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Case Study : PEPSICO
( From Dil Mange More Se Dil Mange Abhi )
At PepsiCo, "PerformancewithPurpose"means deliveringsustainablegrowthbyinvestinginahealthier future for peopleand our
planet.
( IndraNooyi , PepsiCo Chaiman andChiefExecutive Officer)
PepsiCo is a leading global food and beverage company with brands that are respected household
names throughout the world. Through their operations, authorized bottlers, contract
manufacturers and other partners, PepsiCo make, market, sell and distribute a wide variety of
convenient and enjoyable foods and beverages, serving customers and consumers in more than
200 countries and territories.
PepsiCo was among the first multinationals to start operations in Pakistan in 1967 by launching
Pepsi cola in a bigger bottle than Coke. Now PepsiCo is the biggest food and beverage company
in terms of the retail turnover in Pakistan. The revenue of PepsiCo and its eight bottlers added
upto Rs.82 billion for the financial year ending in June 2012. On the beverages side (soft drink),
company to date has given 8 franchises all over Pakistan. In food and snack segment PepsiCo
manufactures and distributes their products directly. In soft drink segment PepsiCo follows a
model which is known as “Franchised Bottler System”. Under this system bottlers are given
exclusive manufacturing and distribution rights in their geographical regions in Pakistan. This
model creates a division of labor between PepsiCo and its franchised bottlers. PepsiCo produces
the concentrate for its soft drink brands from its factory at Hattar Industrial Estate of Khyber
Pakhtunkhwa province.
Concentrate manufacturing plant is owned by PepsiCo but its 14 bottling facilities are owned by
8 franchised bottlers throughout the country. PepsiCo produces the concentrate for its soft drinks
and ships it to its bottlers. They add carbonated water, sweetener and do the packaging in bottles
of different sizes and cans. Packaged soft drinks are distributed to retailers by these bottlers.
This geographic dispersion of bottlers is the key to Pepsi’s success in Pakistan: it is not reliant on
long-distance transportation of its products, unlike many other multinationals and even local
food and beverage manufacturers face much higher logistics costs. Production of concentrate
requires little capital investment and generates high margins for PepsiCo while bottling and its
distribution is operationally complex and is considered to be capital intensive with low profit
margins. It is estimated by the industry experts that PepsiCo which supplies the concentrate earns
four times more than the bottlers.
The soft drinks brands of PepsiCo in Pakistan which are bottled and distributed by bottlers are:
Pepsi Cola, Merinda, Mountain Dew, 7 up, Sting. Along with soft drink brands bottled water
brand Aquafina is also handled by bottlers.
Case Study PepsiCo Page 2
PepsiCo invests in marketing, brand building and product innovation while the manufacturing
and distribution is carried by their bottlers.
Overall, the company and its affiliates employ over 20,000 people in Pakistan directly, making it
one of the largest private sector employers in the country.
PepsiCo brought in Foreign Direct Investment in the shape of a concentrate plant set up in
Hattar. By focusing on innovation and strong go-to-market excellence Pepsi became the market
leader in 1982 and has since then sustained that position. Today, Pakistan is the 6th largest
market for PepsiCo International worldwide.
While its great rival Coca Cola may have the global lead in terms of cola beverages, Pepsi is
undisputedly the preferred beverage amongst Pakistani consumers. In addition to the familiar
Pepsi branded drink, the company’s best sellers in the country are Mountain Dew – which has
recently been ranked the most popular drink in Pakistan. According to Wall Street Journal now
the market share of Pepsi brands in Pakistan is around 65%
PepsiCo has been good for Pakistani talent, The Company’s NASA business unit – which
includes Japan, Korea, Thailand, Indonesia, Philippines, Malaysia, Singapore, Pakistan, Pacific
Islands and Mongolia – is headed by the Rawalpindi-born Qasim Khan.
Dr. Mehmood Khan another Pakistani is the Chief of Global Research and Development of
PepsiCo. Probably the only Pakistani to lead R& D of a big multinational company.
Mountain Dew was first launched in 2001 with the original taste of USA and it was a big flop.
Mountain Dew was re- launched by PepsiCo of Pakistan in 2004 after changing the taste and re-
packaging . At that point Pepsi Cola was the leader and Coca Cola was behind it. Before the
introduction of Mountain Dew it was “ Cola War” between Pepsi and Coke. Since its launch
sales of Mountain Dew has been growing at the rate of 100% every year. Now in 2013 Mountain
Dew is the leading brand in Pakistan, according to one analyst third giant has emerged in
Pakistani market and has taken over both the colas.
The reason for success has been it is something different and fresh. The taste is amazing which
nobody could think of. It has citrus taste, yellow colour and attractive packaging. Mountain Dew
for the local Pakistani market was specially developed by R&D team taking into account the
requirements of young Pakistani consumers evaluated through research.
The advertisements were made in collaboration with international team, Pakistani team and
Interflow Communications, the advertising agency of Pepsi in Pakistan. Consumers had never
seen such extreme action advertisements. “ Dew na piya toh pir kiya jiya “ was a big hit with
young customers of Pakistan specially rural areas. Mountain Dew advertisement is the main
reference point in advertisement of brands these days.
Beside soft drinks and bottled water, PepsiCo has invested in other fields as well. In year 2005,
PepsiCo invested in a manufacturing facility of snack food in Sundar Industrial Estate in Lahore
which employs over 1000 people. PepsiCo introduced the famous Lay’s potato chips brand in
Case Study PepsiCo Page 3
Pakistan in 2006. Within five years of operations, the brand has become the largest salty snacks
brand in Pakistan and continues to grow at a high double digit rate. This plant was constructed
with ten years sales forecast in mind but in three years time plant was running at 100 capacity.
Now major improvements and capacity enhancement has been carried out in the factory to cope
with the existing demand. PepsiCo directly ship these products to its distributor network spread
allover Pakistan. The company has made strong investments in the agricultural sector of Punjab
by introducing latest technologies for potato growers and are looking to expand potato growing
into the northern areas of Pakistan. This investment with the farmers has been done to improve
their capacity to grow better potatoes. PepsiCo also plan to export potatoes to other countries
around the world. The snacks portfolio consists of leading global brands like Lays, Cheetos,
Kurkure, Wavy and recently launched Chat Street.
PepsiCo enjoys a leading market share in potato chip market, Lays with its several flavors is the
most popular potato chips in Pakistan, Kurkure innovation of Pakistan has created a huge market
share and is growing every year at a fast pace. Kurkure has been introduced in India with lot of
success and now PepsiCo intends to export Kurkure to Malaysia and on its success it will be
manufactured over there.
In 2009 a juice was introduced with one variant mango under the brand name “Slice”. This
product was promoted by Bollywood actrees Katrina Kaif. This product has not been able to
create the market share according to the expectation of the company because of strong
competition with Nestle Pakistan and Engro Foods.
According to Qasim Khan, Head of NASA region of PepsiCo International feels that Pakistani
market is full of opportunities. Following factors are making Pakistan a very attractive market
place.
Large Market: 6th most populace country in the world with approximately 70% population under
the age of 30.
Trained Workforce: A large trained and productive population represents a big opportunity to
Pakistan to benefit from its demographic dividends.
Investment Policies: Pakistan’s policy trends have been consistent with liberalization, de-
regulation, privatization and facilitation being the cornerstones of its policy.
Large Agro Base: The strong agriculture base presents a great opportunity for our food business
to expand in the future. We realize that Pakistan is the 11th largest wheat producer, 12th largest
rice producer and the 5th largest milk producer in the world. Pakistan being agriculture country
provides opportunity to make new innovative healthy food products.
Geo-Strategic Location: It can be a gateway between the energy rich Central Asian States,
Case Study PepsiCo Page 4
financially liquid gulf states and technologically advanced far eastern states. This alone makes
Pakistan a market teeming with possibilities.
Incomes on F&B: A significant amount of individual incomes (as high as 40%) are spent on food
and beverage representing a huge opportunity for the industry.
Qasim Khan insisted that in Pakistani market PepsiCo is successful because of strong brand
equity of their brands , expertise in brand building, product portfolio with a potential to grow,
strong relationship with bottlers and robust distribution system. Qasim Khan stated that our
bottlers are using sms technology in distribution and are able to cut 30% cost in logistics.
However PepsiCo management is critical about weak intellectual property rights implementation
in Pakistan resulting in lot of fake PepsiCo products damaging the reputation of the company.
Raw material cost is continuously increasing and high taxation on beverage and food industry by
the Government are some negative aspects which makes doing business in Pakistan more
challenging.
PepsiCo received a dent in their market share when Coca Cola started a musical program on TV
“ Coke Studio” which was based on folk music blended with modern and rock music. This
musical program was a big hit in domestic and international market, tremendous success of this
musical program resulted in sales growth of 5% for Coco Cola.
PepsiCo has recently started a new musical program on TV by the name of “Smash” which has
been moderately successful.
PepsiCo operations in Pakistan are now required to be aligned with the new strategic mission
given by the Chief of Pepsi Co World Wide Indra Nooyi “Performance with Purpose “.
What does this new mission means? It means delivering financial results in a way that is good
for the world as well as good for the country.
Despite PepsiCo’s presence in soft drink and snack-food category a very challenging climate is
building around sugary drinks and salty snacks. World Health Organization has recently linked
the growing incidences of heart diseases, hypertension, stroke, diabetes and obesity with
consumption of PepsiCo products. Childhood obesity is a major issue all over the world and the
main cause for this disease according to health advocates is fast food, sugary soft drinks and
salty snacks.
Now the ambition of Indra Nooyi is to make PepsiCo a good company with high moral values
and to make products which are considered healthy by the consumers. It is basically giving
preference to people over profits.
Case Study PepsiCo Page 5
Dr. Mahmood Khan head of Global R&D stated that PepsiCo makes profits by selling sugary
drinks and salty snacks. This is our main business, we are working on making our core drinks
healthy by using plant based sweetener known as “ Stevia” which is considered to be healthy for
people suffering from obesity and hypertension. The real challenge is to retain the taste of Pepsi
brands.
Company has reduced the percentage of saturated fat in their salty snacks by switching from
palm oil to sunflower oil. PepsiCo is also working on reducing the sodium content and retaining
the salty taste in their snack foods.
One market analyst was of the opinion that PepsiCo might use this strategic mission of “
Performance with Purpose” in developed countries where they are losing their market share of
soft drinks to healthy drinks and juices because of health concerns and their growth has become
stagnant. But in emerging economies like Pakistan the company is experiencing high growth,
high margins and high profitability. In Pakistan, masses are struggling with other grave
problems, health issues linked with these American brands have very low awareness. Changing
the taste of “Pepsi Cola” and other brands by using stevia which tastes altogether different is a
big risk which PesiCo cannot afford to take. To like stevia you have to develop taste. Nobody
has forgotten what happened to Coke when they tried to change the taste in eighties.
Qasim Khan stated we have added juices, bottled water and Quaker oats ( dallia for breakfast) to
our portfolio to give consumers a choice of healthy and wholesome products in Pakistan . Aqua
Fina bottled water has been a big success in Pakistan. Company used the lead actors of a hit
drama from TV in their advertisement which had a story and a song to match resulted in huge
sales and acceptance of Aqua Fina and breaking the dominance of “Pure life” of Nestle.
PepsiCo is doing lot of CSR activities in Pakistan. Total of 17 schools have been reconstructed in
the most impoverished areas. 40% of the 700 children that will be enrolled will be girls.
PepsiCo is providing drinking water and irrigation systems in Swat that is providing relief to
the people and have not only helped in managing water related diseases but have also developed
irrigation infrastructure for farmer.
One market analyst was of the opinion that innovations by PepsiCo have been successful in the
market like Kurkure and recently launched Chat Street chips but whether they are in line with
their strategic vision of performance with purpose is questionable.
The public relations department of Pepsi Co denied that Kurkure has any plastic in its ingredients
as claimed by somebody on the you-tube and the video had become viral in India and Pakistan.
The company claimed the product is made of rice, corn and edible oil and they would not even
think of using any substance which is against their new vision.
The dilemma for PepsiCo is to maintain high growth in the future with products that are good for
their customers health and wellbeing and generating profits for their shareholders.

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Pepsico
 

-Case study pepsi co

  • 1. Thiscase has beendevelopedbyNaveedM.KhanAssistantProfessorBahriaUniversityforclass discussions Case Study : PEPSICO ( From Dil Mange More Se Dil Mange Abhi ) At PepsiCo, "PerformancewithPurpose"means deliveringsustainablegrowthbyinvestinginahealthier future for peopleand our planet. ( IndraNooyi , PepsiCo Chaiman andChiefExecutive Officer) PepsiCo is a leading global food and beverage company with brands that are respected household names throughout the world. Through their operations, authorized bottlers, contract manufacturers and other partners, PepsiCo make, market, sell and distribute a wide variety of convenient and enjoyable foods and beverages, serving customers and consumers in more than 200 countries and territories. PepsiCo was among the first multinationals to start operations in Pakistan in 1967 by launching Pepsi cola in a bigger bottle than Coke. Now PepsiCo is the biggest food and beverage company in terms of the retail turnover in Pakistan. The revenue of PepsiCo and its eight bottlers added upto Rs.82 billion for the financial year ending in June 2012. On the beverages side (soft drink), company to date has given 8 franchises all over Pakistan. In food and snack segment PepsiCo manufactures and distributes their products directly. In soft drink segment PepsiCo follows a model which is known as “Franchised Bottler System”. Under this system bottlers are given exclusive manufacturing and distribution rights in their geographical regions in Pakistan. This model creates a division of labor between PepsiCo and its franchised bottlers. PepsiCo produces the concentrate for its soft drink brands from its factory at Hattar Industrial Estate of Khyber Pakhtunkhwa province. Concentrate manufacturing plant is owned by PepsiCo but its 14 bottling facilities are owned by 8 franchised bottlers throughout the country. PepsiCo produces the concentrate for its soft drinks and ships it to its bottlers. They add carbonated water, sweetener and do the packaging in bottles of different sizes and cans. Packaged soft drinks are distributed to retailers by these bottlers. This geographic dispersion of bottlers is the key to Pepsi’s success in Pakistan: it is not reliant on long-distance transportation of its products, unlike many other multinationals and even local food and beverage manufacturers face much higher logistics costs. Production of concentrate requires little capital investment and generates high margins for PepsiCo while bottling and its distribution is operationally complex and is considered to be capital intensive with low profit margins. It is estimated by the industry experts that PepsiCo which supplies the concentrate earns four times more than the bottlers. The soft drinks brands of PepsiCo in Pakistan which are bottled and distributed by bottlers are: Pepsi Cola, Merinda, Mountain Dew, 7 up, Sting. Along with soft drink brands bottled water brand Aquafina is also handled by bottlers.
  • 2. Case Study PepsiCo Page 2 PepsiCo invests in marketing, brand building and product innovation while the manufacturing and distribution is carried by their bottlers. Overall, the company and its affiliates employ over 20,000 people in Pakistan directly, making it one of the largest private sector employers in the country. PepsiCo brought in Foreign Direct Investment in the shape of a concentrate plant set up in Hattar. By focusing on innovation and strong go-to-market excellence Pepsi became the market leader in 1982 and has since then sustained that position. Today, Pakistan is the 6th largest market for PepsiCo International worldwide. While its great rival Coca Cola may have the global lead in terms of cola beverages, Pepsi is undisputedly the preferred beverage amongst Pakistani consumers. In addition to the familiar Pepsi branded drink, the company’s best sellers in the country are Mountain Dew – which has recently been ranked the most popular drink in Pakistan. According to Wall Street Journal now the market share of Pepsi brands in Pakistan is around 65% PepsiCo has been good for Pakistani talent, The Company’s NASA business unit – which includes Japan, Korea, Thailand, Indonesia, Philippines, Malaysia, Singapore, Pakistan, Pacific Islands and Mongolia – is headed by the Rawalpindi-born Qasim Khan. Dr. Mehmood Khan another Pakistani is the Chief of Global Research and Development of PepsiCo. Probably the only Pakistani to lead R& D of a big multinational company. Mountain Dew was first launched in 2001 with the original taste of USA and it was a big flop. Mountain Dew was re- launched by PepsiCo of Pakistan in 2004 after changing the taste and re- packaging . At that point Pepsi Cola was the leader and Coca Cola was behind it. Before the introduction of Mountain Dew it was “ Cola War” between Pepsi and Coke. Since its launch sales of Mountain Dew has been growing at the rate of 100% every year. Now in 2013 Mountain Dew is the leading brand in Pakistan, according to one analyst third giant has emerged in Pakistani market and has taken over both the colas. The reason for success has been it is something different and fresh. The taste is amazing which nobody could think of. It has citrus taste, yellow colour and attractive packaging. Mountain Dew for the local Pakistani market was specially developed by R&D team taking into account the requirements of young Pakistani consumers evaluated through research. The advertisements were made in collaboration with international team, Pakistani team and Interflow Communications, the advertising agency of Pepsi in Pakistan. Consumers had never seen such extreme action advertisements. “ Dew na piya toh pir kiya jiya “ was a big hit with young customers of Pakistan specially rural areas. Mountain Dew advertisement is the main reference point in advertisement of brands these days. Beside soft drinks and bottled water, PepsiCo has invested in other fields as well. In year 2005, PepsiCo invested in a manufacturing facility of snack food in Sundar Industrial Estate in Lahore which employs over 1000 people. PepsiCo introduced the famous Lay’s potato chips brand in
  • 3. Case Study PepsiCo Page 3 Pakistan in 2006. Within five years of operations, the brand has become the largest salty snacks brand in Pakistan and continues to grow at a high double digit rate. This plant was constructed with ten years sales forecast in mind but in three years time plant was running at 100 capacity. Now major improvements and capacity enhancement has been carried out in the factory to cope with the existing demand. PepsiCo directly ship these products to its distributor network spread allover Pakistan. The company has made strong investments in the agricultural sector of Punjab by introducing latest technologies for potato growers and are looking to expand potato growing into the northern areas of Pakistan. This investment with the farmers has been done to improve their capacity to grow better potatoes. PepsiCo also plan to export potatoes to other countries around the world. The snacks portfolio consists of leading global brands like Lays, Cheetos, Kurkure, Wavy and recently launched Chat Street. PepsiCo enjoys a leading market share in potato chip market, Lays with its several flavors is the most popular potato chips in Pakistan, Kurkure innovation of Pakistan has created a huge market share and is growing every year at a fast pace. Kurkure has been introduced in India with lot of success and now PepsiCo intends to export Kurkure to Malaysia and on its success it will be manufactured over there. In 2009 a juice was introduced with one variant mango under the brand name “Slice”. This product was promoted by Bollywood actrees Katrina Kaif. This product has not been able to create the market share according to the expectation of the company because of strong competition with Nestle Pakistan and Engro Foods. According to Qasim Khan, Head of NASA region of PepsiCo International feels that Pakistani market is full of opportunities. Following factors are making Pakistan a very attractive market place. Large Market: 6th most populace country in the world with approximately 70% population under the age of 30. Trained Workforce: A large trained and productive population represents a big opportunity to Pakistan to benefit from its demographic dividends. Investment Policies: Pakistan’s policy trends have been consistent with liberalization, de- regulation, privatization and facilitation being the cornerstones of its policy. Large Agro Base: The strong agriculture base presents a great opportunity for our food business to expand in the future. We realize that Pakistan is the 11th largest wheat producer, 12th largest rice producer and the 5th largest milk producer in the world. Pakistan being agriculture country provides opportunity to make new innovative healthy food products. Geo-Strategic Location: It can be a gateway between the energy rich Central Asian States,
  • 4. Case Study PepsiCo Page 4 financially liquid gulf states and technologically advanced far eastern states. This alone makes Pakistan a market teeming with possibilities. Incomes on F&B: A significant amount of individual incomes (as high as 40%) are spent on food and beverage representing a huge opportunity for the industry. Qasim Khan insisted that in Pakistani market PepsiCo is successful because of strong brand equity of their brands , expertise in brand building, product portfolio with a potential to grow, strong relationship with bottlers and robust distribution system. Qasim Khan stated that our bottlers are using sms technology in distribution and are able to cut 30% cost in logistics. However PepsiCo management is critical about weak intellectual property rights implementation in Pakistan resulting in lot of fake PepsiCo products damaging the reputation of the company. Raw material cost is continuously increasing and high taxation on beverage and food industry by the Government are some negative aspects which makes doing business in Pakistan more challenging. PepsiCo received a dent in their market share when Coca Cola started a musical program on TV “ Coke Studio” which was based on folk music blended with modern and rock music. This musical program was a big hit in domestic and international market, tremendous success of this musical program resulted in sales growth of 5% for Coco Cola. PepsiCo has recently started a new musical program on TV by the name of “Smash” which has been moderately successful. PepsiCo operations in Pakistan are now required to be aligned with the new strategic mission given by the Chief of Pepsi Co World Wide Indra Nooyi “Performance with Purpose “. What does this new mission means? It means delivering financial results in a way that is good for the world as well as good for the country. Despite PepsiCo’s presence in soft drink and snack-food category a very challenging climate is building around sugary drinks and salty snacks. World Health Organization has recently linked the growing incidences of heart diseases, hypertension, stroke, diabetes and obesity with consumption of PepsiCo products. Childhood obesity is a major issue all over the world and the main cause for this disease according to health advocates is fast food, sugary soft drinks and salty snacks. Now the ambition of Indra Nooyi is to make PepsiCo a good company with high moral values and to make products which are considered healthy by the consumers. It is basically giving preference to people over profits.
  • 5. Case Study PepsiCo Page 5 Dr. Mahmood Khan head of Global R&D stated that PepsiCo makes profits by selling sugary drinks and salty snacks. This is our main business, we are working on making our core drinks healthy by using plant based sweetener known as “ Stevia” which is considered to be healthy for people suffering from obesity and hypertension. The real challenge is to retain the taste of Pepsi brands. Company has reduced the percentage of saturated fat in their salty snacks by switching from palm oil to sunflower oil. PepsiCo is also working on reducing the sodium content and retaining the salty taste in their snack foods. One market analyst was of the opinion that PepsiCo might use this strategic mission of “ Performance with Purpose” in developed countries where they are losing their market share of soft drinks to healthy drinks and juices because of health concerns and their growth has become stagnant. But in emerging economies like Pakistan the company is experiencing high growth, high margins and high profitability. In Pakistan, masses are struggling with other grave problems, health issues linked with these American brands have very low awareness. Changing the taste of “Pepsi Cola” and other brands by using stevia which tastes altogether different is a big risk which PesiCo cannot afford to take. To like stevia you have to develop taste. Nobody has forgotten what happened to Coke when they tried to change the taste in eighties. Qasim Khan stated we have added juices, bottled water and Quaker oats ( dallia for breakfast) to our portfolio to give consumers a choice of healthy and wholesome products in Pakistan . Aqua Fina bottled water has been a big success in Pakistan. Company used the lead actors of a hit drama from TV in their advertisement which had a story and a song to match resulted in huge sales and acceptance of Aqua Fina and breaking the dominance of “Pure life” of Nestle. PepsiCo is doing lot of CSR activities in Pakistan. Total of 17 schools have been reconstructed in the most impoverished areas. 40% of the 700 children that will be enrolled will be girls. PepsiCo is providing drinking water and irrigation systems in Swat that is providing relief to the people and have not only helped in managing water related diseases but have also developed irrigation infrastructure for farmer. One market analyst was of the opinion that innovations by PepsiCo have been successful in the market like Kurkure and recently launched Chat Street chips but whether they are in line with their strategic vision of performance with purpose is questionable. The public relations department of Pepsi Co denied that Kurkure has any plastic in its ingredients as claimed by somebody on the you-tube and the video had become viral in India and Pakistan. The company claimed the product is made of rice, corn and edible oil and they would not even think of using any substance which is against their new vision. The dilemma for PepsiCo is to maintain high growth in the future with products that are good for their customers health and wellbeing and generating profits for their shareholders.