This document analyzes strategic options for PepsiCo. It provides an overview of PepsiCo's financial performance in 2001 and its three divisions: Pepsi, Frito-Lay, and Quaker Oats. It also reviews the beverage and snack food industries. The document evaluates PepsiCo's competitive positioning, core competencies, and diversification strategy. It concludes that PepsiCo's current strategies are working but notes concerns about growth rates and competition. The document analyzes alternatives of divestment, acquisition, and research and development, and recommends the acquisition of Interstate Bakeries Corporation for its brand portfolio and distribution synergies, projecting a positive net present value.

1. Strategic Analysis of PepsiCo
Dominant Logic
David Bright, Terra Christensen, Nicholas Papas,
Arc Sims, Derrick Smith

2. Introduction
 Methods
 Areas of concern
• Growth opportunities and competition
 Recommendations
• Acquisition

3. Company Overview
2001
 Total Revenue $27 Billion
 Net Income $2.7 Billion
 ROS 9.8%
 ROE 32.8%

4. Company Overview
Quaker
 Three Oats
7%
divisions
Pepsi
• Pepsi 39%
• Frito-Lay
• Quaker Oats
Frito-
Lay
54%

5. Beverages Industry Overview
 Non-Dairy, Non-Alcoholic
 Pressures from
• Buyers
• Competitors
 Other information
• Entrants

6. Snack Food Industry Overview
 Salty, Grain-Based
 Pressures from
• Buyers
• Substitutes
• Competitors
 Other information
• Entrants

7. Competitive Positioning
 Differentiation Strategy
• Product packaging
• Product manufacturing
• Product innovations
• Marketing

8. Core Competency
 Branding/Marketing
 Product Innovation

9. Diversification Strategy
 Recent efforts
• Acquisitions
• Divestitures
• Joint Ventures

10. Strategic Conclusions
 Current strategies are working
 Areas of concern
• Growth rates (domestic and abroad)
• High competition
• Over diversified

11. Alternatives
 Divestiture
 Acquisition
 R&D

12. Divestiture
 Quaker Oats
• Appears to be poor fit
• Acquired for Gatorade

13. Research and Development
 Be innovator
• Develop unique brand extensions
• Lead development of unique preservatives,
additives, and packaging technology

14. Acquisition
 Jones Soda
• Growing specialty, premium soda market
niche
• Fits with PepsiCo’s core competency
• Can possibly be acquired for $10M
• NPV of $19M, with potential for nearly
$50M

15. Recommended Alternative
 Acquire Interstate Bakeries
Corporation
• Portfolio of bread, bakery goods, and
sugary snack foods,which uses many of the
same distribution channels
• Recognizable, segment leading brands with
Hostess and Dolly Madison

16. Recommended Alternative—Financials
IBC Present Value Calculations
Realistic Assumptions
amounts in $ millions
Actual <--------------------------Estimated--------------------------->
12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
Sales 3,496 3,531 3,566 3,602 3,638 3,674
Cost of Goods Sold (1,653) (1,670) (1,686) (1,703) (1,720) (1,737)
Selling, Delivery and Administrative(1,586) (1,190) (892) (901) (910) (919)
Depreciation & Amortization (111) (112) (113) (114) (116) (117)
Interest Expense (47) (47) (47) (47) (47) (47)
Net Income Before Taxes 99 513 828 836 845 854
Taxes (39) (179) (290) (293) (296) (299)
Net Income Before Taxes 60 333 538 544 549 555
12/31/05 Terminal Value 3,938
Total Cash Flows 333 538 544 4,487
Discounted Cash Flows 290 406 357 2,557
Present Value of Cash Flows 3,609

17. Thank you