I need help with conducting a 9-cell industry attractiveness and business strength matrix, and then I need to explain my findings in detail. epsiCo was the world's largest snack and bever- In addition to focusing on strategies designed to age company, with 2017 net revenues of approxi- deliver revenue and earnings growth, the company mately $63.5 billion. The company's portfolio maintained an aggressive share repurchase and diviof businesses in 2018 included Frito-Lay salty snacks, dend policy, with a planned $7 billion returned to Quaker Chewy granola bars, Pepsi soft-drink products, shareholders in 2018 through share repurchases of Tropicana orange juice, Lipton Brisk tea, Gatorade, $2 billion and dividends of approximately $5 billion. Propel, Bubly, Quaker Oatmeal, Cap'n Crunch, The company bolstered its cash returns through careAquafina, Rice-A-Roni, Aunt Jemima pancake mix, fully considered capital expenditures and acquisitions and many other regularly consumed products. The and a focus on operational excellence. Its Performance company viewed the lineup as highly complemen- with Purpose plan utilized investments in manufacturtary since most of its products could be consumed ing automation, a rationalized global manufacturing together. For example, Tropicana orange juice might plan, and reengineered distribution systems to drive be consumed during breakfast with Quaker Oatmeal, efficiency. In addition, the company's Performance Stacy's pita chips and Sabra hummus might make a with Purpose plan was focused on minimizing the nice snack, and Doritos and a Mountain Dew might company's impact on the environment by lowering be part of someone's lunch. In 2018, PepsiCo's busi- energy and water consumption and reducing its use ness lineup included 22$1 billion global brands. of packaging material, providing a safe and inclusive The company's top managers were focused on workplace for employees, and supporting and investsustaining the impressive performance through strat- ing in the local communities in which it operated. For egies keyed to product innovation, close relationships example, PepsiCo had expanded access to safe water with distribution allies, international expansion, to nearly 16 million people in water-stressed parts and strategic acquisitions. Newly introduced prod- of the world between 2006 and 2018. In addition, ucts such as Bubly sparkling water, Mountain Dew Performance with Purpose planned to reduce average Ice, Doritos Blaze tortilla chips, Sweet Potato Sun sugars, saturated fat, and sodium in its food and beverChips, LIFEWTR functional waters, Lemon Lemon age portfolio each year through 2025 and saved more sparkling lemonade, and the 1893 premium line of than $600 million in operating expenses by 2016 . flavored colas accounted for 15 to 20 percent of all Even though the company had recorded a new growth in recent years. New product innovations number of impressive achievements over the past that addressed consumer health an.

1. I need help with conducting a 9-cell industry attractiveness and business strength matrix, and
then I need to explain my findings in detail. epsiCo was the world's largest snack and bever- In
addition to focusing on strategies designed to age company, with 2017 net revenues of approxi-
deliver revenue and earnings growth, the company mately $63.5 billion. The company's portfolio
maintained an aggressive share repurchase and diviof businesses in 2018 included Frito-Lay
salty snacks, dend policy, with a planned $7 billion returned to Quaker Chewy granola bars,
Pepsi soft-drink products, shareholders in 2018 through share repurchases of Tropicana orange
juice, Lipton Brisk tea, Gatorade, $2 billion and dividends of approximately $5 billion. Propel,
Bubly, Quaker Oatmeal, Cap'n Crunch, The company bolstered its cash returns through
careAquafina, Rice-A-Roni, Aunt Jemima pancake mix, fully considered capital expenditures
and acquisitions and many other regularly consumed products. The and a focus on operational
excellence. Its Performance company viewed the lineup as highly complemen- with Purpose
plan utilized investments in manufacturtary since most of its products could be consumed ing
automation, a rationalized global manufacturing together. For example, Tropicana orange juice
might plan, and reengineered distribution systems to drive be consumed during breakfast with
Quaker Oatmeal, efficiency. In addition, the company's Performance Stacy's pita chips and Sabra
hummus might make a with Purpose plan was focused on minimizing the nice snack, and Doritos
and a Mountain Dew might company's impact on the environment by lowering be part of
someone's lunch. In 2018, PepsiCo's busi- energy and water consumption and reducing its use
ness lineup included 22$1 billion global brands. of packaging material, providing a safe and
inclusive The company's top managers were focused on workplace for employees, and
supporting and investsustaining the impressive performance through strat- ing in the local
communities in which it operated. For egies keyed to product innovation, close relationships
example, PepsiCo had expanded access to safe water with distribution allies, international
expansion, to nearly 16 million people in water-stressed parts and strategic acquisitions. Newly
introduced prod- of the world between 2006 and 2018. In addition, ucts such as Bubly sparkling
water, Mountain Dew Performance with Purpose planned to reduce average Ice, Doritos Blaze
tortilla chips, Sweet Potato Sun sugars, saturated fat, and sodium in its food and beverChips,
LIFEWTR functional waters, Lemon Lemon age portfolio each year through 2025 and saved
more sparkling lemonade, and the 1893 premium line of than $600 million in operating expenses
by 2016 . flavored colas accounted for 15 to 20 percent of all Even though the company had
recorded a new growth in recent years. New product innovations number of impressive
achievements over the past that addressed consumer health and wellness con- decade, its growth
had slowed since 2011. In fact, cerns were important contributors to the company's the spikes in
the company's revenue growth since growth, with PepsiCo's better-for-you and good-for- 2000

2. had resulted from major acquisitions such as you products becoming focal points in the
company's new product development initiatives. Copyright $2018 by John E. Gamble. All rights
reserved.
the $13.6 billion acquisition of Quaker Oats in 2001, beverage he named Pepsi-Cola. The
company's saltythe 2010 acquisition of the previously independent snack business began in 1932
when Elmer Doolin, of Pepsi Bottling Group and PepsiCo Americas for San Antonio, Texas,
began manufacturing and market$8.26 billion, and the acquisition of Russia's lead- ing Fritos
corn chips and Herman Lay started a potato ing food-and-beverage company, Wimm-Bill-Dann
chip distribution business in Nashville, Tennessee. In (WBD) Foods for $3.8 billion in 2011.
Since 2011, 1961, Doolin and Lay agreed to a merger between the company had favored targeted
"tuck-in" acquisi- their businesses to establish the Frito-Lay Company. tions of leading brands in
popular new healthy food During PepsiCo's first five years as a snack and categories.
Nevertheless, PepsiCo's revenues contin- beverage company, it introduced new products such
ued to decline as annual consumption of carbonated as Doritos and Funyuns, entered markets in
Japan soft drinks fell each year and its international busi- and eastern Europe, and opened, on
average, one ness units struggled. A summary of PepsiCo's finan- new snack-food plant per year.
By 1971, PepsiCo had cial performance between 2013 and 2017 is shown in more than doubled
its revenues to reach $1 billion. Exhibit 1. Exhibit 2 tracks PepsiCo's market perfor- The
company began to pursue growth through acquimance between 2013 and June 2018. sitions
outside snacks and beverages as early as 1968 , but its 1977 acquisition of Pizza Hut
significantly COMPANY HISTORY Shaped the strategic direction of PepsiCo for the next
Kentucky Fried Chicken in 1986 created a business Cola and Frito-Lay shareholders agreed to a
merger portfolio described by Wayne Calloway (PepsiCo's between the salty-snack icon and
soft-drink giant. The CEO between 1986 and 1996) as a balanced threenew company was
founded with annual revenues of legged stool. Calloway believed the combination of $510
million and such well-known brands as Pepsi- snack foods, soft drinks, and fast food offered
considCola, Mountain Dew, Fritos, Lay's, Cheetos, Ruffles, erable cost sharing and skill transfer
opportunities, and Rold Gold. PepsiCo's roots can be traced to and he routinely shifted managers
among the com1898 when New Bern, North Carolina, pharmacist pany's three divisions as part
of the company's manCaleb Bradham created the formula for a carbonated agement development
efforts. EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2013-2017 (in millions, except per
share amounts)
EXHIBIT 2 Monthly Performance of PepsiCo, Inc.'s Stock Price, June 2013June 2018 (a) Trend
in PepsiCo, Inc.'s Common Stock Price (b) Performance of PepsiCo, Inc.'s Stock Price versus the

3. S&P 500 Index PepsiCo strengthened its portfolio of snack foods By 1996 it had become clear
to PepsiCo manageand beverages during the 1980 s and 1990 s with the ment that the potential
strategic-fit benefits existing acquisitions of Mug Root Beer, 7-Up International, between
restaurants and PepsiCo's core beverage and Smartfood ready-to-eat popcorn, Walker's Crisps
snack businesses were difficult to capture. In addi(United Kingdom), Smith's Crisps (United tion,
any synergistic benefits achieved were more Kingdom), Mexican cookie company Gamesa, and
than offset by the fast-food industry's fierce price Sunchips. Calloway added quick-service
restaurants competition and low profit margins. In 1997, CEO Hot-n-Now in 1990; California
Pizza Kitchens in Roger Enrico spun off the company's restaurants as 1992; and East Side
Mario's, D'Angelo Sandwich an independent, publicly traded company to focus Shops, and
Chevy's Mexican Restaurants in 1993. PepsiCo on food and beverages. Soon after the spinThe
company expanded beyond carbonated bever- off of PepsiCo's fast-food restaurants was
completed, ages through a 1992 agreement with Ocean Spray Enrico acquired Cracker Jack,
Tropicana, Smith's to distribute single-serving juices, the introduction Snackfood Company in
Australia, SoBe teas and of Lipton ready-to-drink (RTD) teas in 1993, and alternative beverages,
Tasali Snack Foods (the leader the introduction of Aquafina bottled water and in the Saudi
Arabian salty-snack market), and the Frappuccino ready-to-drink coffees in 1994. Quaker Oats
Company.
PepsiCo's Better for You and Russian beverage producer Lebedyansky in 2008 for Good for
You Acquisitions $1.8 billion, and in 2010 it acquired Marbo, a potato PepsiCo's $13.9 billion
acquisition of Quaker Oats chip production operation in Serbia. in 2001 was the company's
largest ever acquisition In 2010 and 2011, the company executed its larg. and gave it the number-
one brand of oatmeal in the share; the leading brand of rice cakes and granola pendent Pepsi
Bottling Group and PepsiCo Americas snack bars; and other well-known grocery brands grate its
global distribution system for its beverage Gatorade was developed by and beverage company,
Wimm-Bill-Dann Foods, for Florida researchers in 1965 , but it was not marketed Van Camp in
1967. When Quaker Bacquired the business allowed the company's revenues to increase from
approximately $29 billion in 2004 to more than gradually made a transformation from a
regionally PepsiCo made small "tuck-in" acquisitions totaldistributed product with annual sales
of $90 million ing less than $500 million annually after its acquito a $2 billion powerhouse.
Gatorade was able to sition of Wimm-Bill-Dann Foods. The company's increase sales by more
than 10 percent annually dur- $200 million acquisition of sparkling probiotic bevering the 1990
s, with no new entrant to the sports bev- age brand, Kevita, in 2016 and its 2018 acquisition of
erage category posing a serious threat to the brand's Bare Foods for an undisclosed amount were
its most dominance. PepsiCo, Coca-Cola, France's Danone noteworthy acquisitions made after

4. 2010. Both acquiGroup, and Swiss food giant Nestle all were attracted sitions were intended to
expand its lineup of lower calto Gatorade because of its commanding market share orie and
lower sodium "Guilt-Free Products." Global and because of the expected growth in the isotonic
sales of health foods were estimated at $1 trillion in sports beverage category. 2017. The sales of
Better for You (BFY) and Good for You (GFY) brands accounted for approximately PepsiCo's
Focus on "Tuck-In" 50 percent of PepsiCo's annual sales in that year. Acquisitions (2002 to
2018) Exhibit 3 presents PepsiCo's consolidated statements After the completion of the Quaker
Oats acquisition in Of income for 2015 to 2017, while the company's 2001 , the company
focused on integration of Quaker Exhibit 4. The company's calculation of free cash PepsiCo
portfolio. The company made a number of "tuck-in" acquisitions of small, fast-growing food and
beverage companies in the United States and inter- PEPSICO'S BUSINESS UNIT nationally to
broaden its portfolio of brands. Tuck-in acquisitions in 2006 included Stacey's bagel and pita
chips, Izze carbonated beverages, Netherlands-based PepsiCo's corporate strategy had diversified
the comDuyvis nuts, and Star Foods (Poland). Acquisitions pany into salty and sweet snacks,
soft drinks, orange made during 2007 included Naked Juice fruit bever- juice, bottled water,
ready-to-drink teas and coffees, ages, Sandora juices in the Ukraine, New Zealand's purified and
functional waters, isotonic beverages, Bluebird snacks, Penelopa nuts and seeds in Bulgaria, hot
and ready-to-eat breakfast cereals, grain-based and Brazilian snack producer Lucky. The
company products, and breakfast condiments. Most PepsiCo also entered into a joint venture
with the Strauss brands had achieved number-one or number-two posiGroup in 2007 to market
Sabra-the top-selling and tions in their respective food and beverage categories fastestgrowing
brand of hummus in the United through strategies keyed to product innovation, close States and
Canada. The company acquired the relationships with distribution allies, international
EXHIBIT 3 PepsiCo, Inc.'s Consolidated Statements of Income, 2015-2017 (in millions, except
per share data) Source: PepsiCo, inc. 201710K. EXHIBIT 4 PepsiCo, Inc.'s Consolidated
Balance Sheets, 2016-2017 (in millions, except per share data)
EXHIBIT 4 (Continued) Prepaid expenses and other current assets Total Current Assets
Property, Plant and Equipment, net Amortizable Intangible Assets, net Goodwill Other
nonamortizable intangible assets Nonamortizable Intangible Assets Investments in
Noncontrolled Affiliates Other Assets Total Assets begin{tabular}{rr} 1,546 & 908 & 26,450
17,240 & 16,591 1,268 & 1,237 14,744 & 14,430 12,570 & 12,196 hline 27,314 &
26,626 2,042 & 1,950 913 & 636 hline$79,804 & $73,490 end{tabular} LIABILITIES
AND EQUITY Current Liabilities Short-term debt obligations Accounts payable and other
current liabilities Total Current Liabilities Long-Term Debt Obligations Other Liabilities

5. Deferred Income Taxes Total Liabilities begin{tabular}{rr} $5,485 & $6,892 15,017 &
14,243 hline 20,502 & 21,135 33,796 & 30,053 11,283 & 6,669 3,242 & 4,434 hline
68,823 & 62,291 end{tabular} Commitments and contingencies Preferred Stock, no par value
Repurchased Preferred Stock (197)(192) PepsiCo Common Shareholders' Equity Common stock,
par value 12/3 cents per share (authorized 3,600 shares, 24 24 issued, net of repurchased
common stock at par value: 1,420 and 1,428 shares, respectively) Capital in excess of par value
Retained earnings Accumulated other comprehensive loss Repurchased common stock, in excess
of par value ( 446 and 438 shares, respectively) Total PepsiCo Common Shareholders Equity
Noncontrolling interests Total Equity Total Liabilities and Equity
Source: PepsiCo, Inc. 201710K expansion, and strategic acquisitions. The company Frito-Lay
North America was committed to producing the highest-quality products in each category and
was working diligently As of 2018 , key trends that were shaping the induson product
reformulations to make snack foods and try were a growing awareness of the nutritional
conbeverages less unhealthy. The company believed that tent of snack foods and product
innovation. Most its efforts to develop good-for-you and better-for-you manufacturers had
developed new flavors of salty products would create growth opportunities from the snacks such
as nacho cheese tortilla chips and sea intersection of business and public interests. salt and
vinegar potato chips to attract the interest of PepsiCo was organized into six business divi-
snackers. PepsiCo continued to innovate to increase sions, which all followed the corporation's
general its share of snack foods with new varieties of chips strategic approach. Frito-Lay North
America manu- like Lay's Poppables, Simply Organic Doritos, and factured, marketed, and
distributed such snack foods Himalayan Pink Salt Red Rock Deli chips. as Lay's potato chips,
Doritos tortilla chips, Cheetos In 2018, Frito-Lay owned the top-selling chip cheese snacks,
Fritos corn chips, Grandma's cook- brand in each U.S. salty-snack category and held ies, and
Smartfood popcorn. Quaker Foods North more than a 2-to-1 lead over the next-largest
snackAmerica manufactured and marketed cereals, rice and food maker in the United States.
Frito-Lay's market pasta dishes, granola bars, and other food items that share of convenience
foods sold in the United States were sold in supermarkets. North America Beverages was more
than five times greater than runner-up manufactured, marketed, and sold beverage concen-
Kellogg's market share. Convenience foods included trates, fountain syrups, and finished goods
under both salty and sweet snacks such as chips, pretzels. such brands as Pepsi, Gatorade,
Aquafina, Tropicana, ready-to-eat popcorn, crackers, dips, snack nuts and Lipton, Dole, and
Propel throughout North America. seeds, candy bars, and cookies. Latin America manufactured,
marketed, and distrib-_Innovations were also directed at making increasuted snack foods and
many Quaker-branded cereals ing the percentage of sales of BFY and GFY products. and snacks

6. in Latin America. The division also pro- By 2025, Frito Lay North America (FLNA) expected
duced, marketed, distributed and sold PepsiCo bev- that 75 percent of its global foods portfolio
volume erage brands in Latin America. Europe Sub-Saharan would not exceed 1.3 milligrams of
sodium per caloAfrica manufactured, marketed, and sold snacks and ries and 1.1 grams of
saturated fat per 100 calories. beverages throughout Europe and the lower portion Good-for-you
(GFY) snacks, such as Bare Foods of the African continent, while the company's Asia, baked
fruit and vegetable snacks acquired in 2018 , Middle East, and North Africa division produced,
offered an opportunity for the company to exploit marketed, and distributed snack brands and
bever- consumers' desires for healthier snacks and address a ages in more than 150 countries in
those regions. A deficiency in most diets. Americans, on average, conlisting of PepsiCo's leading
brands is presented in sumed only about 50 percent of the U.S. Department Exhibit 6. Select
financial information for PepsiCo's of Agriculture's recommended daily diet of fruits and six
reporting units is presented in Exhibit 7. vegetables. Other GFY snacks included Stacy's Pita
EXHIBIT 6 PepsiCo, Inc.'s Leading Brands by Category, 2018 Source: Popsico.com. EXHIBIT
7 Select Financial Data for PepsiCo, Inc.'s Business Segments, 2015-2017 (in millions)
Chips, Sabra hummus, salsas and dips, and Quaker for the effect of a 53rd reporting week in
2017 and Chewy granola bars. In 2018. FLNA manufactured its volume declined by 1 percent
between 2016 and and marketed baked versions of its most popular 2017. The decline in volume
and flat revenues were products, such as Cheetos, Lay's potato chips, Ruffles reflective of the
growing emphasis of consumers on potato chips, and Tostitos tortilla chips. healthy snacking.
However, the division was able to PepsiCo's Performance with Purpose goals boost operating
profit by 3.5 percent between 2016 and applied to all of its business units. Frito-Lay North 2017
through its focus on Performance with Purpose America's revenues were unchanged after
correcting cost reduction strategies and operating practices.
The division produced 25 percent of PepsiCo's net rev- seller of juice and juice drinks globally;
and NAB enues in 2017 and 46 percent of its operating profit. was the second-largest seller of
carbonated soft drinks worldwide, with an approximate 27 percent Quaker Foods North America
market share in 2017. Market leader Coca-Cola held Quaker Foods North American (QFNA)
produced, approximately 42 percent share of the carbonated marketed, and distributed hot and
ready-to-eat cere soft-drink (CSD) industry in 2017. Carbonated soft als, pancake mixes and
syrups, and rice and pasta drinks were the most consumed type of beverage side dishes in the
United States and Canada. The in the United States, but the industry had declined division
recorded sales of approximately $2.5 billion by 1 to 2 percent annually for more than a decade.

7. in 2017. The sales volume and net revenue of Quaker The overall decline in CSD consumption
was a result Foods products decreased by 2 percent between 2016 of consumers' interest in
healthier food and beverand 2017 as sales of ready-toeat cereals declining in age choices. In
contrast, functional beverages, flasingle digits during 2017 and the sales of Roni prod- vored
water, energy drinks, ready-to-drink teas, and ucts declining by nearly 10 percent between 2016
and bottled water were growing beverage categories that 2017. Quaker Oatmeal, Life cereal, and
Cap'n Crunch were capturing a larger share of the stomachs in the cereal volumes competing in
mature industries with United States and internationally. weak competitive positions relative to
Kellogg's and PepsiCo'sCarbonatedSoft-Drink Business. PepsiCo's General Mills. Quaker Oats
was the star product of CSD business had focused on product innovations to the division, with a
commanding share of the North sustain sales and market share, including new formulaAmerican
market for oatmeal in 2018. More than tions to lower the calorie content of non-diet drinks. one-
half of Quaker Foods' 2013 revenues was gener- The strategy had produced some successes as
the comated by BFY and GFY products. pany had maintained its premium pricing differential
because of differentiation through innovations such as North American Beverages higher-priced
7.5-ounce cans and the 1893 line of spePepsiCo was the second largest seller of non-alcoholic
cialty sodas. However, the company's CSD business beverages in North America during 2017,
with a mar- could not escape the overall decline in soft drink conket share of 19 percent. Coca-
Cola was the largest sumption. While the decline in sales of CSDs in North non-alcoholic
beverage producer in North America, America had been an ongoing industry trend for more with
a 22 percent market share in 2017. Dr. Pepper than a decade, the decline was accelerating with
indusSnapple Group was the third-largest beverage seller try sales falling to a 31 year low in
2016. In addition, in 2017, with less than 10 percent market share. As bottled water sales in
North America surpassed that with Frito-Lay, PepsiCo's beverage business contrib- of soft drinks
for the first time ever in 2017. uted greatly to the corporation's overall profitability PepsiCo's
Noncarbonated Beverage Brands. and free cash flows and was heavily impacted by Although
carbonated beverages made up the largest consumer preferences for healthier food and bever-
percentage of NAB's total beverage volume, much age choices. of the division's growth was
attributable to the suc- In 2017, North American Beverages (NAB) cess of its noncarbonated
beverages. Aquafina was accounted for 33 percent of the corporation's total the number-one
brand of bottled water in the United revenues and 26 percent of its operating profits. The States.
Gatorade, Tropicana, Aquafina, Starbucks NAB division's $1 billion brands included Gatorade,
Frappuccino, Lipton RTD teas, and Propel were Tropicana fruit juices, Lipton ready-to-drink tea,
all leading BFY and GFY beverages in the markets Pepsi, Diet Pepsi, Mountain Dew, Diet
Mountain where they were sold. PepsiCo broadened its lineup Dew, Aquafina, Miranda, Sierra
Mist, Dole fruit of functional beverages in 2016 with the acquisition drinks, Starbucks cold-

8. coffee drinks, and SoBe. of KeVita sparkling probiotic drink with flavors such Analysts had
noted that the strong consumer appeal as Mango Coconut, Mojito Lime Mint Coconut, and
rapidly growing sales of Naked Juice might soon Lemon Ginger, and Blueberry Acai Coconut.
Also, make it PepsiCo's next $1 billion brand. the NAB division introduced LIFEWTR in 2017,
Gatorade was the number-one brand of sports a purified water fortified with electrolytes as a
drink sold worldwide; Tropicana was the number-two response to the increasing popularity of
Coca-Cola's
Smartwater. The introduction of Bubly sparkling but its sales volume of snacks and beverages
declined water in 2018 was initiated to target consumers of by 1.5 percent and 2 percent,
respectively, between LaCroix, a flavored sparking water that had been 2016 and 2017. The
division's net price increases and produced since the 1980s but had enjoyed tremen- Performance
with Purpose operating efficiencies led dous success since 2016. Sales of domestic sparkling to
operating profit increases of 2 percent between water in North America doubled between 2015
and 2016 and 2017. 2017 to reach $8.5 billion. Europe, Sub-Saharan Africa Latin America All of
PepsiCo's global brands were sold in Europe, PepsiCo management believed international mar-
as well as its country- or region-specific brands such kets offered the company's greatest
opportunity for as Domik v Derevne, Chjudo, and Agusha. PespiCo growth since per capita
consumption of snacks in the Europe operated 125 plants and approximately 525 United States
averaged 6.6 servings per month while warehouses, distribution centers, and offices in eastper
capita consumption in other developed countries ern and western Europe. The company's
acquisition averaged 4 servings per month and in developing of Wimm-Bill-Dann Foods, along
with sales of its countries averaged 0.4 serving per month. PepsiCo long-time brands, made it the
number-one food and executives expected China and Brazil to become beverage company in
Russia, with a 2-to-1 advantage the two largest international markets for snacks, over its nearest
competitor. It was also the leading with significant growth also expected in the United seller of
snacks and beverages in the United Kingdom. Kingdom, Mexico, and Russia. PepsiCo Europe
management believed further opporDeveloping an understanding of consumer taste tunities in
other international markets existed, with preferences was a key to expanding into international
opportunities to distribute many of its newest brands markets. Taste preferences for salty snacks
were and product formulations throughout Europe. more similar from country to country than
were pref- The division's snack volume sales increased by erences for many other food items,
and this allowed 5 percent during 2017, largely because of its tremenPepsiCo to make only
modest modifications to its dous success in Russia where its volume increased snacks in most
countries. For example, classic variet- by nearly 10 percent between 2016 and 2017. Sales ies of
Lay's, Doritos, and Cheetos snacks were sold growth in Turkey, South Africa, and the

9. Netherlands in Latin America. In addition, consumer characteris- also contributed to the
division's volume increase tics in the United States that had forced snack-food in 2017. The
division's net revenues increase by makers to adopt better-for-you or good-for-you snacks 8
percent between 2016 and 2017 because of the volapplied in most other developed countries as
well. ume gains and net pricing increases. Beverage sales PepsiCo operated 50 snack-food
manufacturing grew at a weak one percent rate between 2016 and and processing plants and 640
warehouses in Latin 2017, but the division's operating profits increased by America, with its
largest facilities located in Guarulhos, 22 percent as a result of Performance with Purpose Brazil;
Monterrey, Mexico; Mexico City, Mexico; and operating efficiencies and a gain on the sale of a
Celaya, Mexico. PepsiCo was the second-largest seller minority stake in its Britvic business. The
divestiture of snacks and beverages in Mexico, and its Doritos, contributed 8 percentage points to
the operating Marias Gamesa, Cheetos, Ruffles, Emperador, profit growth between 2016 and
2017. Saladitas, Sabritas, and Tostitos brands were popular throughout most of Latin America.
The division's rev. Asia, Middle East, and North Africa enues had grown from $7.2 billion in
2011 to $8.3 bil- PepsiCo's business unit operating in Asia, the Middle lion in 2013 and
accounted for 12 percent of 2013 total East, and North Africa manufactured and marketed net
revenues. However, the division's revenues declined all of the company's global brands and
many regional by 17 percent in 2016 as the company deconsolidated brands such as Kurkure and
Chipsy. PepsiCo operits Venezuelan businesses in 2015 because of the coun- ated 45 plants, 490
distribution centers, warehouses, try's inflation and volatile currency. and offices located in
Egypt, Jordan, and China and The division's revenues increased by 6 percent was the number-
one brand of beverages and snacks between 2016 and 2017 as a result of price increases, in
India, Egypt, Saudi Arabia, United Arab Emirates,
and China. The division's revenues had declined joint distribution of Quaker snacks and Frito-
Lay from $6.4 billion in 2015 to $6.0 billion in 2017 , while products. In total, the company
estimated that the its operating profit had fluctuated from $941 million synergies among its
business units generated approxiin 2015 to $619 in 2016 to nearly $1.1 billion in mately $1
billion annually in productivity savings. 2017. The division's revenue declines were primarily
attributable to unfavorable currency exchange. The 2016 decline in operating profit resulted from
PEPSICO'S STRATEGIC higher commodity costs and higher advertising and SITUATION IN
2018 marketing expenses. The operating profit increase between 2016 and 2017 was largely tied
to its gain on PepsiCo's strategy keyed to building its global the refranchising of its beverage
business in Jordan, brands, developing product innovations, and boostwhich contributed 14
percentage points to the overall ing productivity through efficient operations had operating profit
growth. produced strong operating profits and annual free case flows through 2017.

10. Nevertheless, the decline Value Chain Alignment between in the consumption of carbonated soft
drinks and
PepsiCoBrandsandProductsinternationalbusinessessignaledpossibleflawsinitsthelowrelativeprofit
marginsofsomeofPepsiCos PepsiCo's management team was dedicated to cap- corporate
strategy. A lack of revenue growth and an turing strategic-fit benefits within the business lineup
increased reliance on its Frito Lay North American throughout the value chain. The company's
procure- business unit to maintain its annual operating profits ment activities were coordinated
globally to achieve and free cash flow were troubling metrics to investhe greatest possible
economies of scale, and best tors. Since 2013, the company's overall revenues and practices were
routinely transferred among its more net income had declined steadily and its stock price than
200 plants, over 3,500 distribution systems, and had lagged the growth in the S&P 500 . 120,000
service routes around the world. PepsiCo The company was aggressively pursuing a stratalso
shared market research information with its divi- egy to increase its GFY and BFY brands and
improve sions to better enable each division to develop new the overall healthiness of its product
portfolio. Its products likely to be hits with consumers, and the acquisitions of established brands
such as Gatorade company coordinated its Power of One activities and Tropicana had added to
its portfolio of $1 billion across product lines. brands and new acquisitions such as Naked Juice
might PepsiCo management had a proven ability to soon add to that list with healthy food and
beverages. capture strategic fits between the operations of new Additional product introductions
and acquisitions acquisitions and its other businesses. The Quaker such as Bubly and Bare Foods
might also contribute Oats integration produced a number of noteworthy to future revenue
growth. However, some food and bevsuccesses, including $160 million in cost savings erage
industry analysts had speculated that additional resulting from corporatewide procurement of
prod- corporate strategy changes might also be required to uct ingredients and packaging
materials and an esti- restore previous revenue and earnings growth rates and mated $40 million
in cost savings attributed to the lead to increases in shareholder value.