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The Company· PepsiCo, Inc. is the result of the merging of Pepsi.docx
- 1. The Company · PepsiCo, Inc. is the result of the merging of Pepsi Cola and Frito Lay. Pepsi Cola was established in New Bern, NC by Caleb Bradham in the late 1800s. Frito Lay is the result of the merger between the Frito Company, and the Lay Company around 1960. Today, the company reports sales of $510 million, and employs approximately 20.000 people. The company’s major product line consists of: Pepsi Cola, Diet Pepsi, Mountain Dew, Frito corn chips, Lays potato chips, Cheetos, Ruffles, and Rold Gold pretzels. Company Global Operations · PepsiCo Americas Foods, which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF) · PepsiCo Americas Beverages (PAB), which includes all of our North American and Latin American beverage businesses · PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in Europe and South Africa · PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack · businesses in AMEA, excluding South Africa Company History & Growth · 1966 – Introduction of Doritos brand tortilla chips Pepsi enters Japan and Eastern Europe · 1970 – PepsiCo moves headquarters to Purchase, NY Frito Lay begins expansion initiative Pepsi introduces lightweight, recyclable plastic bottles, and the first two-liter bottle. · 1973 – Frito Lay International is established, and begins marketing snack foods worldwide · 1974 – Pepsi Cola is the first American product produced, marketed, and sold in the former Soviet Union · 1977 – PepsiCo purchases Pizza Hut, Inc.
- 2. · 1978 – PepsiCo purchases Taco Bell · 1981 – Nutritional information is added to Frito Lay snack food packaging’ · 1982 – PepsiCo introduces caffeine-free colas Pepsi Cola moves into China · 1984 – Pepsi Cola makes history by teaming up with Michael Jackson for The Choice of a New Generation campaign · 1985 – PepsiCo is the largest beverage industry, and has products in over 150 countries · 1986 – PepsiCo purchases KFC · 1989 – PepsiCo is ranked in the top 25 of the Fortune 500 company rankings · 1994 – PepsiCo and Starbucks form the North American Coffee Partnership · 1997 – Aquafina bottled water is introduced · 1998 – PepsiCo purchases Tropicana products from Seagram Company, Ltd. Pepsi Cola celebrates 100 years · 2000 PepsiCo own majority stock in South Beach Beverage Company (SoBe) · 2001 – PepsiCo merges with Quaker Oats · 2007 – PepsiCo introduces: Performance with Purpose Strengths · PepsiCo employees are motivated, and highly engaged in the organization · Sustained improvements in employee commitment, and satisfaction · Continued focus on discipline to drive results in the short term · Continued investments to build capabilities and advantages for the long term · Attractive partner for retailer who look to Pepsico to drive a significant share of their growth · A broad portfolio, which is a strong competitive advantage in the food service industry · Organic revenue up 4% · Core constant currency grew 9%
- 3. · Core net ROIC improved 110 BPS in 2013 compared to 2012 · Free cash flow reached $8.2 billion · Returned $6.2 billion to shareholders WEAKENESSES 1. Image Damaging Product Recall 2008 salmonella contamination forced PepsiCo to pull Aunt Jemima pancake and waffle mix from retail shelves. This followed incidents of exploding Diet Pepsi cans in 2007. Such occurrences damaged the company’s image and reduce consumer confidence in PepsiCo products (Friesner 2014). 2. Overdependence on Wal-Mart PepsiCo sales to Wal-Mart represent approximately 12% of PepsiCo’s total net revenue. Wal-Mart is PepsiCo’s largest customer. As a result PepsiCo’s fortunes are influenced by the business strategy of Wal-Mart specifically its emphasis on private-label sales which produce a higher profit margin than national brands. Wal-Mart’s low price themes put pressure on PepsiCo to hold down prices. Wal-Mart has a significant buyer power and can easily dictate prices over PepsiCo leaving it with very small margins. In addition, if PepsiCo would lose Wal-Mart it would lose 13% of its revenue and competitive advantage (Friesner 2014, Jurevicius 2013). 3. Weak brand awareness. The Coca Cola Company has the largest share market of beverages in the world and much stronger brand awareness than Pepsi, placing it at competitive disadvantage (Jurevicius 2013). 4. Questionable practices. PepsiCo is using and selling tap water but places view of mountains on its water bottle labels, thus deceiving people that it is mountain spring water when it is not. PepsiCo has also been criticized for using water in India with higher than allowed amount of pesticides in it (Jurevicius 2013). Moreover, PepsiCo brand image has been weakened to a certain extent in recent years due to tap water andTropicana Kids orange juice product recall (Dudovsky 2014). 5. Overdependence on US Markets – Despite its international presence, 52% of its revenues originate in the US. This
- 4. concentration does leave PepsiCo somewhat vulnerable to the impact of changing economic conditions, and labor strikes. Large US customers could exploit PepsiCo’s lack of bargaining power and negatively impact its revenues (Friesner 2014). OPPORTUNITIES The PepsiCo’s opportunities for product development, market penetration and expansion exist on a global scale. 1. Reaching untapped markets with existing product lines – Although PepsiCo is well-known in many developed and developing countries, some of their brands are largely confined to a few regions. Technology ubiquity will now allow PepsiCo to expand its markets to BRICS and other developing nations (Bouckley, 2012). Like Nestle, it would benefit PepsiCo’s portfolio if it taps into these new markets instead of maintaining a heavy reliance on the US (Sosland, 2014). 2. Increasing awareness and demand for healthy food and beverages – Due to the threats of obesity-associated diseases and public pressure for healthier eating, a new opportunity for presenting the market with healthy drinks and snacks has developed. PepsiCo can continue to take advantage of this awareness and expand its healthy foods product range and sponsor healthy living events to portray its company as a health-conscious food giant (Mangalindan, 2010). 3. Increase in bottled water consumption – PepsiCo is one of America’s largest suppliers of bottled water. Consumption of bottled water has been growing and is projected to continue growing both in US and around the world. PepsiCo has the opportunity to expand its product line to add different types of bottled water to suit a variety of consumers. 4. Acquisition of upcoming relevant brands – The fragmented international snacks and beverages markets constantly have new healthier foods being invented and gaining popularity on a local scale. PepsiCo’s financial strength and vast knowledge of the international food industry can be used to acquire these brands and enhance its position as a global food and beverage giant
- 5. (Dean, 2013). 5. Frugal consumers– US consumers are becoming more thrifty spenders. As such, PepsiCo has an opportunity to change its delivery methods to suit consumers’ acceptable prices. Pre- packed snacks and beverages are now a more common part of our eating culture. Creating smaller packages will not only provide new customers an opportunity to ‘test’ PepsiCo products, but encourage existing frugal customers to purchase as the price comes within their reach (Culliney, 2013). EXTERNAL THREATS Changes in consumer tastes. Consumers around the world become more health conscious and reduce their consumption of carbonated drinks, drinks that have large amounts of sugar, calories and fat. Water scarcity. Water is becoming scarcer around the world and increases in both cost and criticism for PepsiCo over the large amounts of water used for production. Decreasing gross profit margin. PepsiCo’s gross profit margin was decreasing over the past few years and may continue to decrease due to higher water and other raw material costs. Legal requirements to disclose negative information on product labels. Some researches show that particular ingredients, consumed in extra large quantities, in some of PepsiCo products could cause cancer. For this reason, many governments consider to pass legislation that requires disclosing such information on product labels. Products containing such information may be perceived negatively and lose its customers. Strong dollar: More than 50% of PepsiCo’s income is from outside US. Due to strong dollar performance against other currencies PepsiCo’s income should fall. Increased competition from Snyder’s. Snyder’s increase its US savory snacks market share by 1.6% and almost all of it was taken from PepsiCo. Coca Cola expanding to foreign markets and claiming untapped markets.
- 6. Cola and Pepsi control nearly 40% of the entire beverage market, the changing health-consciousness of the market could have a serious affect. Of course, both Coke and Pepsi have already diversified into these markets, allowing them to have further significant market shares and offset any losses incurred due to fluctuations in the market. INTERNAL THREATS It’s Not Yours: One of the internal threats found in PepsiCo is the company’s reliant on franchised bottling company to distribute its products. This strategy has seen the company create very powerful bottlers that it cannot exert control over. Sometimes, the franchises oppose introduction of a new product by PepsiCo while others refuse to manufacture some of the products. Coke can invest in their bottling companies, whereas PepsiCo cannot because they do not own them. Who Did This: New product recalls due to scandals and/or ingredients tampering. SWOT ANALYSIS EVALUATION Bibliography Bouckley, B. (2012, November 28). PepsiCo Needs Emerging Market Focus To Repair Margins: US Investment Firm. Retrieved from www.beveragedaily.com: http://www.beveragedaily.com/Manufacturers/PepsiCo-needs- emerging-market-focus-to-repair-margins-US-investment-firm Culliney, K. (2013, April 22). Retail-ready Snack Packaging: Bigger Margins on Smaller Investments. Retrieved from http://www.bakeryandsnacks.com/: http://www.bakeryandsnacks.com/Processing-Packaging/Retail- ready-snack-packaging-Bigger-margins-on-smaller-investments Dean, C. (2013). Security Analysis Fall 2013 - Analyst Report. Albuquerque, NM: The University of New Mexico Press. Retrieved from http://www.unm.edu/~maj/Security%20Analysis/Fall%202013%
- 7. 20Analyst%20Reports/PEP.pdf Dudovsky, J. (2014). PepisiCo SWOT Analysist. Retrieved from http://research-methodology.net/pepsico-swot-analysis-2014 Friesner, T. (2014). SWOT Analysis PepsiCo. Retreived from http://www.marketingteacher.com/pepsi-swot Jurevicius, O. (2013). Pepsico SWOT Analysis. Retreived from http://www.strategicmanagementinsight.com/swot- analyses/pepsico-swot-analysis.html Mangalindan, J. (2010, April 27). PepsiCo CEO: 'If all consumers exercised...obesity wouldn't exist'. Retrieved from http://archive.fortune.com/: http://archive.fortune.com/2010/04/27/news/companies/indra_no oyi_pepsico.fortune/index.htm Sosland, J. (2014, May 28). PepsiCo Makes Its Case. Retrieved from www.foodbusinessnews.net: http://www.foodbusinessnews.net/articles/news_home/Business _News/2014/05/PepsiCo_makes_its_case.aspx?ID=%7BEE01D2 0F-FD42-416E-83A7-A0646A32C115%7D&cck=1