PepsiCo’s Diversification Strategy in 2014 (Case)

with more than $53 billion returned to shareholders
between 2003 and 2012. The company bolstered its
cash returns through carefully considered capital
expenditures and acquisitions and a focus on opera-
tional excellence. Its Performance with Purpose plan
utilized investments in manufacturing automation, a
rationalized global manufacturing plan, reengineered
distribution systems, and simplified organization
structures to drive efficiency. In addition, the com-
pany’s Performance with Purpose plan was focused
on minimizing the company’s impact on the envi-
ronment by lowering energy and water consumption
and reducing its use of packaging material, providing
a safe and inclusive workplace for employees, and
supporting and investing in the local communities
in which it operated. PepsiCo had been listed on the
Dow Jones Sustainability World Index for seven con-
secutive years and listed on the North America Index
for eight consecutive years as of 2013.
Even though the company had recorded a num-
ber of impressive achievements over the past decade,
its growth had slowed since 2011. In fact, the spikes in
the company’s revenue growth since 2000 had resulted
from major acquisitions such as the $13.6 billion acqui-
sition of Quaker Oats in 2001, the 2010 acquisition
of the previously independent Pepsi Bottling Group
and PepsiCo Americas for $8.26 billion, and the
acquisition of Russia’s leading food-and-beverage
company, Wimm-Bill-Dann (WBD) Foods, for
$3.8 billion in 2011. A summary of PepsiCo’s finan-
cial performance for 2004 through 2013 is shown in
Exhibit 1. Exhibit 2 tracks PepsiCo’s market perfor-
mance between 2004 and July 2014.
PepsiCo’s Diversification Strategy in 2014
John E. Gamble
Texas A&M University–Corpus Christi
P
epsiCo was the world’s largest snack and bev-
erage company, with 2013 net revenues of
approximately $66.4 billion. The company’s
portfolio of businesses in 2014 included Frito-Lay
salty snacks, Quaker Chewy granola bars, Pepsi
soft-drink products, Tropicana orange juice, Lip-
ton Brisk tea, Gatorade, Propel, SoBe, Quaker
Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni,
Aunt Jemima pancake mix, and many other regu-
larly consumed products. The company viewed the
lineup as highly complementary since most of its
products could be consumed together. For example,
Tropicana orange juice might be consumed during
breakfast with Quaker Oatmeal, and Doritos and a
Mountain Dew might be part of someone’s lunch. In
2014, PepsiCo’s business lineup included 22 $1 billion
global brands.
The company’s top managers were focused on
sustaining the impressive performance through strat-
egies keyed to product innovation, close relationships
with distribution allies, international expansion, and
strategic acquisitions. Newly introduced products
such as Mountain Dew KickStart, Tostitos Can-
tina tortilla chips, Quaker Real Medleys, Starbucks
Refreshers, and Gatorade Energy Chews accounted
for 15 to 20 percent of all new growth in recent years.
New product innovations that addressed consumer
health and wellness concerns were important con-
tributors to the company’s growth, with PepsiCo’s
better-for-you and good-for-you products becoming
focal points in the company’s new product develop-
ment initiatives.
In addition to focusing on strategies designed
to deliver revenue and earnings growth, the com-
pany maintained an aggressive dividend policy,
CASE 21
Copyright © 2014 by John E. Gamble. All rights reserved.

CASE 21 PepsiCo’s Diversification Strategy in 2014 C-307
COMPANY HISTORY
PepsiCo, Inc., was established in 1965 when Pepsi-
Cola and Frito-Lay shareholders agreed to a merger
between the salty-snack icon and soft-drink giant.
The new company was founded with annual reve-
nues of $510 million and such well-known brands
as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Chee-
tos, Ruffles, and Rold Gold. PepsiCo’s roots can
be traced to 1898 when New Bern, North Carolina,
pharmacist Caleb Bradham created the formula
for a carbonated beverage he named Pepsi-Cola.
The company’s salty-snack business began in 1932
when Elmer Doolin, of San Antonio, Texas, began
manufacturing and marketing Fritos corn chips and
Herman Lay started a potato chip distribution busi-
ness in Nashville, Tennessee. In 1961, Doolin and
Lay agreed to a merger between their businesses to
establish the Frito-Lay Company.
During PepsiCo’s first five years as a snack and
beverage company, it introduced new products such
as Doritos and Funyuns, entered markets in Japan
and eastern Europe, and opened, on average, one new
snack-food plant per year. By 1971, PepsiCo had more
than doubled its revenues to reach $1 billion. The
company began to pursue growth through acquisi-
tions outside snacks and beverages as early as 1968,
but its 1977 acquisition of Pizza Hut significantly
shaped the strategic direction of PepsiCo for the next
20 years. The acquisitions of Taco Bell in 1978 and
Kentucky Fried Chicken in 1986 created a business
portfolio described by Wayne Calloway (PepsiCo’s
CEO between 1986 and 1996) as a balanced three-
legged stool. Calloway believed the combination of
snack foods, soft drinks, and fast food offered con-
siderable cost sharing and skill transfer opportuni-
ties, and he routinely shifted managers among the
company’s three divisions as part of the company’s
management development efforts.
PepsiCo strengthened its portfolio of snack
foods and beverages during the 1980s and 1990s
with the acquisitions of Mug Root Beer, 7-Up Inter-
national, Smartfood ready-to-eat popcorn, Walker’s
Crisps (United Kingdom), Smith’s Crisps (United
Kingdom), Mexican cookie company Gamesa, and
Sunchips. Calloway added quick-service restaurants
Hot-n-Now in 1990; California Pizza Kitchens in
1992; and East Side Mario’s, D’Angelo Sandwich
Shops, and Chevy’s Mexican Restaurants in 1993.
The company expanded beyond carbonated bever-
ages through a 1992 agreement with Ocean Spray to
distribute single-serving juices, the introduction of
Lipton ready-to-drink (RTD) teas in 1993, and the
introduction of Aquafina bottled water and Frappuc-
cino ready-to-drink coffees in 1994.
By 1996 it had become clear to PepsiCo man-
agement that the potential strategic-fit benefits
existing between restaurants and PepsiCo’s core
beverage and snack businesses were difficult to cap-
ture. In addition, any synergistic benefits achieved
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Net revenue $66,415 $65,492 $66,504 $57,838 $43,232 $43,251 $39,474 $35,137 $32,562 $29,261
Net income 6,740 6,178 6,443 6,320 5,946 5,142 5,599 5,065 4,078 4,212
Income per
common share—
basic, continuing
operations
$4.37 $3.96 $4.08 $3.97 $3.81 $3.26 $3.38 $3.00 $2.43 $2.45
Cash dividends
declared per
common share
$2.24 $2.13 $2.03 $1.89 $1.78 $1.65 $1.42 $1.16 $1.01 $0.85
Total assets $77,478 74,638 72,882 68,153 39,848 35,994 34,628 29,930 31,727 27,987
Long-term debt 24,333 23,544 20,568 19,999 7,400 7,858 4,203 2,550 2,313 2,397
Source: PepsiCo 10-K reports, various years.
EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2004–2013
(in millions, except per share amounts)

C-308 PART 2 Cases in Crafting and Executing Strategy
Saudi Arabian salty-snack market), and the Quaker
Oats Company.
The 2001 Acquisition of Quaker Oats
At $13.9 billion, Quaker Oats was PepsiCo’s larg-
est acquisition and gave it the number-one brand
of oatmeal in the United States, with more than a
60 percent category share; the leading brand of rice
were more than offset by the fast-food industry’s fierce
price competition and low profit margins. In 1997,
CEO Roger Enrico spun off the company’s restaurants
as an independent, publicly traded company to focus
PepsiCo on food and beverages. Soon after the spin-
off of PepsiCo’s fast-food restaurants was completed,
Enrico acquired Cracker Jack, Tropicana, Smith’s
Snackfood Company in Australia, SoBe teas and alter-
native beverages, Tasali Snack Foods (the leader in the
EXHIBIT 2 Monthly Performance of PepsiCo, Inc.’s Stock Price, 2004–July 2014
05 06 07
Year
08 09 10 11 12 13 14
StockPrice($)
45
50
55
60
65
70
75
80
85
90
(a) Trend in PepsiCo, Inc.’s Common Stock Price
Year
PercentChange(1998=0)
05 06 07 08 09 10 11 12 13 14
190
170
160
150
140
130
120
110
10
210
230
220
180
PepsiCo’s
Stock Price
S&P 500
(b) Performance of PepsiCo, Inc.’s Stock Price
versus the S&P 500 Index

cakes and granola snack bars; and other well-known
grocery brands such as Cap’n Crunch, Rice-A-Roni,
and Aunt Jemima. However, Quaker’s most valuable
asset in its arsenal of brands was Gatorade.
Gatorade was developed by University of Flor-
ida researchers in 1965, but it was not marketed
commercially until the formula was sold to Stokely-
Van Camp in 1967. When Quaker Oats acquired the
brand from Stokely-Van Camp in 1983, Gatorade
gradually made a transformation from a regionally
distributed product with annual sales of $90 mil-
lion to a $2 billion powerhouse. Gatorade was able
to increase sales by more than 10 percent annually
during the 1990s, with no new entrant to the sports
beverage category posing a serious threat to the
brand’s dominance. PepsiCo, Coca-Cola, France’s
Danone Group, and Swiss food giant Nestlé all were
attracted to Gatorade because of its commanding
market share and because of the expected growth
in the isotonic sports beverage category. PepsiCo
became the successful bidder for Quaker Oats and
Gatorade with an agreement struck in December
2000, but the merger would not receive U.S. Fed-
eral Trade Commission (FTC) approval until August
2001. The FTC’s primary concern over the merger
was that Gatorade’s inclusion in PepsiCo’s portfo-
lio of snacks and beverages might give the company
too much leverage in negotiations with convenience
stores and ultimately force smaller snack-food and
beverage companies out of convenience store chan-
nels. In its approval of the merger, the FTC stipu-
lated that Gatorade and PepsiCo’s soft drinks could
not be jointly distributed for 10 years.
Acquisitions after 2001
After the completion of the Quaker Oats acquisi-
tion in 2001, the company focused on integration of
Quaker Oats’ food, snack, and beverage brands into
the PepsiCo portfolio. The company made a number
of “tuck-in” acquisitions of small, fast-growing food
and beverage companies in the United States and
internationally to broaden its portfolio of brands.
Tuck-in acquisitions in 2006 included Stacy’s bagel
and pita chips, Izze carbonated beverages, Nether-
lands-based Duyvis nuts, and Star Foods (Poland).
Acquisitions made during 2007 included Naked
Juice fruit beverages, Sandora juices in the Ukraine,
New Zealand’s Bluebird snacks, Penelopa nuts and
seeds in Bulgaria, and Brazilian snack producer
Lucky. The company also entered into a joint ven-
ture with the Strauss Group in 2007 to market
Sabra—the top-selling and fastest-growing brand
of hummus in the United States and Canada. The
company acquired the Russian beverage producer
Lebedyansky in 2008 for $1.8 billion, and in 2010 it
acquired Marbo, a potato chip production operation
in Serbia.
In 2010 and 2011, the company executed its
largest acquisitions since the 2001 acquisition of
Quaker Oats. In 2010, PepsiCo acquired the previ-
ously independent Pepsi Bottling Group and Pep-
siCo Americas for $8.26 billion in cash and PepsiCo
common shares. The acquisition was designed to
better integrate its global distribution system for its
beverage business. In 2011, it acquired Russia’s lead-
ing food and beverage company, Wimm-Bill-Dann
Foods, for $3.8 billion. The combination of acquisi-
tions and the strength of PepsiCo’s core snacks and
beverages business allowed the company’s revenues
to increase from approximately $29 billion in 2004
to more than $66 billion in 2013. Exhibit 3 presents
PepsiCo’s consolidated statements of income for
2011–2013, while the company’s consolidated bal-
ance sheets for 2012–2013 are presented in Exhibit
4. The company’s calculation of free cash flow for
2011–2013 is shown in Exhibit 5.
BUILDING SHAREHOLDER
VALUE IN 2014
Three people had held the position of CEO since the
company began its portfolio restructuring in 1997.
Even though Roger Enrico was the chief architect of
the business lineup as it stood in 2007, his successor,
Steve Reinemund, and Indra Nooyi, the company’s
CEO in 2007, were both critically involved in the
restructuring. Nooyi joined PepsiCo in 1994 and
developed a reputation as a tough negotiator who
engineered the 1997 spin-off of Pepsi’s restaurants,
spearheaded the 1998 acquisition of Tropicana, and
played a critical role in the 1999 IPO of Pepsi’s
bottling operations. After being promoted to chief
financial officer, Nooyi was also highly involved
in the 2001 acquisition of Quaker Oats. Nooyi was
selected as the company’s CEO upon Reinemund’s
retirement in October 2006. Nooyi had emigrated
to the United States in 1978 to attend Yale’s Grad-
uate School of Business, and she worked with the

develop good-for-you and better-for-you products
would create growth opportunities from the intersec-
tion of business and public interests.
PepsiCo was organized into six business divi-
sions, which all followed the corporation’s general
strategic approach. Frito-Lay North America manu-
factured, marketed, and distributed such snack foods
as Lay’s potato chips, Doritos tortilla chips, Cheetos
cheese snacks, Fritos corn chips, Grandma’s cook-
ies, and Smartfood popcorn. Quaker Foods North
America manufactured and marketed cereals, rice and
pasta dishes, granola bars, and other food items that
were sold in supermarkets. Latin American Foods
manufactured, marketed, and distributed snack
foods and many Quaker-branded cereals and snacks
in Latin America. PepsiCo Americas Beverages
manufactured, marketed, and sold beverage con-
centrates, fountain syrups, and finished goods under
such brands as Pepsi, Gatorade, Aquafina, Tropi-
cana, Lipton, Dole, and SoBe throughout North
and South America. PepsiCo Europe manufactured,
Boston Consulting Group, Motorola, and Asea
Brown Boveri before arriving at PepsiCo in 1994. In
the eight years under Nooyi’s leadership, PepsiCo’s
revenues had increased by nearly 90 percent, and its
share price had grown by 50 percent.
In 2014, PepsiCo’s corporate strategy had diver-
sified the company into salty and sweet snacks, soft
drinks, orange juice, bottled water, ready-to-drink
teas and coffees, purified and functional waters,
isotonic beverages, hot and ready-to-eat breakfast
cereals, grain-based products, and breakfast condi-
ments. Most PepsiCo brands had achieved number-
one or number-two positions in their respective food
and beverage categories through strategies keyed to
product innovation, close relationships with distri-
bution allies, international expansion, and strategic
acquisitions. The company was committed to pro-
ducing the highest-quality products in each category
and was working diligently on product reformu-
lations to make snack foods and beverages less
unhealthy. The company believed that its efforts to
2013 2012 2011
Net revenue $66,415 $65,492 $66,504
Cost of sales 31,243 31,291 31,593
Selling, general, and administrative expenses 25,357 24,970 25,145
Amortization of intangible assets 110 119 133
Operating profit 9,705 9,112 9,633
Interest expense (911) (899) (856)
Interest income and other 97 91 57
Income before income taxes 8,891 8,304 8,834
Provision for income taxes 2,104 2,090 2,372
Net income 6,787 6,214 6,462
Less: Net income attributable to noncontrolling interests 47 36 19
Net income attributable to PepsiCo $ 6,740 $ 6,178 $ 6,443
Net income attributable to PepsiCo per common share:
Basic $4.37 $3.96 $4.08
Diluted $4.32 $3.92 $4.03
Weighted-average common shares outstanding:
Basic 1,541 1,557 1,576
Diluted 1,560 1,575 1,597
Cash dividends declared per common share $2.24 $2.1275 $2.025
Source: PepsiCo, Inc., 10-K report, 2013.
EXHIBIT 3 PepsiCo, Inc.’s Consolidated Statements of Income, 2011–2013
(in millions, except per share data)

2013 2012
Assets
Current assets
Cash and cash equivalents $ 9,375 $ 6,297
Short-term investments 303 322
Accounts and notes receivable, net 6,954 7,041
Inventories 3,409 3,581
Prepaid expenses and other current assets 2,162 1,479
Total current assets 22,203 18,720
Property, plant, and equipment, net 18,575 19,136
Amortizable intangible assets, net 1,638 1,781
Goodwill 16,613 16,971
Other nonamortizable intangible assets 14,401 14,744
Nonamortizable intangible assets 31,014 31,715
Investments in noncontrolled affiliates 1,841 1,633
Other assets 2,207 1,653
Total assets $ 77,478 $74,638
Liabilities and Equity
Current liabilities
Short-term obligations $ 5,306 $ 4,815
Accounts payable and other current liabilities 12,533 11,903
Income taxes payable — 371
Total current liabilities 17,839 17,089
Long-term debt obligations 24,333 23,544
Other liabilities 4,931 6,543
Deferred income taxes 5,986 5,063
Total liabilities 53,089 52,239
Commitments and contingencies
Preferred stock, no par value 41 41
Repurchased preferred stock (171) (164)
PepsiCo common shareholders’ equity
Common stock, par value 12/3¢ per share (authorized 3,600 shares, issued,
net of repurchased common stock at par value: 1,529 and 1,544 shares,
respectively) 25 26
Capital in excess of par value 4,095 4,178
Retained earnings 46,420 43,158
Accumulated other comprehensive loss (5,127) (5,487)
Repurchased common stock, in excess of par value (337 and 322 shares,
respectively) (21,004) (19,458)
Total PepsiCo common shareholders’ equity 24,409 22,417
Noncontrolling interests 110 105
Total equity 24,389 22,399
Total liabilities and equity $ 77,478 $74,638
EXHIBIT 4 PepsiCo, Inc.’s Consolidated Balance Sheets, 2012–2013
(in millions, except per share data)

five times greater than runner-up Kellogg’s market
share of 6.9 percent. Convenience foods included
both salty and sweet snacks, such as chips, pretzels,
ready-to-eat popcorn, crackers, dips, snack nuts and
seeds, candy bars, and cookies.
PepsiCo’s Performance with Purpose goals applied
to all of its business units. Frito-Lay North Ameri-
ca’s (FLNA’s) revenues increased by 3 percent dur-
ing 2013, but its net revenue increased by 4 percent
and its operating profit increased by 6 percent. The
division’s management believed that growth in
snack foods remained possible since typical indi-
viduals, on average, consumed snacks 67 times per
month. On average, consumers chose Frito-Lay
snacks only eight times per month. To increase its
share of snack consumption, FLNA was focused on
developing additional better-for-you (BFY) snacks
like Baked Cheetos and Doritos packaged in smaller
portion sizes. Between 2008 and 2013, improving
the performance of the division’s core salty brands
and further developing health and wellness prod-
ucts were key strategic initiatives. The company had
eliminated trans fats from all Lay’s, Fritos, Ruffles,
Cheetos, Tostitos, and Doritos varieties, marketed a
wide variety of gluten-free products, and was look-
ing for further innovations to make its salty snacks
more healthy. The company had introduced Lay’s
Classic Potato Chips cooked in sunflower oil that
retained Lay’s traditional flavor but contained 50%
less saturated fat.
Good-for-you (GFY) snacks, such as Flat Earth
fruit and vegetable snacks, offered an opportunity
for the company to exploit consumers’ desires for
healthier snacks and address a deficiency in most
diets. Americans, on average, consumed only about
50 percent of the U.S. Department of Agriculture’s
recommended daily diet of fruits and vegetables.
Other GFY snacks included Stacy’s Pita Chips,
marketed, and sold snacks and beverages through-
out Europe, while the company’s Asia, Middle East,
and Africa division produced, marketed, and distrib-
uted snack brands and beverages in more than 150
countries in those regions. A full listing of Frito-Lay
snacks, PepsiCo beverages, and Quaker Oats prod-
ucts is presented in Exhibit 6. Select financial infor-
mation for PepsiCo’s six reporting units is presented
in Exhibit 7.
Frito-Lay North America
As of 2014, three key trends that were shaping the
industry were convenience, a growing awareness
of the nutritional content of snack foods, and indul-
gent snacking. A product manager for a regional
snack producer explained, “Many consumers want
to reward themselves with great-tasting, gourmet
flavors and styles. . . . The indulgent theme carries
into seasonings as well. Overall, upscale, restaurant-
influenced flavor trends are emerging to fill con-
sumers’ desires to escape from the norm and taste
snacks from a wider, often global, palate.”1
Most
manufacturers had developed new flavors of salty
snacks such as jalapeno and cheddar tortilla chips
and pepper jack potato chips to attract the interest of
indulgent snackers. Manufacturers had also begun
using healthier oils when processing chips and had
expanded lines of baked and natural salty snacks to
satisfy the demands of health-conscious consumers.
Snacks packaged in smaller bags not only addressed
overeating concerns but also were convenient to
take along on an outing. In 2013 Frito-Lay owned
the top-selling chip brand in each U.S. salty-snack
category and held more than a 2-to-1 lead over the
next-largest snack-food maker in the United States.
Frito-Lay’s 36.6 percent market share of conve-
nience foods sold in the United States was more than
2013 2012 2011
Net cash provided by operating activities $9,688 $8,479 $8,944
Capital spending (2,795) (2,714) (3,339)
Sales of property, plant, and equipment 109 95 84
Free cash flow $ 7,002 $5,860 $5,689
EXHIBIT 5 Net Cash Provided By PepsiCo’s Operating Activities, 2011–2013

EXHIBIT 6 PepsiCo, Inc.’s Snack, Beverage, and Quaker Oats Brands, 2014
Snack Brands Beverage Brands Quaker Oats Brands
• Lay’s potato chips
• Maui Style potato chips
• Ruffles potato chips
• Doritos tortilla chips
• Tostitos tortilla chips
• Santitas tortilla chips
• Fritos corn chips
• Cheetos cheese-flavored snacks
• Rold Gold pretzels and snack mix
• Funyuns onion-flavored rings
• Go Snacks
• Sunchips multigrain snacks
• Sabritones puffed-wheat snacks
• Cracker Jack candy-coated
popcorn
• Chester’s popcorn
• Grandma’s cookies
• Munchos potato crisps
• Smartfood popcorn
• Baken-ets fried pork skins
• Oberto meat snacks
• Rustler’s meat snacks
• Churrumais fried corn strips
• Frito-Lay nuts
• Frito-Lay, Ruffles, Fritos, and
Tostitos dips and salsas
• Frito-Lay, Doritos, and Cheetos
snack crackers
• Fritos, Tostitos, Ruffles, and
Doritos snack kits
• Grain Waves
• Lay’s Stax potato crisps
• Miss Vickie’s potato chips
• Munchies snack mix
• Stacy’s Pita Chips
• Flat Earth fruit and vegetable
chips
• Red Rock Deli Chips
• Sabra hummus
Outside North America
• Bocabits wheat snacks
• Crujitos corn snacks
• Pepsi-Cola
• Mountain Dew
• Mountain Dew AMP energy drink
• Mug
• Sierra Mist
• Slice
• Lipton Brisk (partnership)
• Lipton Iced Tea (partnership)
• Dole juices and juice drinks
(license)
• FruitWorks juice drinks
• Aquafina purified drinking water
• Frappuccino ready-to-drink coffee
(partnership)
• Starbucks DoubleShot
(partnership)
• SoBe juice drinks, dairy, and teas
• SoBe energy drinks (No Fear and
Adrenaline Rush)
• H2OH!
• Gatorade
• Propel
• Tropicana
• Tropicana Twister
• Tropicana Smoothie
• Izze
• Naked Juice
• Mirinda
• 7UP
• Pepsi
• Kas
• Teem
• Manzanita Sol
• Paso de los Toros
• Fruko
• Evervess
• Yedigun
• Shani
• Fiesta
• D&G (license)
• Mandarin (license)
• Quaker Oatmeal
• Cap’n Crunch cereal
• Life cereal
• Quaker 100% Natural cereal
• Quaker Squares cereal
• Quisp cereal
• King Vitaman cereal
• Quaker Oh’s! cereal
• Mother’s cereal
• Quaker grits
• Quaker Oatmeal-to-Go
• Aunt Jemima mixes & syrups
• Quaker rice cakes
• Quaker rice snacks (Quakes)
• Quaker Chewy granola bars
• Quaker Dipps granola bars
• Rice-A-Roni side dishes
• Pasta Roni side dishes
• Near East side dishes
• Puffed Wheat
• Harvest Crunch cereal
• Quaker baking mixes
• Spudz snacks
• Crisp’ums baked crisps
• Quaker Fruit & Oatmeal bars
• Quaker Fruit & Oatmeal Bites
• Quaker Fruit and Oatmeal
Toastables
• Quaker Soy Crisps
• Quaker Bakeries
• FrescAvena beverage powder
• Toddy chocolate powder
• Toddynho chocolate drink
• Coqueiro canned fish
• Sugar Puffs cereal
• Puffed Wheat
• Cruesli cereal
• Hot Oat Crunch cereal
• Quaker Oatso Simple hot cereal
• Scott’s Porage Oats
(Continued)

declined between 2011 and 2013. Quaker Oats was
the star product of the division, with a command-
ing share of the North American market for oatmeal
in 2013. Rice-A-Roni also held a number-one mar-
ket share in the rice and pasta side-dish segment
of the consumer food industry. More than one-half
of Quaker Foods’ 2013 revenues was generated by
BFY and GFY products.
Latin American Foods
PepsiCo management believed international markets
offered the company’s greatest opportunity for growth
since per capita consumption of snacks in the United
States averaged 6.6 servings per month while per
capita consumption in other developed countries aver-
aged 4 servings per month and in developing countries
averaged 0.4 serving per month. PepsiCo executives
expected China and Brazil to become the two largest
international markets for snacks. The United Kingdom
Sabra hummus, salsas and dips, and Quaker Chewy
granola bars. In 2013, FLNA manufactured and mar-
keted baked versions of its most popular products,
such as Cheetos, Lay’s potato chips, Ruffles potato
chips, and Tostitos Scoops! tortilla chips.
Quaker Foods North America
Quaker Foods produced, marketed, and distributed
hot and ready-to-eat cereals, pancake mixes and
syrups, and rice and pasta side dishes in the United
States and Canada. The division recorded sales of
approximately $2.6 billion in 2013. The sales vol-
ume of Quaker Foods products decreased by nearly
1 percent annually between 2011 and 2013 with
Quaker Oatmeal, Life cereal, and Cap’n Crunch
cereal volumes competing in mature industries with
weak competitive positions relative to Kellogg’s and
General Mills. Sales of Aunt Jemima syrup and pan-
cake mix and Rice-A-Roni rice and pasta kits also
Snack Brands Beverage Brands Quaker Oats Brands
• Fandangos corn snacks
• Hamka’s snacks
• Niknaks cheese snacks
• Quavers potato snacks
• Sabritas potato chips
• Smiths potato chips
• Walkers potato crisps
• Gamesa cookies
• Doritos Dippas
• Sonric’s sweet snacks
• Wotsits corn snacks
• Red Rock Deli
• Kurkure
• Smiths Sensations
• Cheetos Shots
• Quavers Snacks
• Bluebird Snacks
• Duyvis Nuts
• Müller yogurts
• Lucky snacks
• Penelopa nuts and seeds
• Marbo
• Wimm-Bill-Dann
• Radical Fruit
• Tropicana Touche de Lait
• Alvalle gazpacho fruit juices and
vegetable juices
• Tropicana Season’s Best juices and
juice drinks
• Loóza juices and nectars
• Copella juices
• Frui’Vita juices
• Sandora juices
• Scott’s So Easy Oats
• Quaker bagged cereals
• Quaker Mais Sabor
• Quaker Oats
• Quaker oat flour
• Quaker Meu Mingau
• Quaker cereal bars
• Quaker Oatbran
• Corn goods
• Magico chocolate powder
• Quaker Vitaly Cookies
• 3 Minutos Mixed Cereal
• Quaker Mágica
• Quaker Mágica con Soja
• Quaker pastas
• Quaker Frut
Source: Pepsico.com.
EXHIBIT 6 (Continued)

EXHIBIT 7 Select Financial Data for PepsiCo, Inc.’s Business Segments, 2011–2013
(in millions)
2013 2012 2011
Net revenues
Frito-Lay North America $14,126 $13,574 $13,322
Quaker Foods North America 2,612 2,636 2,656
Latin American Foods 8,350 7,780 7,156
PepsiCo Americas Beverages 21,068 21,408 22,418
Europe 13,752 13,441 13,560
Asia, Middle East, Africa 6,507 6,653 7,392
Total division 66,415 65,492 66,504
Operating profit
Frito-Lay North America $ 3,877 $ 3,646 $ 3,621
Quaker Foods North America 617 695 797
Europe 1,293 1,330 1,210
Total division 11,158 10,414 10,866
Capital expenditures
Frito-Lay North America $ 423 $ 365 $ 439
Latin American Foods 384 436 413
PepsiCo Americas Beverages 716 702 1,006
Europe 550 575 588
Asia, Middle East, Africa 531 510 693
Total division 2,642 2,625 3,182
Total assets
Frito-Lay North America $ 5,308 $ 5,332 $ 5,384
Quaker Foods North America 983 966 1,024
Europe 18,702 19,218 18,461
Total division 65,926 67,146 66,770
Depreciation and other amortization
PepsiCo Americas Beverages 863 855 865
Europe 525 522 522
Total division 2,553 2,570 2,604
(Continued)

market share. Dr. Pepper Snapple Group was the
third-largest beverage seller in 2013, with a market
share of 8.9 percent. Private-label sellers of bever-
ages collectively held an 8 percent market share in
2013. As with Frito-Lay, PepsiCo’s beverage busi-
ness contributed greatly to the corporation’s overall
profitability and free cash flows.
In 2013, PepsiCo Americas Beverages (PAB)
accounted for 32 percent of the corporation’s total
revenues and 26 percent of its operating profits. The
PAB division’s $1 billion brands included Gatorade,
Tropicana fruit juices, Lipton ready-to-drink tea,
Pepsi, Diet Pepsi, Mountain Dew, Diet Mountain
Dew, Aquafina, Miranda, Sierra Mist, Dole fruit
drinks, Starbucks cold-coffee drinks, and SoBe.
Gatorade was the number-one brand of sports drink
sold worldwide; Tropicana was the number-two
seller of juice and juice drinks globally; and PAB
was the second-largest seller of carbonated soft drinks
worldwide, with a 29 percent market share in 2014.
Market leader Coca-Cola held a 40.5 percent share of
the carbonated soft-drink (CSD) industry in 2014.
Carbonated soft drinks were the most consumed
type of beverage in the United States, with industry
sales of $20.4 billion, but the industry had declined
by 1 to 2 percent annually for nearly a decade. The
overall decline in CSD consumption was a result of
consumers’ interest in healthier food and beverage
choices. In contrast, flavored and enhanced water,
energy drinks, ready-to-drink teas, and bottled water
were growing beverage categories that were cap-
turing a larger share of the stomachs in the United
States and internationally.
PepsiCo’s Carbonated Soft-Drink Business
Among Pepsi’s most successful strategies to sustain
was estimated to be the third-largest international mar-
ket for snacks, while developing markets Mexico and
Russia were expected to be the fourth- and fifth-largest
international markets, respectively.
Developing an understanding of consumer taste
preferences was a key to expanding into interna-
tional markets. Taste preferences for salty snacks
were more similar from country to country than
were preferences for many other food items, and this
allowed PepsiCo to make only modest modifications
to its snacks in most countries. For example, clas-
sic varieties of Lay’s, Doritos, and Cheetos snacks
were sold in Latin America. In addition, consumer
characteristics in the United States that had forced
snack-food makers to adopt better-for-you or good-
for-you snacks applied in most other developed
countries as well.
PepsiCo operated 50 snack-food manufactur-
ing and processing plants and 640 warehouses in
Latin America, with its largest facilities located in
Guarulhos, Brazil; Monterrey, Mexico; Mexico
City, Mexico; and Celaya, Mexico. PepsiCo was
the second-largest seller of snacks and beverages in
Mexico, and its Doritos, Marias Gamesa, Cheetos,
Ruffles, Emperador, Saladitas, Sabritas, and Tosti-
tos brands were popular throughout most of Latin
America. The division’s revenues had grown from
$7.2 billion in 2011 to $8.3 billion in 2013 and
accounted for 12 percent of 2013 total net revenues.
PepsiCo Americas Beverages
PepsiCo was the largest seller of liquid refreshments
in the United States, with a 24 percent share of the
market in 2013. Coca-Cola was the second-largest
nonalcoholic beverage producer, with a 21 percent
2013 2012 2011
Amortization of other intangible assets
Quaker Foods North America — — —
PepsiCo Americas Beverages 58 59 65
Europe 32 36 39
Total division 110 119 133
EXHIBIT 7 (Continued)

while its operating profit declined from $1,210 to
$1,174 over the same period of time.
Value Chain Alignment between
PepsiCo Brands and Products
PepsiCo’s management team was dedicated to
capturing strategic-fit benefits within the business
lineup throughout the value chain. The company’s
procurement activities were coordinated globally
to achieve the greatest possible economies of scale,
and best practices were routinely transferred among
its more than 200 plants, over 3,500 distribution sys-
tems, and 120,000 service routes around the world.
PepsiCo also shared market research information
with its divisions to better enable each division to
develop new products likely to be hits with consum-
ers, and the company coordinated its Power of One
activities across product lines.
PepsiCo management had a proven ability to
capture strategic fits between the operations of new
acquisitions and its other businesses. The Quaker
Oats integration produced a number of noteworthy
successes, including $160 million in cost savings
resulting from corporatewide procurement of prod-
uct ingredients and packaging materials and an esti-
mated $40 million in cost savings attributed to the
joint distribution of Quaker snacks and Frito-Lay
products. In total, the company estimated that the
synergies among its business units generated approx-
imately $1 billion annually in productivity savings.
PEPSICO’S STRATEGIC
SITUATION IN 2014
For the most part, PepsiCo’s strategies seemed to be
firing on all cylinders in 2014. PepsiCo’s chief man-
agers expected the company’s lineup of snack, bev-
erage, and grocery items to generate operating cash
flows sufficient to reinvest in its core businesses,
provide cash dividends to shareholders, fund a $15
billion share-buyback plan, and pursue acquisitions
that would provide attractive returns. Nevertheless,
the low relative profit margins of PepsiCo’s inter-
national businesses created the need for a continued
examination of its strategy and operations to better
exploit strategic fits between the company’s interna-
tional business units.
The company had developed a new divisional
structure in 2008 to combine its food and beverage
volume and share in soft drinks was its Power of One
strategy, which attempted to achieve the synergistic
benefits of a combined Pepsi-Cola and Frito-Lay
envisioned by shareholders of the two companies in
1965. The Power of One strategy called for super-
markets to place Pepsi and Frito-Lay products side
by side on shelves. The company was also focused
on soft-drink innovation to sustain sales and market
share, including new formulations to lower the calo-
rie content of nondiet drinks.
PepsiCo’s Noncarbonated Beverage Brands
Although carbonated beverages made up the largest
percentage of PAB’s total beverage volume, much
of the division’s growth was attributable to the suc-
cess of its noncarbonated beverages. Aquafina was
the number-one brand of bottled water in the United
States. Gatorade, Tropicana, Aquafina, SoBe, Star-
bucks Frappuccino, Lipton RTD teas, and Propel
were all leading BFY and GFY beverages in the
markets where they were sold.
PepsiCo Europe
All of PepsiCo’s global brands were sold in Europe,
as well as its country- or region-specific brands such
as Domik v Derevne, Chjudo, and Agusha. PespiCo
Europe operated 125 plants and approximately
525 warehouses, distribution centers, and offices in
eastern and western Europe. The company’s acquisi-
tion of Wimm-Bill-Dann Foods, along with sales of
its long-time brands, made it the number-one food and
beverage company in Russia, with a 2-to-1 advantage
over its nearest competitor. It was also the leading
seller of snacks and beverages in the United King-
dom. PepsiCo Europe management believed further
opportunities in other international markets existed,
with opportunities to distribute many of its newest
brands and product formulations throughout Europe.
Asia, Middle East, and Africa
PepsiCo’s business unit operating in Asia, the Mid-
dle East, and Africa manufactured and marketed all
of the company’s global brands and many regional
brands such as Kurkure and Chipsy. PepsiCo oper-
ated 45 plants, 490 distribution centers, warehouses,
and offices located in Egypt, Jordan, and China and
was the number-one brand of beverages and snacks
in India, Egypt, Saudi Arabia, United Arab Emirates,
and China. The division’s revenues had declined
from $7.4 billion in 2011 to $6.5 billion in 2013,

be required to improve the profitability of Pep-
siCo’s international operations and to help restore
previous revenue and earnings growth rates. Pos-
sible actions might include a reprioritization of
internal uses of cash, new acquisitions, further
efforts to capture strategic fits existing between the
company’s various businesses, or the divestiture of
businesses with poor prospects of future growth
and minimal strategic fit with PepsiCo’s other
businesses.
businesses in Latin America into a common divi-
sion. Also, the company’s international businesses
were reorganized to boost profit margins in Europe
and Asia, the Middle East, and Africa. However,
more than five years after the reorganization, the
performance of the company’s international busi-
nesses continued to lag that of its North American
businesses by a meaningful margin. Some food
and beverage industry analysts had speculated that
additional corporate strategy changes might also
ENDNOTES
1
As quoted in “Snack attack,” Private Label Buyer, August 2006, p. 26.

PepsiCo’s Diversification Strategy in 2014 (Case)

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PepsiCo’s Diversification Strategy in 2014 (Case)