PepsiCoBy: Ashley Cleary, Sylvia LaBrie, Andrea Baril, Marie- Michele Lachance
Overview∗ Company Overview ∗ Strategy Formulation∗ History of Pepsi ∗ SWOT Matrix ∗ Grand Strategy Matrix∗ Growth ∗ BCG∗ 2009 Events and Issues ∗ Space Matrix Data∗ Existing Mission and Vision statement ∗ Space Matrix∗ New Mission and Vision Statement ∗ IE Matrix∗ SWOT Analysis ∗ Matrix Analysis∗ ∗ QSPM Matrix External Assessment ∗ Strategic Plan∗ CPM ∗ Strategy∗ EFE ∗ Objectives∗ Positioning Map ∗ Recommendations∗ Internal Assessment ∗ Assumptions∗ Organizational Chart ∗ Implementation ∗ EPS/EBIT∗ Income Statement ∗ Projected Financials∗ Balance Sheet ∗ Evaluation∗ Financial ratios ∗ Balanced Scorecard∗ IFE Matrix ∗ Key Future Ratios
History∗ In 1965: PepsiCo, Inc. is founded by Donald M. Kendall, President and CEO of Pepsi-Cola and Herman W. Lay, Chairman and CEO of Frito-Lay, through the merger:∗ 1. Pepsi-Cola In 1898: Caleb Bradham, a New Bern, North Carolina, pharmacist, created "Brads Drink," a carbonated soft drink he created to serve his drugstores fountain customers.∗ 2. Frito Company∗∗ 3. H. W. Lay Company∗∗ The Major products of the companies are:∗ Pepsi-Cola Company∗ Fritos brand corn chips, Lays brand potato chips, Cheetos brand cheese flavored snacks, Ruffles brand potato chips, Rold Gold brand pretzels.∗ Mountain Dew
Growth1966:Doritos is introducedPepsi enters Japan and Eastern Europe.1970:PepsiCo moves from New York City to new world headquarters in Purchase, N.YPepsi is the first company to respond to consumer preference with lightweight, recyclable, plasticbottles.1977:PepsiCo acquires Pizza Hut, Inc1978:Taco Bell1980:PepsiCo Food Service International (PFSI) is formed to focus on overseas development of restaurants.
Growth Cont. 1982:Pepsi Free and Diet Pepsi Free, the first major brand caffeine-free colas, are introduced.Inauguration of the first Pepsi-Cola operation in China.1985:PepsiCo is now the largest company in the beverage industry. The company has revenues ofmore than $7.5 billion, more than 137,000 employees.Pepsi-Cola products are available in nearly 150 countries and territories around the world. Snackfood operations are in 10 international markets.1986:PepsiCo purchases 7Up International, the third largest franchise soft drink operation outside theUnited States.1993:Pepsi-Cola introduces Aquafina bottled water into test market.1996:Pepsi-Cola launches Pepsi World at www.pepsiworld.com
Global∗ Pepsi products are in almost 200 countries throughout the world∗ There are 22 different brand lines that account for at least $1 billion per year per brand
2009∗ Celebrated 75 years in Canada∗ Was on the “Best Food for Women” list in Women’s Health magazine∗ Began a partnership with the NFL∗ Won U.S. EPA SmartWay Environmental Excellence award∗ Became official beverage of Norwegian Cruise Lines
Mission Statement∗ Our mission is to be the worlds premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.
Vision StatementPepsiCos responsibility is to continually improve allaspects of the world in which we operate -environment, social, economic - creating a bettertomorrow than today."Our vision is put into action through programs and afocus on environmental stewardship, activities tobenefit society, and a commitment to build shareholdervalue by making PepsiCo a truly sustainable company.
Proposed Mission∗ Our mission is to be the worlds premier consumer products company focused on convenient foods and beverages through stores as well as our website. (1,2.3,4) We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. (5,8,9) And in everything we do, we strive for honesty, fairness and integrity. (6,7) 1. Customer 2. Products or Services 3. Markets 4. Technology 5. Concern for survival, profitability, and growth 6. Philosophy 7. Self-Concept 8. Concern for public image 9. Concern for employees
Proposed Vision∗ PepsiCo, in association with smaller brands, offers a wide variety of products from beverages to snacks at low cost.
Opportunities1. Opening in market for less costly products2. Growth opportunities in developed countries as well asinternational nonestablished countries3. Pepsi recently reacquired ownership of its two largest bottlers,Pepsi Bottling Group (PBG) and PepsiAmericas (PAS)4. Compete in more than one industry (non-alcoholic beverageindustry, the salty or savory snack food industry, and the breakfastfood industry)5. Growth in the carbonated drink market is the largest in Asia andEurope6. The worlds demand is experiencing a growth with the sportsdrinks, bottled water, and energy drinks
Threats1. Fierce competition from Coca-Cola, which owns the largest pieceof the market share2. The downturn in economy, which lead customers to shift awayfrom bottles of water to tap water.3. Because of the recession, customers are finding cheaperalternatives to the national brands.4. Customers are getting more conscious and concerned abouttheir eating habits and general health.5. Campaign against plastic containers has impacted the sale ofbottled beverages6. Highly dependent on supplies of clean water, to preventcontamination
EFE Weighted Key External Factors Weights Rating Score 0.0 to 1.0 1 to 4Opening in market for less costly products 0.05 2 0.1Growth opportunities in developed countries as well as international unestablished countries 0.08 3 0.24Pepsi recently reacquired ownership of its two largest bottlers, Pepsi Bottling Group (PBG) andPepsiAmericas (PAS) 0.05 1 0.05Compete in more than one industry (non-alcoholic beverage industry, the salty or savory snack foodindustry, and the breakfast food industry) 0.13 4 0.52Growth in the carbonated drink market is the largest in Asia and Europe 0.09 3 0.27The worlds demand is experiencing a growth with the sports drinks, bottled water, and energy drinks. 0.13 4 0.52Threats 0Fierce competition from Coca-Cola, which owns the largest piece of the market share 0.12 4 0.48The downturn in economy, which lead customers to shift away from bottles of water to tap water. 0.05 2 0.1Because of the recession, customers are finding cheaper alternatives to the national brands. 0.1 3 0.3Customers are getting more conscious and concerned about their eating habits and general health. 0.09 4 0.36Campaign against plastic containers has impacted the sale of bottled beverages 0.05 2 0.1Highly dependent on supplies of clean water, to prevent contamination 0.06 2 0.12Totals 1 3.16
Positioning Map High PricesLimited DiverseProducts Products Dr. Pepper Coca Cola Pepsi Co. Snapple Group Low Prices
Stock Price History
Strengths1. Strong brand equity2. Well-known worldwide3. Innovating company4. Ethical, socially responsible, and sustainable company5. Strong advertising company with more than 40 slogansand songs6. PepsiCo as the largest part of the market share after Coca-Cola7. PepsiCo owns a wide variety of smaller brands which ablethem to offer a large product range from beverages tosnacks
Weaknesses1.PepsiCo production is really expansive because of the needto constantly develop new products to meet the changingcustomers demands2. PepsiCo is experiencing a lack of focus towards Pepsisodas3. PepsiCo is experiencing product recalls4. PepsiCo has a low employment productivity and a weakdistribution5. PepsiCo depends too much on the US market6. PepsiCo is far behind Coca-Cola in the international market
IFE Weighted Key Internal Factors Weights Rating Score 0.0 to 1.0 1, 2, 3 or 4Internal Strengths 3 or 4Strong brand equity 0.12 4 0.48Well known worldwide 0.06 4 0.24PepsiCo owns a wide variety of smaller brands which able them to offer a large product range 0.08 4 0.32Innovating company 0.08 4 0.32Ethical, socially responsible, and sustainable company 0.05 3 0.15Strong advertising company with more than 40 slogans and songs 0.07 3 0.21PepsiCo as the largest part of the market share after Coca-Cola 0.06 4 0.24Internal Weaknesses 1 or 2PepsiCo production is really expensive because of the need to constantly develop newproducts to meet the changing costumers demands 0.05 2 0.1PepsiCo is experiencing a lack of focus towards Pepsi 0.06 2 0.12PepsiCo is experiencing product recalls 0.12 1 0.12PepsiCo has low employment productivity and a weak distribution 0.08 1 0.08PepsiCo depends too much on the US market 0.08 2 0.16PepsiCo is far behind Coca-Cola in the international market 0.09 2 0.18Totals 1 2.72
Income Statement(in millions except per share amounts) 2009Net Revenue $43,232.00Cost of sales $20,099.00Selling, general and administrative expenses $15,026.00Amortization of intangible assets $63.00Operating Profit $8,044.00Bottling equity income $365.00Interest expense ($397.00)Interest income $67.00Income before Income Taxes $8,079.00Provision for Income Taxes $2,100.00Net Income $5,979.00Less: Net income attributable to noncontrollinginterests $33.00Net Income Attributable to PepsiCo $5,946.00Net Income Attributable to PepsiCo per CommonShare Basic $3.81 Diluted $3.77
(In millions except per share amounts) 2009 Balance SheetAssetsCurrent AssetsCash and cash equivalents $ 3,943.00Short-term investments $ 192.00Accounts and notes receivable, net $ 4,624.00Inventories $ 2,618.00Prepaid expenses and other current assets $ 1,194.00 Total Current Assets $ 12,571.00Property, Plant and Equipment, net $ 12,671.00Amortizable Intangible Assets, net $ 841.00Goodwill $ 6,534.00Other nonamortizable itangible assets $ 1,782.00 Nonamortizable Intangible Assets $ 8,316.00Investments in Noncontrolled Affiliates $ 4,484.00Other Assets $ 965.00 Total Assets $ 39,848.00Liabilities and EquityCurrent LiabilitiesShort-term obligations $ 464.00Accounts payable and other current liabilities $ 8,127.00Income taxes Payable $ 165.00 Total Current Liabilities $ 8,756.00Long-Term Debt Obligations $ 7,400.00Other Liabilities $ 5,591.00Deferred Income Taxes $ 659.00 Total Liabilities $ 22,406.00Commitments and ContigenciesPreferred Stock, no par value $ 41.00Repurchased Preferred Stock $ (145.00)PepsiCo Common Shareholders EquityCommon stock, par value 1 2/3 cents per share(authorized 3,600 shares, issued 1,782 shares) $ 30.00Capital in excess of par value $ 250.00Retained earnings $ 33,805.00Accumulated other comprehensive loss $ (3,794.00)Repurchased common stock, at cost (217 and 229shares,respectively) $ (13,383.00) Total PepsiCo Common Shareholders Equity $ 16,908.00Noncontrolling interests $ 638.00 Total Equity $ 17,442.00 Total Liabilities and Equity $ 39,848.00
Liquidity Ratios 2009 2008 Financial RatiosCurrent Ratio 1.44 1.23Quick Ratio 1.14 0.94Leverage RatiosDebt-to-Total Assets 0.56 0.65RatioDebt-to-equity Ratio 1.33 1.86Long-term debt-to-equity 0.44 0.62RatioTimes-Interest-earned -17.1 -24.3RatioActivity RatiosInventory Turns 16.5 17.15Fixed Assets Turnover 3.41 3.71Total Assets Turnover 1.08 1.2Profitability RatiosGross Profit margins 0.54 0.53Operating Profit Margin 0.19 0.16Net Profit Margin 0.14 0.12Return on Total Assets 0.15 0.14Return on Stockholders 0.35 0.41equity Earning per share 3.36 2.9 Price-earnings Ratio 8.94 10.35 Growth Rations (yearly) Sales -0.04% 9.57% Net Income 15.74% -8.89%Earnings per share -0.27% -5.87%
SWOT MatrixSO Strategies ST Strategies WO Strategies WT Strategies(O4, S1, S2, S6, S7) (T1, S1, S2, S3, S8) (W2, W5, W6, O2, O5) (W1, T2, T5) AdjustContinue to offer Innovate Pepsi product Expand Pepsi sodas production of bottlesvariety or product in line with something product in Europe and with downturn invarious brands. that is going to Asia. economy.(O5, O2, S2) Expand differentiate us from (W1, O4, O6) Improve (W1, T3) Produceand focus on the Coca-Cola. their sales in the bigger size of bottlescarbonated drinks and (S1, S3, O4) Innovate beverage segment by and sale them at thebeverage segment in products by offering responding to the same price as the smallAsia and Europe. healthier alternatives. increasing demand for one.(O6, O4, S6, S7) (T2, T3, S3) Offer more sports drinks, bottled (W3, T6) BeRespond to the promotions or water, and energy responsible andgrowing demand of discounts to prevent drinks. cautious towardssports drinks, bottled sales from decreasing. supplies of water.water, and energy (T5, S1, S2, S4) (W1, W4, T6) Increasedrinks by expanding Develop more supply chainproduct market. environmentally production by friendly containers. monitoring cautiously (T6, S6) Support employees and improving workers environmental issues, training. such as pollution, (W5, W6, T1) Increase which causes water presence in the contamination. international market.
SPACE MatrixFinancial Strength rating is 1 (worst) to 6 (best) Ratings 1 Liquidity 4.0 2 Cash Flow 5.0 3 Return on investment 4.0 4 Earnings per share 4.0Industry Strength rating is 1 (worst) to 6 (best) FS Total 17.0 1 Ease of entry 6.0 2 Growth potential 5.0 3 Financial stability 4.0 4 Profit potential 5.0Environmental Stability rating is -1 (best) to -6 (worst) IS Total 20.0 1 Demand variablity -1.0 2 Price range from competing products -1.0 3 Barriers to entry -1.0 4 Price elasticity of demand -1.0Competitive advantage rating is -1 (best) to -6 (worst) ES Total -4.0 1 Market share -2.0 2 Product quality -3.0 3 Customer loyalty -3.0 4 Cotrol over suppliers and distributors -3.0 7 CS total -11.0
SPACE Graph6 5 4 3 2 1 2 3 4 5 6 1 2 3 4 5 6
IE Matrix The IFE Total Weighted scores Strong 3.0 Average 2.0 Weak 1.0 to to 4.0 to 2.99 1.99 High 3.0 to 4.0 PepsiCo Medium 2.0 The EFE to 2.99TotalWeightedScores Low 1.0 to 1.99
Matrix AnalysisAlternative Strategies IE SPACE BCG GRAND CountForward Integration x x x 3Backward Integration x x x 3Horizontal Integration x x x 3Market Penetration x x x 3Market Development x x x 3Product Development x x x 3Related Diversific ation x x x 3Unrelated Diversification x x x 3Horizontal Diversification x x 2Joint Venture x x 2Retrenchement x 1Divesture x 1Liquidation x 1
QSPM Innovate products with Improve international healthier alternative segmentKey factors Weight AS TAS AS TASExternal 1 to 4 1 to 4Opportunities:Provide less costly products 0.05 1 3 0.15Improve presence in established countries and increase international market where they are not already settled 0.08 3 0.24 4 0.32Pepsi recently reacquired ownership of its two largest bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) 0.05 0 0Compete in more than one industry (non-alcoholic beverage industry, the salty or savorysnack food industry, and the breakfast food industry) 0.13 4 0.52 3 0.39Growth in the carbonated drink market is the largest in Asia and Europe 0.09 1 0.09 4 0.36The worlds demand is experiencing a growth with the sports drinks, bottled water, and energy drinks. 0.13 4 0.52 4 0.52Threats: 0 0Fierce competition from Coca-Cola, which owns the largest piece of the market share 0.12 3 0.36 3 0.36The downturn in economy, which lead customers to shift away from bottles of water to tap water. 0.05 1 0.05 4 0.2Because of the recession, customers are finding cheaper alternatives to the national brands. 0.1 1 0.1 4 0.4Customers are getting more conscious and concerned about their eating habits and general health. 0.09 4 0.36 0Campaign against plastic containers has impacted the sale of bottled beverages 0.05 0 1 0.05Highly dependent on supplies of clean water, to prevent contamination 0.06 0 0 1
QSPM Cont.Internal 1 to 4 1 to 4StrengthsStrong brand equity 0.12 4 0.48 4 0.48Well known worldwide 0.06 3 0.18 4 0.24PepsiCo owns a wide variety of smaller brands which able them to offer a large productrange from beverages to snacks 0.08 4 0.32 2 0.16Innovating company 0.08 4 0.32 4 0.32Ethical, socially responsible, and sustainable company 0.05 2 0.1 3 0.15Strong advertising company with more than 40 slogans and songs 0.07 3 0.21 3 0.21PepsiCo as the largest part of the market share after Coca-Cola 0.06 4 0.24 3 0.18Weaknesses: 0 0PepsiCo production is really expensive because of the need to constantly develop newproducts to meet the changing costumers demands 0.05 1 0.05 2 0.1PepsiCo is experiencing a lack of focus towards Pepsi 0.06 0 0PepsiCo is experiencing product recalls 0.12 1 0.12 1 0.12PepsiCo has low employment productivity and a weak distribution 0.08 1 0.08 1 0.08PepsiCo depends too much on the US market 0.08 2 0.16 1 0.08PepsiCo is far behind Coca-Cola in the international market 0.09 2 0.18 1 0.09 1 4.68 4.96
Strategy∗ Market development is a strategy that PepsiCo should apply by expanding in countries that not already established∗ Use forward integration to acquire smaller companies in foreign markets to increase their market share∗ Product development and related diversification should also be considered while trying to produce and distribute healthier products
Recommendations∗ In the next 3 years, PepsiCo should acquire 3 brands per year in an international marketplace ∗ One of these 3 brands per year must be healthy∗ Increase production and distribution of carbonated drinks in Asian and European countries∗ PepsiCo will expand into Africa to make use of the international market they are not part of
Objectives∗ Spend $15 million on a healthier more eco-friendly beverage brand in an already established country∗ Spend $15 million on a healthier more eco-friendly snack brand in an already established country∗ Spend $10 million to acquire a smaller brand in Africa∗ Increase our revenues by 5% in 2010∗ Start our own environmental cause fund with $1 million
Assumptions∗ Spend $40 million to acquire new brands∗ Spend $1 million to start an environmental cause group∗ Revenue increase of 5%∗ Decrease short-term and long-term debt by using some of our cash and cash equivalents as well as retained earnings
Projected Income Statement(in millions except per share amounts) 2009 2010Net Revenue $43,232.00 $ 45,393.60 5% increaseCost of sales $20,099.00 $ 21,549.09 Based on previous years %Selling, general and administrative expenses $15,026.00 $ 15,476.78 3% increase based on new brands/territoriesAmortization of intangible assets $63.00 $ 63.00Operating Profit $8,044.00 $ 8,304.73Bottling equity income $365.00 $ 365.00Interest expense ($397.00) $ (397.00)Interest income $67.00 $ 67.00Income before Income Taxes $8,079.00 $ 8,339.73Provision for Income Taxes $2,100.00 $ 2,100.00Net Income $5,979.00 $ 6,239.73Less: Net income attributable to noncontrollinginterests $33.00 $ 33.00Net Income Attributable to PepsiCo $5,946.00 $ 6,206.73Net Income Attributable to PepsiCo per CommonShare Basic $3.81 $ 3.98 Diluted $3.77 $ 3.94
Projected Balance Sheet(In millions except per share amounts) 2009 2010AssetsCurrent AssetsCash and cash equivalents $ 3,943.00 $ 3,264.63 -$10 million for purchasing of new brands also paid off some accounts payableShort-term investments $ 192.00 $ 200.00Accounts and notes receivable, net $ 4,624.00 $ 5,250.00Inventories $ 2,618.00 $ 3,500.00Prepaid expenses and other current assets $ 1,194.00 $ 2,500.00 Total Current Assets $ 12,571.00 $ 14,714.63Property, Plant and Equipment, net $ 12,671.00 $ 13,938.10 More brands equal 10% increaseAmortizable Intangible Assets, net $ 841.00 $ 908.28 Based on previous years %Goodwill $ 6,534.00 $ 6,750.68 Purchased 3 brands and their goodwillOther nonamortizable itangible assets $ 1,782.00 $ 1,783.00 add $1 million for environmental group Nonamortizable Intangible Assets $ 8,316.00 $ 8,533.68Investments in Noncontrolled Affiliates $ 4,484.00 $ 4,892.34Other Assets $ 965.00 $ 1,300.00 Total Assets $ 39,848.00 $ 44,287.03Liabilities and EquityCurrent LiabilitiesShort-term obligations $ 464.00 $ 464.00Accounts payable and other current liabilities $ 8,127.00 $ 7,314.30 Use cash to reduce accounts payable by 10%Income taxes Payable $ 165.00 $ 165.00 Total Current Liabilities $ 8,756.00 $ 7,943.30Long-Term Debt Obligations $ 7,400.00 $ 7,400.00Other Liabilities $ 5,591.00 $ 5,591.00Deferred Income Taxes $ 659.00 $ 659.00 Total Liabilities $ 22,406.00 $ 21,593.30Commitments and ContigenciesPreferred Stock, no par value $ 41.00 $ 41.00Repurchased Preferred Stock $ (145.00) $ (300.00)PepsiCo Common Shareholders EquityCommon stock, par value 1 2/3 cents per share(authorized 3,600 shares, issued 1,782 shares) $ 30.00 $ 30.00Capital in excess of par value $ 250.00 $ 250.00Retained earnings $ 33,805.00 $ 39,980.73 Based on Income Statement - $31 million for purchasing of new brands and environmental groupAccumulated other comprehensive loss $ (3,794.00) $ (4,500.00)Repurchased common stock, at cost (217 and 229shares,respectively) $ (13,383.00) $ (13,383.00) Total PepsiCo Common Shareholders Equity $ 16,908.00 $ 22,118.73Noncontrolling interests $ 638.00 $ 575.00 Total Equity $ 17,442.00 $ 22,693.73 Total Liabilities and Equity $ 39,848.00 $ 44,287.03
Balanced Area of Objectives Customers Measure of Target Costumer Survey Time Expectation Primary Responsibility Scorecard 1. Customer satisfaction Quarterly Human Resources Webinars Representatives 1. Improve production Increase in Supply chain Biannually efficiency production Operations Employee surveys2. Offer employee trainings Yearly Human Resources Production efficiency Community/ Social Responsibility Increase in recyclable bottle Being involve in 1. Eco-Friendly company Yearly CEO more events regarding water contamination Number and success of charitable events 2. Ethical Company Yearly CEO UNICEF amount of money donated Operations/Processes New products Product appearance CEO 1. Innovation Yearly Acquisition of new brands Numbers of new countries entered Number of sales in 2. Brand expansion Yearly CEO the International Segment Financial 1. Reduce cost of Income Statement Quarterly Chief Financial Officer production Increase annual 2. Increase profitability Quarterly Chief Financial Officer report
Future Ratios 2009 Projected 2010Liquidity RatiosCurrent Ratio 1.44 1.85Quick Ratio 1.14 1.41Leverage RatiosDebt-to-Total Assets Ratio 0.56 0.5Debt-to-equity Ratio 1.33 0.97Long-term debt-to-equity 0.44 0.33RatioTimes-Interest-earned Ratio -17.1 -21.01Activity RatiosInventory Turns 16.5 12.97Fixed Assets Turnover 3.41 3.26Total Assets Turnover 1.08 1.02Profitability RatiosGross Profit margins 0.54 0.57Operating Profit Margin 0.19 0.21Net Profit Margin 0.14 0.19Return on Total Assets 0.15 0.16Return on Stockholders equity 0.35 0.36 Earning per share 3.36 3.43 Price-earnings Ratio 8.94 8.74 Growth Rations (yearly) Sales -0.04% 5.00% Net Income 15.74% 4.36%Earnings per share -0.27% 15.79%