiCos products, as a result of changes in consumer preferences and tastes orotherwise; damage to PepsiCos reputation; trade consolidation, the loss of any keycustomer, or failure to maintain good relationships with PepsiCos bottling partners;PepsiCos ability to hire or retain key employees or a highly skilled and diverseworkforce; unstable political conditions, civil unrest or other developments and risksin the countries where PepsiCo operates; changes in the legal and regulatoryenvironment; PepsiCos ability to build and sustain proper information technologyinfrastructure, successfully implement its ongoing business process transformationinitiative or outsource certain functions effectively; unfavorable economic conditionsand increased volatility in foreign exchange rates; PepsiCos ability to competeeffectively; increased costs, disruption of supply or shortages of raw materials andother supplies; disruption of PepsiCos supply chain; climate change or changes inlegal, regulatory or market measures to address climate change; PepsiCos ability torealize the anticipated cost savings and other benefits expected from the mergerswith The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS); failure torenew collective bargaining agreements or strikes or work stoppages; and anydowngrade of PepsiCos credit rating resulting in an increase of its future borrowingcosts.For additional information on these and other factors that could cause PepsiCosactual results to materially differ from those set forth herein, please see PepsiCosfilings with the SEC, including its most recent annual report on Form 10-K andsubsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to placeundue reliance on any such forward-looking statements, which speak only as of thedate they are made. PepsiCo undertakes no obligation to update any forward-lookingstatements, whether as a result of new information, future events or otherwise. 60
  • To Compete With Coke, PepsiCo Cutting 8,700 Jobs, Boosting AdspendingTo regain slipping market share, PepsiCo will cut 8,700 jobs worldwide and spendbetween $500 and $600 million more on advertising and marketing, the companyannounced Thursday.This is part of a broader cost-cutting plan that is intended to save the company$1.5 billion by 2014. Pepsi took a $383 charge for restructuring last quarter, andexpects another $425 million charge this year and another $100 million from 2013to 2015.All told, Pepsi expects a 5 cent loss per share in 2012.Pepsi Peppy Going Into Earnings, Snacks Driving Stock To $71Pepsi will not spin off its snacks division, Frito Lay, despite it should focus onsolely beverages to compete with Coca-Cola. After a six-month review, Pepsidecided that splitting the company would cost between $800 million and $1 billion,CEO Indra Nooyi said in a conference call with analysts.Following the plan‘s announcement, Pepsi stock dropped 4.29% after the openingbell to $64.03. Investors should see this as a multi-year story, City beveragesanalyst Wendy Nicholson wrote in a note to investors. While Pepsi has pledged toreturn EPS to high single-digit growth next year, it faces strong headwinds,including an unsettled global macroeconomic picture and rising commodity costs.The job losses will stretch across 30 countries and reduce Pepsi‘s workforce by3%. This could play as a sensible two-part strategy, Nicholson wrote. ―We suspectit not only will generate savings, but also send a message to the organization thatperformance is important,‖ she wrote.The increase in advertising and marketing will go toward bolstering its iconicbrands in North America, where it has lost market share for four straight years. Tostreamline this process, Pepsi plans to consolidate advertising agencies. Newcampaigns will focus on the core brands, Nooyi said. This will likely include the 22brands that are billion-dollar earners for Pepsi, like Pepsi and Mountain Dew in 61
  • beverages and Lays potato chips and Fritos in snacks, said Tom Mullarkey,a Morningstar beverages analyst.―If they just try to focus on the bigger hitters, they‘ll probably be able to get morebang for their bank,‖ he said.Pepsi will also try to simply its corporate structure with fewer management layers,the company said. It also plans to consolidate manufacturing, warehouse, andsales facilities. It intends to focus efforts on greater net return on invested capital,hoping to increase it by at least 50 basis points annually, starting in 2013. Thisyear, Pepsi plans to cut capital expenditures by 10% from a year ago.Pepsi beat fourth-quarter expectations, booking a 3% in profit at $1.4 billion or$1.5 adjusted earnings per share EPS, three cents above the forecast.Revenue rose 11% to $20.2 billion. Like Coke, Pepsi‘s greatest growth came inemerging markets. In Asia, the Middle East, and Africa, revenue was up 16% at$2.2 billion. 62
  • Future of the Pepsi without indraStrategy PepsiCo Global Scenarios and Strategy 2030The project highlighted that the companies that will prosper will be those that haveprepared for future challenges - like water scarcity, climate change and obesity – and,critically, those that are actively helping to overcome these challenges now.One outcome of the Scenarios and Strategy work is that PepsiCo is building a teamto focus on sustainable agriculture, so it can mitigate the risks that climate and watercrises pose to its supply chains, now and in the future. The project work has alsocontributed to the development of new strategies for the business on the environmentand health and wellness.Indra Nooyi, Chairman and CEO, PepsiCo said:―PepsiCos commitment to sustainability is about an idea of the company whichfocuses on the long-term, as our Scenarios 2030 project has shown us. We cannotcontribute properly to finding an end to the climate crisis until we bring environmentaland social governance into our long-term business strategies/decisions. It‘s not allabout the risks, but also about the opportunities.‖The scenarios were developed specially for PepsiCo and were based on extensivedesk research, a series of workshops and over 100 interviews on possible futureenvironment and health trends. The interviewees ranged from senior executives atPepsiCo, including Chairman and CEO Indra Nooyi, to external experts like GroHarlem Brundtland, the former Prime Minister of Norway and ex-Director General ofthe World Health Organization. We also held a number of implications workshops inthe US, India, China, Latin America and Europe.This work is seen as a critical piece of strategic thinking for the business. RobertSchasel, Director of Energy & Resource Conservation at PepsiCo, whocommissioned the work said: ―I cant express strongly enough my sincereappreciation and gratitude for the work that the Forum team has done on this project.The incredible amount that we have achieved in such a short time is truly amazing.The workshops were all very professionally run and highly engaging.Weve created a snowball within the organization and weve reached globally like noother project Ive seen. I am absolutely overjoyed at the results weve achieved todate, and Im very much looking forward to the next steps.‖ 63
  • Derek Yach, Senior Vice President, Global Health Policy, PepsiCo said:―Issues like climate change, hunger and obesity and changing agricultural supplychains all have a strategic impact on our business. The Scenarios and Strategy2030, with Forum For The Future was a professional and inspiring process thatenable us to identify risks and opportunities that will impact the core business todayand in the future. As a result PepsiCo will be better prepared and stronger as acompany.‖Dan Bena, Senior Director, Sustainable Development PepsiCo, said:―I could not be more thrilled with our experience with Forum. It was the first time atPepsiCo that we have taken such a formalized and rigorous long-term view of ourbusiness risks and opportunities.Forum helped us see what we knew in our heart...that the magnitude of the globalcrises we face cannot be solved in the short-term. Similarly, companies that will besuccessful in 20 years are those who recognize and respect the long term trends,and who are nimble enough to address them.The design and activation of Forums process is, in a word, comprehensive. Theyleave no stone unturned during their expert interviews, desk research, and fieldvalidation. We now think strategically, LONG term, thanks to Forum.‖When Nooyi assumed the CEO post, she was the fifth CEO in the companys history,and the first woman. Previously she served as CFO since 2000, during which she iscredited with increasing the companys revenue by 72% annually.Last year, Nooyi completed the $7.8 billion purchase of Pepsis two largest bottlers inNorth America. Shes also expanding the company internationally, especially with thepurchase of Wimm-Bill-Dann, which makes Pepsi the largest food-and-beveragebusiness in Russia.Nooyi has long pushed for a diversified brand. "The minute youve developed a newbusiness model, its extinct, because somebody is going to copy it," she told Fortune.Today, Pepsis market cap is $111 billion. 64