Case study on pepsi

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  • Mohabbat JabSukun-e-ZindagiBarbadKarti Hay………Tab Lab KhamoshRahteHainNazarFariyadKarti Hay……!!
  • Case study on pepsi

    1. 1. Case Study on PepsiSagar Singh8-Jun-13 1Sagar Singh
    2. 2. • Caleb Bradham, a New Bern, N.C.pharmacist, created Pepsi-Cola in the late1890s.• In 1965, PepsiCo, Inc. was founded byDonald M. Kendall, president CEO ofPepsi-Cola and Herman W. Lay, CEO ofFrito-Lay, through the merger of the twocompanies.• In 1987 Coke & Pepsi have 40.3% & 30.2% of the U.S market respectively.• Had an image of soft drinkmanufacturer and marketer.• Apart from Pepsi cola co. and Pepsi colaInternational, it had six other divisionswhich had given it a commandingpresence in Food Business.8-Jun-13 2Sagar Singh
    3. 3. • Soft drinks contributed 32 % & the restaurants 27 % to the total operatingprofits in 1987 .• Pepsi Co. acquired KFC chain in 1986, with this Pepsi became the owner ofthe world’s largest restaurant chain which also includes Pizza hut and TacoBell with a total of nearly 16500 outlets in 1987.• Pepsi had so far made inroads in 151 countries - 150 before India.PepsiCo23% of global sales15% of profit from outside USLooking for market expansionEarly in advantage in Myanmar&Vietnam – 90’s strategyCoco-Cola47% of global sales80% profit from outside USPresence in profit highmarkets,faster sales growth8-Jun-13 3Sagar Singh
    4. 4. • Limca was the largest selling brand, colawas the largest selling flavor accounting for40 % of the market share Lemon drinksfollowed cola with 31 % and orange drinkshad only 19 %.• Lemon drinks were more popular in Metros.• In 1977 a change at a centre led to the exitof the Coca cola.• Pure drinks, Delhi switched over to CampaCola after coke’s exit and by the end ofseventies, it was only Campa cola in theIndian cola market.• In 1980 another cola drink, Thumps Up waslaunched by Parle but was objected by PureDrinks to its being called a cola drink.8-Jun-13 4Sagar Singh
    5. 5. • The first national cola drink to pop up wasDouble Seven.• Thrill by Mc Dowells in mid eighties and bythe late eighties there was Double cola whichentered the market with the USP of anAmerican Cola.• The Indian soft drinks industry wasestimated to be worth Rs 900 crores.• In 1978 Parle led the Indian soft drinksmarket, in 1983 its market share was 43%,44% in 1987 and in 1990 it reached to 70%whereas its chief rivals Pure drinks ‘ sharehad been declining in 1978 it was 28% , in1983, 22% and in 1987 it was 21%.8-Jun-13 5Sagar Singh
    6. 6. • International Trade used to constitute only 6% ofGDP in 1985• Until the liberalization of 1991, India was largelyand intentionally isolated from the world markets,“to protect its fledgling economy and to achieve self-reliance”.•• Foreign trade was subject to: import tariffs export taxes quantitative restrictions• Foreign Direct Investment (FDI) was restricted byBARRIERS like: upper-limit equity participation restrictions on technology transfer export obligations government approvals8-Jun-13 6Sagar Singh
    7. 7. • The restrictions ensured that FDI averagedonly around $200M annually between 1985 and1991; a large percentage of which came fromforeign aid, commercial borrowing anddeposits of non- resident Indians• By the time PepsiCo began its negotiations,the upper cap on equity-holding for foreigninvestors was only 40% of an Indian enterprise• Any foreign investment had a lot of politicalsensitivity to it• Negotiations between the government andthe foreign investors used to be public, longand no action used to be taken during theelection time for the fear of backlash8-Jun-13 7Sagar Singh
    8. 8. • In the late 1960s, the FDI policy restriction becamevery visibleand largely stemmed from the fact that: There was a considerable drain of Foreign exchangebetween 1956 -65 (largely due to no policy onregulation of existing FDI in India) Because if the fear of foreign economic domination(since in between 1957-67, MNCs came to controlone-fifth of India’s corporate assets, up from one-tenth in 1957)• Taking a broader perspective, India’s FDI policy in1980s hasserved as a double-edged sword.• On one hand, it has fostered individual firms whohave become highly efficient and competitive byinternational standards using their own R&Ds. On theother hand, it has created stagnation in technologicaldevelopment.8-Jun-13 8Sagar Singh
    9. 9. However, these FDI regulations weren’t justifiedbecause:• The whole gamut of regulations had seriouslyundermined the international competitiveness ofIndian Industry.• It discouraged foreign companies with highlysophisticated technologies from investing in India.• Lack of competition had fostered widespread areasof inefficiency and technology backwardness.8-Jun-13 9Sagar Singh
    10. 10. 1977PepsiCo sees opportunity in India after Coca-cola departed1985 First AttemptProposal with R.P. Goenka group. The proposal involved:• Export of fruit juice concentrates from Punjab in returnfor the Import of cola concentrates.• The deal offered was 3:1 export import ratio.Outcome - rejected1985 Second AttemptProposal along with Tata Industries and Punjab Agro IndustriesCorporation (PAIC). Proposal included:• Initial Investment of $15 Million• Agro Research centre (costing Rs 1.55 crores).• A potato and grain based processing unit (costing Rs 8 crores).• A fruit and vegetable processing unit (costing Rs &.5 crores).8-Jun-13 10Sagar Singh
    11. 11. 1985 Second Attempt (contd.)• The Pepsi co would have an equity holding of 39%, PAIC, 20%and Voltas , 24%. Thebalance was to be placed privately from loans.• Imports would be 37 Crs and exports a minimum of Rs 194 Crs over a 10 year period.• Benefits and advantages of proposal includes better market for rice, wheat and fruitsin Punjab• Location of company in politically volatile region of Punjab (due to Khalistanterrorism)• Creation of 25,000 jobs in Punjab and 25,000 more in other parts• Technology for better utilization of Punjab Fruit production by prevention wastage(30% )• Make local companies to grow and distribute more/better to compete with foreigncompanies who have significant comparative advantage1986 through 1988• 20 Parliamentary Debates• 15 review Committees• 5000 articles in Press• Allegations of PepsiCo and CIA nexus8-Jun-13 11Sagar Singh
    12. 12. 1986 through 1988• Indian governments Opposition to foreign capital investment in areas whereIndia lacked expertise• Governments concern that PepsiCos proposal of production of processed food(chips,fruit drinks, sauces) would displace what are home prepared items and hurt India’sBOP• Indian Govt. deliberates. Pepsi continues to negotiate1988• Indian government and PepsiCo reach an agreement. The conditions were: EXIM ratio of 5:1. About $150 million of export to be done over 10 year period Soft drink sale limited to 25% of total sales Ownership limited to 39.9% 75% of soft-drink concentrate to be exported The JV will setup agricultural research center The company could sell Pepsi Era, 7-Up Era and Miranda Era The JV will setup fruit and vegetable processing plants• Coca-cola applies to re-enter Indian market.8-Jun-13 12Sagar Singh
    13. 13. 1989• Cokes application is rejected• V.P Singh becomes Prime Minister of minority government1990• Pepsi begins production of Snack Food. Soft drink production to commence duringsummer.• V.P. Singh expresses concern over FDI. Announces to reexamine PepsiCo agreement.• US government threatens to impose trade restrictions (under Super 301 legislation)on India for its negative FDI regulations• PepsiCo lobbies FOR India. US backs out and pepsi gains goodwill through tax sops• Pepsi agrees to place a new logo of Lehar with its insignia.1991• P.V. Narsimha Rao becomes PM. Promotes FDI and LPG.• Newly formed Foreign Investment Promotion Board allows 51% foreign ownership ofcompanies.8-Jun-13 13Sagar Singh
    14. 14. Concessions made seem unfavorable only when comparedto post-liberalization age. Considering the points duringthe ensuing period of PepsiCos negotiations with India theconcessions seem like a good bet.• 40% max cap of foreign ownership• Only domestic competition in soft-drink industry• Will gain an early entrant advantage for a foreignsoft-drink player• Incredible potential due to reasons like: Low per-capita consumption of Soft-drinks Population Size and Purchasing power of Indian middleclass Estimated $300 million market in near future8-Jun-13 14Sagar Singh
    15. 15. • Pepsi would benefit in near-long and long term with mostof the concessions like: $150 million exports is achievable with 10 year cushionseeing that it was a growing market Although soft-drink sales are capped, Pepsi had otheravenues like processed food, fruit-juices and its chain ofrestaurants like KFC and Pizza hut. Even globally, soft-drinksused to contribute 32% to its profits globally. Already a max cap of 40% for foreign ownership. So 39.9%is not a major concession. With the estimated market size in India, Pepsi would haveto invest in concentrate manufacturing in a large scale. Therewas also a good demand around India for soft-drinks. So 75%of concentrate export is achievable as it complements theother concession that about $150 million exports have to beachieved.8-Jun-13 15Sagar Singh
    16. 16. • Setting up agricultural research center is a good socialinitiative. It would boost Pepsi’s image in India. Pepsicould also derive benefits from this as it would feed into theprocessed foods business of Pepsi.• Setting up of Fruit and Vegetable processing plants wouldenable Pepsi to fulfill its other social commitment ofproviding employments. Looking that the proposal was toset these up in Punjab where the land is fertile and farmerswere looking for different avenues in farming seeing thatincome from wheat was falling. Also importantly, fruitproduction was increasing but there was considerablewastage of about 30%, These plants would enable betterusage of production.• Pepsi Global branding strategy is to targetYOUNGISTHAN The YOUTH POPULATION in INDIAwould be huge in numbers in the coming years.8-Jun-13 16Sagar Singh
    17. 17. Governments’ Demands from Coca-Cola:1. Reduce the equity holding – 100 to 40%2. Divulge its formula3. Use dual trademarkCoca-Cola was NOT THANDA with the two latterdemands and exited India.Did they make the right decision seeing how thingsunraveled for Pepsi?We give it a Thums Up!8-Jun-13 17Sagar Singh
    18. 18. Coke heavily markets itself on the secrecy and superiority of its formula.This has been its global mantra.NOBODY LIKES TO GIVE THEIR SPIRIT AWAY.Consent to divulge its formula for one country would impact a global standof Coke. This is a deal breaker. Coca-Cola could not have agreed to it andare justified to end their India Operations.8-Jun-13 18Sagar Singh
    19. 19. 8-Jun-13 19Sagar Singh

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