PepsiCo - Case Analysis

1
Gustavo,
Matheus,
Jose, and
William
Adam,
BUS 410 - Business Policy Strategic University
of Mount OliveTillman School of Business
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PepsiCo Overview

• Background and Mission
• Environment Assessment
• Capabilities Analysis
• Goals
• Strategy
• Implementation Priorities

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I. Background Mission

1. History

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More than 1000 drinks!!!!
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Headquarters Purchase NY
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I. Background Mission

1. Products and services

• Global Products
• Pepsi (carbonated soda)
• Lays (chips)
• Tropicana (fruit juices)
• Quaker (cereals)
• Gatorade (performance drink)

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I. Background Mission

1. Products and services

• Good for you
• Naked Juice Kale Blazer
• Tropicana Pure Premium
• Sabra Roasted Garlic Hummus
• Quaker Stila Mango
• Aquafina
• Gatorade G-Recover Mixed Berry

• Better for you
• Lays Baked Original
• Grain Waves Sour Cream Chives
• Pepsi Next
• Alvalle El Gazpacho Original
• H20H!Lemon Lime
• Pepsi Kick

• Fun for you
• Cheetos
• Fritos The Original
• Mountain Dew
• Starbucks Ready-to-Drink Frappuccino
• Doritos Nacho Cheese
• Wakers Deep Ridged Mature Cheddar Onion

Healthier
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1. Products and services process

Water Flavoring Corn Meal Starch
Concentrate Plant
Powder
Bakery
Syrup
Water Sugar Sweeteners Packing
Bottling Plant
Frito-Lay
Vending Machine Co.
Fast Food Chain Store
Grocery Store
Distributor
Convenience Store
Restaurant
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Background Mission

1. Products and services Sales division (2015 )

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I. Background Mission

1. Mission - Abells Model

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I. Background Mission

1. Mission - Abells Model Served Market

• What segment of the population PepsiCo is trying
  to serve?
• Young adults, teenagers
• Mass production (standardized products).
• Convenience Grab-n-Go.
• Markets
• Supermarkets (Sams Club, Kroger, Costco
  Wholesale, Target, Walmart, Dollar General,
  Publix).
• Convenience stores, other retailers, vending
  machines, food services outlets
• Products sold globally.

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I. Background Mission

1. Mission Sales by region (2015)

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Russia (4)
Canada (4)
U.K (3)
U.S (56)
Mexico (6)
India (gt50 Indian market)
5.5b Investment
5b Investment
Brazil (2)
Sales (2015) Segment Report
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I. Background Mission

1. Mission - Abells Model Unmet or unsatisfied
   needs

• Fun, refreshment, nourishment, health concerns
  (osteoporosis, diabetes, heart diseases)
• Product innovation.
• The demand for more products with less calories
  (nonfattening), without excluding the cola touch.
  
• Healthy, non-carbonated beverages.

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I. Background Mission

1. Mission - Abells Model Distinctive Competences

• RD, nutrition, and flavors.
• Research laboratories having the RD working fits
  with innovation.
• Media advertising (Michael Jackson, Beyoncé).
• Package design.
• Brand management.
• International business.

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• Consumer research (ethnography)

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Environmental Assessment

1. Economics trends of principal nations/blocs

1. United States
2. Europe
3. Mercosur
4. Russia
5. India
6. China

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics

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Environmental Assessment

1. Economics takeaway

• PPP estimates reflect adjustments needed to
  exchange rates between countries needed to make
  their currencies comparable to each others
  purchasing power.
• Although the major countries GDP growth rates
  declined in recent years, they are projected to
  resume growth in the next five years.
• India GDP (PPP) and population are growing very
  fast!
• Brazils unemployment rate is the highest
  (political turmoil economic recession).
• Brazil is going to be an area of focus for
  PepsiCo, because as population grows and
  unemployment rises, PepsiCo must come up with
  solutions that will allow its Brazilian consumers
  to continue to afford its products.

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Environmental Assessment

1. Markets well positioned in attractive growth
   categories

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Environmental Assessment

1. Markets with a great mix

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Environmental Assessment

1. Markets Organic vs non-organic

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Environmental Assessment

1. Markets - Less soda, fewer calories

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Environmental Assessment

1. Markets - Water is gaining on soda

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Environmental Assessment

1. Markets

1. Fast casual restaurants (Panda Express).
2. Casual restaurants (IHOP, Buffalo Wild Wings,
   Applebees).
3. Grocery stores (Target).
4. Fast-food restaurants (Subway, Burger King).
5. Convenience stores (7 Eleven).
6. Drugstores (Walgreens, CVS).

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Environmental Assessment

1. Markets Global brand value

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Environmental Assessment

1. Markets USA is an outlier for soda consumption
   (2003)

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Environmental Assessment

1. Markets Latin America, Asia, Middle East are
   growing in sales

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Environmental Assessment

1. Markets India is a accelerated growth market
   for PepsiCo

Growth Potential, 2019
87
lt2
lt1
() Sales in India, 2014
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Environmental Assessment

1. Markets Consumption of beverages in America
   (2013)

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Environmental Assessment

1. Markets - takeaway

• As the consumers become older, they shift their
  preferences from regular soda products to other
  beverages such as water or healthy drinks.
  Nevertheless, diet soda consumption increases
  with the age.
• Consumption of bottled water has definitely
  increased (consensus that water is a healthier
  drink).
• Consumption of organic food has skyrocketed in
  the last years.
• There is a correlation between income per capita
  and consumption (soda).
• Asia, Africa, and South America present good
  prospects for sales (soda market) in the next
  three years.
• Developing countries (most likely to have lower
  education) tend to consume more soda.

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Environmental Assessment

1. Industry structure Rivals Products

• Snack foods and nonalcoholic beverages
  Concentrated Industries

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Environmental Assessment

1. Industry structure Rivals Products

• Snack foods and nonalcoholic beverages
  Concentrated Industries

10 LARGE CORPORATIONS
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Environmental Assessment

1. Industry structure Competitive map

PepsiCo
PepsiCo
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Environmental Assessment

1. Industry structure Competitive map takeaway

• Frito Lay is the ten-thousand pound gorilla of
  the snack industry.
• PepsiCo is the leader in non-carbonated beverages
  and snacks.
• Coca-Cola and Kelloggs are ahead of PepsiCo in
  the carbonated beverages and cereal businesses
  respectively.
• Beverages, snack foods, and cereal breakfast
  industries are concentrated (few large
  corporations in each industry). So, rivalry is
  not extremely intense.

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Environmental Assessment

1. Industry structure Indirect competitors

• Starbucks (Starbucks has long-term plans to
  dominate the Chinese market until 2021).
• Starbucks also sell beverages and snack foods.
• Starbucks prices higher its products than PepsiCo
  (PepsiCo markets through mass media and dealers
  such as groceries).
• Conclusion Not enter in this strategic group!
  Starbucks is doing too well and mobility barriers
  are too high.
• But Starbucks is a very attractive prospective
  customer, so joining Starbucks in an alliance
  could be a great idea!

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Environmental Assessment

1. Industry structure Competitors financials

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Environment Assessment

1. Industry Structure Coca-Cola financials
   (2006-2016)

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Environment Assessment

1. Industry Structure Coca-Cola financials
   (2006-2016)

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Environmental Assessment

1. Industry structure Coca-Cola financials takeaway

• Sales are dropping (not a good sign for
  Coca-Cola).
• Operating profit margin and ROE are growing.
• Long-term debt and total invested capital have
  increased, but look steadily for the next 5
  years.
• Leverage is increasing (not a good sign for
  Coca-Cola).
• Conclusion- Coca-Cola does not seem the same
  strong company as it used to be. Nevertheless,
  Coca-Cola is still the leader producing in
  carbonated soda. Coca-Cola increased its
  long-term debt in order to launch new products
  such as Powerade in order to keep competing with
  PepsiCo.

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Environmental Assessment

1. Industry Structure PepsiCo vs Coca-Cola (2016)

PepsiCo Coca-Cola Difference Difference as a
Sales (Billions) 61.75 42.5 19.25 31.2
OPM 19 28.5 -9.5 -
ROI 17 16.0 1 -
ROE 57.5 34 23.5 -
Long-term Debt (Billions) 32 28.5 3.5 11
Equity (Billions) 12.3 25.2 -12.9 -
Capital (Billions) 44.3 53.7 -9.45 -
Leverage 72.3 53 19.3 -
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Environmental Assessment

1. Industry structure Coca-Cola vs PepsiCo takeaway

• There is a considerable difference (31) in sales
  between PepsiCo and Coca-Cola (this proves that
  PepsiCo is overcoming Coca-Cola in other segments
  besides carbonated beverages).
• Return on equity (ROE) also points to a
  considerable difference between PepsiCo and
  Coca-Cola (23.5). PepsiCo has really returned
  profits to its shareholders which may explain why
  operating profit margin of Coca-Cola is higher
  than PepsiCos.
• PepsiCos long-term debt and leverage are 11 and
  19 higher than Coca-Cola respectively. This
  proves that PepsiCo has been very aggressive in
  its acquisitions as well as used others (banks)
  money to finance its investments.
• PepsiCo has a higher financial risk than
  Coca-Cola!

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Environmental Assessment

1. Industry structure BCG Matrix

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Environmental Assessment

1. Industry structure BCG Matrix takeaway

• Mountain Dew, Tropicana, Gatorade, and Naked
  Juice are fast growing products with high market
  share.
• PepsiCo has 3 stars, 2 cash-cows, and 2 ventures
  (well-balanced portfolio).
• The ventures of Nestea (Coca-Cola) and Lipton
  (PepsiCo) can be very successful because of the
  risen demand for healthy foods beverages.
• Powerade does not show the same success than
  Gatorade.
• Carbonated sodas still sell but are not fast
  growing as they used to in the past.
• Health information is easier to access, and
  people are more concerned with their health.
  Carbonated beverages are bad for teeth, weight
  osteoporosis.

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Environmental Assessment

1. Industry structure Michael Porter 5-forces
   analysis

Moderate (high cost to develop a brand, moderate
customer loyalty, low cost to switch products).
BOTH INDUSTRIES
Strong (information about products are easy
accessible, variety of substitutes, low cost to
switch products).
Weak (many suppliers available, low integration
between suppliers).


Strong (Substitutes ice tea, wattle bottles,
juices, protein shakes).
Strong (Fruits, nuts, protein fiber bars).
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Environmental Assessment

1. Industry structure 5-forces analysis

BOTH INDUSTRIES
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Environmental Assessment

1. Industry structure 5-forces analysis

NONALCOHOLIC BEVERAGE INDUSTRY
5 High 1Low Threat of substitutes Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Rivalry among competitors Total Average
United States 5 3 2 5 3 18 3.6
Russia 4 2 2 4 3 15 3
Mexico 5 3 2 4 2 16 3.2
Europe 5 3 2 5 3 18 3.6
Mercosur 5 3 2 4 3 17 3.4
China 5 3 1 4 3 16 3.2
India 4 2 2 3 3 15 3
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Environmental Assessment

1. Industry structure 5-forces analysis

SNACK FOODS INDUSTRY
5 High 1Low Threat of substitutes Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Rivalry among competitors Total Average
United States 5 3 2 5 3 18 3.6
Russia 4 2 2 4 3 16 3
Mexico 5 3 1 5 3 17 3.4
Europe 5 2 2 5 2 16 3.2
Mercosur 5 2 1 5 4 17 3.4
China 5 2 1 5 3 16 3.2
India 4 4 1 4 3 16 3.2
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Environmental Assessment

1. Industry structure 5-forces takeaway

• Measures the potential for profitability in an
  industry.
• Five-forces answers the question -how attractive
  is a specific industry?
• Higher forces indicate the strategic priorities
  that PepsiCo has to respond.
• The low cost to switch products influences every
  factor of 5-forces conclusion PepsiCo cannot
  price its products too high.
• Substitution is high in both industries
  conclusion PepsiCos products must be the
  substitutes! Strategy must emphasize new
  products, tastes, packages, and ads.

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Environmental Assessment

1. Industry structure 5-forces takeaway

• PepsiCo has 2 strategic priorities (strong
  forces) bargaining power of customers and
  threat of substitutes (substitutes not really
  because PepsiCo products are the substitute
  products).
• Lower forces higher potential for profitability
  (India, China, Russia).
• Higher forces lower potential for profitability
  (U.S, Mercosur, and Europe).

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Environmental Assessment

1. Industry structure CAGE United States
   (Reference)

High5 Low1 Cultural Administrative Geographic Economic Total Average
Mexico 3 2 1 2 8 2
Russia 4 4 3 2 13 3.25
Europe 2 2 2 3 9 2.25
Mercosur 3 3 2 2 10 2.5
China 3 3 3 1 10 2.5
India 3 2 3 2 10 2.5
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Environmental Assessment

1. Industry structure CAGE takeaway

• Used to evaluate international trade
  opportunities.
• Potential barriers to entry into a market/economy
  (higher barriersmore difficult to enter into a
  market/economy).
• CAGE explains threats of new entries from Five
  Forces.
• It is harder to enter some countries from the U.S
  than others
• Very hard to enter Russia from the U.S.
• Not very hard to enter Mexico and Europe from the
  U.S.

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Environmental Assessment

1. Industry structure Life cycle

Both industries
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Environmental Assessment

1. Industry structure CSF report card

Companies PepsiCo Coca-Cola Kelloggs Post General Mills
RD 4 3 4 3 2
Product innovation 4 3 4 4 3
Financial health 2 3 4 4 4
Retail distribution 5 4 4 4 4
Advertising marketing 5 4 4 3 3
Total 20 17 20 18 16
Average 4.0 3.4 4.0 3.6 3.2
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Environmental Assessment

1. Industry structure CSF takeaway

• PepsiCo has high scores for Critical Success
  Factors (CSF).
• Best CSF for PepsiCo are advertising/marketing
  and retail/distribution.
• Financial health is where PepsiCo has to improve
  (pay its debts and reduce its leverage).
• PepsiCo and Kelloggs show the best results in
  the bakery category.

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Environmental Assessment

1. Summary conclusions

• Industry is mature with few competitors competing
  intensely as seen in Porters Five Forces.
• Five Forces points to India, Russia, and China as
  attractive markets to enter. However, Russia is
  going to impose some barriers of entry coming
  from the U.S (CAGE shows this high barrier for
  Russia).
• Overall (carbonated beverages, non-carbonated
  beverages, and snack foods), PepsiCo is the
  leader.
• Individually, PepsiCo is behind Coca-Cola in
  carbonated beverages, but in front of Coca-Cola
  in the other two segments.

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Capabilities Analysis

• Contents

1. Financial Trends
2. Strengths Weaknesses
3. Resources
4. Organization Structure

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Capabilities Analysis

1. Financial trends PepsiCo financials (2006-2016)

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Capabilities Analysis

1. Financial trends PepsiCo financials (2006-2020)

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Capabilities Analysis

1. Financial trends Financial Leverage

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Capabilities Analysis

1. Financial trends takeaway

• PepsiCo had a fall during the economic recession.
  The main reason for this fall was the decrease of
  consumer spending in foreign countries where
  PepsiCo operates.
• Financial leverage and long-term debt for PepsiCo
  has increased considerably.
• PepsiCo wants to pay its debt before interest
  rates raise and hurt the income statement.
• Most of the money that PepsiCo borrowed can be
  explained by important acquisitions made by
  PepsiCo .

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Capabilities Analysis

1. Strengths Weaknesses

• Diversified and complementary product portfolio.
• High-profile sponsorship deals (NBA, Super Bowl,
  UEFA Champions League).
• Indra Nooyi.
• RD.
• Strong advertising (Michael Jackson, Britney
  Spears, Beckham).
• Non-carbonated beverage products.

1. High expenses because of constantly developing
   new products (meet changing customers demands).
2. Depends on the U.S market.
3. Carbonated beverage products market share.
4. Far behind Coca-Cola in the international market.

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Capabilities Analysis

1. Resources Operands Operants

• Operants (dynamic, intangible assets)
• Strong management.
• Organizational learning.
• RD/ product development.
• Market research.
• Media advertising/ creativity.
• The power of one.

• Operands (static, tangible assets)
• Manufacturing operations.
• Trucks distribution system.
• Warehouses and equipment.
• Product portfolio.
• Bottler system.

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Capabilities Analysis

1. Organization structure Geographic and product
   structure

So, this is a geographic structure. But,
theres also a product structure. -- Its a
matrix organization
Indra K. Nooyi
PepsiCo Americas Food
PepsiCo Americas Beverages
PepsiCo International
Quaker Foods North America
Pepsi Americas Bottling
Frito-Lay North America
Latin Americas Foods
Pepsi Bottling Group
United Kingdom and Europe
Middle East, Africa, and Asia
Matrix Organization
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Capabilities Analysis

1. Organization structure

Appropriate organizational decision-making
structure
GREAT MATCH!!
Corp. Lines Of Business Lines Of Business
Firm Size Single Multiple
Large Top Management Team (TMT) Hybrid (Top down bottom up)
Small Top Down TMT or Bottom-up
Indra N. Lines Of Business Lines Of Business
Firm Size Single Multiple
Large Top Management Team (TMT) Hybrid (Top down bottom up)
Small Top Down TMT or Bottom-up
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Capabilities Analysis

1. Organization structure Remarks about the CEO

• Indra K. Nooyi
• One of the most successful business women in the
  world (leader).
• Indian born, American naturalized (role model).
• MBA Indian Institute of Management Calcutta.
• Masters degree Yale School of Management
  (intelligent).
• Joined BCG Boston Consulting Group (BCG model).
• Manager position in Johnson Johnson
  (experience).
• Changed the business model for a more sustainable
  company.
• Invested in nutrition foods, realized the
  changing in eating habits.

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1. Goals

1. Position on the goals hierarchy

GOALS
Level of Success
Organic Revenue Growth
Market position
Operating Margin Expansion
Lowering leverage (risk)
Level of Required Effort
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Goals

1. Financial goals PepsiCo - Value Line (2006-2020)

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Goals

1. Financial goals PepsiCo - Value Line (2006-2020)

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Goals

1. Financial goals

Sales, Debt, Equity (billions) Actual Estimate Forecast Forecast Forecast Goal Change Change
2015 2016 2017 2018 2019 2020 Amount
Sales 63.1 61.8 64.5 67 69.5 72 8.9 12.36
OPM 20.3 19 21 21.8 22.7 23.5 3.2 -
ROI 18 17 18 19.7 21.3 23 5
ROE 57.5 57.5 59 56.8 54.7 52.5 -5
Debt 29.2 32 31 29 27 25 -4.2 -18
Equity 12 12.3 12.5 14.3 16.2 18 6 33
Leverage Ratio 70.8 72.3 71.3 66.9 62.5 58.1 -12.7 -
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Goals

1. Competitive position

• Leading market shares in developed markets,
  strong returns to shareholders (dividends and
  share repurchases).
• Developing emerging markets (Mexico, India,
  Russia, China).

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Strategy

1. Generic Porters model - Differentiation

Cott
PepsiCo
Walmart soda
84
Strategy

1. Generic Low-cost and differentiation (Hybrid)

• Differentiation is the primary strategy
• This is a primary objective of strategy.
• PepsiCos challenge is to separate themselves
  apart from the current leader.
• Low-cost is the secondary strategy
• PepsiCo focuses on cost minimization to improve
  financial performance and be competitive. (But
  cost is secondary to differentiation.)
• PepsiCo often promotes offers and discounts.
• PepsiCo differentiates Internationally in
  response to local market conditions.

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Strategy

1. Generic

• PepsiCo is the first mover in the non-carbonated
  beverages and snack foods.
• Advantages gained the market position,
  recognition, set the standard, customer loyalty
  (customers are still very price sensitive in
  these two industries).
• Coca-Cola is the first mover of carbonated
  beverages (PepsiCo is the late mover in this
  case).
• Advantages learn from Coca-Colas mistakes, RD
  becomes less costly (already observed the trends
  of consumer tastes and desires).
• Disadvantages industry is mature so
  differentiation is more difficult. Coca-Cola wins
  in differentiation at the carbonated beverages
  industry.

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Value Chain

1. Strategy

87
Strategy

1. Vertical integration and unrelated diversification

• Taco Bell
• Pizza Hut
• Kentucky Fried Chicken (KFC)
• Wilson Sporting Goods

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Strategy

1. Horizontal integration

• International market expansion through mergers
  and acquisitions.
• Acquired
• Lucky snacks and Mabel cookies (Brazil).
• Dilexis cookies (Argentina).

Quaker
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Strategy

1. Horizontal integration Economies of Scale

Unit Cost
PepsiCo
Volume
90
Strategy

1. Related diversification

• Complementary and diverse portfolio.
• PepsiCo acquired the juice and diary businesses
  Lebedyansky and Wimm-Bill-Dann in Russia
  (yogurt-milk, juices, dairy drinks).

PepsiCo
Acquisition (Wimm-Bill-Dann)

Same segment of products (food)

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1. Strategy

1. Ansoffs matrix model - non-pricing strategic
   alternatives

Products/Services Products/Services
Existing New
M a r k e t S e g m e n t Existing Market Penetration Relationship convenience stores, promotions, power of one, media advertising. Product Development Mountain Dew, Quaker, Gatorade, Naked Juice.
M a r k e t S e g m e n t New Market Development India, Russia, Mexico, China. Product Proliferation Taco Bell, Pizza Hut, Wilson Sporting Goods.
92
Strategy

1. Ansoff Matrix takeaway

• Market Penetration
• Power of One (highly important) - PepsiCo can
  market food and beverage together with the
  grocery store chains.
• Media Advertising (highly important).
• Market Development
• PepsiCo has explored emerging countries to grow
  its profits (India, Russia, China, Mexico).
• Product Development
• PepsiCo has made Gatorade, Quaker, and Naked
  Juice winner products.
• Product Proliferation
• Coca-Cola exploited PepsiCos vulnerability in
  the beverage industry from its fast-food chains
  (Coca-Cola really beat PepsiCo in the restaurant
  outlets. Nevertheless, PepsiCo went to
  convenience stores to reestablish its
  positioning.

93

1. Strategy

1. Four multinational strategy models

Model Multi-domestic Global International Transnational
What it is Companies that fit its products to each country in which it does business A cohesive and integrated world-wide strategy analogy to amoeba The parents strategy and business model is implemented in all the business units, but subsidiaries can adapt and leverage the parents company competences Combines features of Multinational, Global, and International models
Reasons Tailor products to different preferences, tastes, or any other characteristics that define and satisfy the local domestic environment Globally scaled configuration used to build cost advantages (possibility for economies of scale). Processes and products are the same everywhere (standardization). Also, to discover new products and process, technology and innovation while maintaining a competitive advantage. Demands for global integration, national responsiveness, and worldwide innovation are simultaneous
Control Decentralized Centralized Core competences centralized, and others decentralized Groups are dispersed and interdependent
Knowledge transfer Developed and retained in each unit Developed and retained at the center Knowledge can be transferred to other subsidiaries (possibility for organizational learning) Business units are specialized (opportunity for learning)
94

1. Strategy

1. Ghemawats AAA Model

• Adaptation(10)
• Local needs, tastes, distributions.
• Factor costs labor, water, food.
• Aggregation(10)
• Operants (intellectual assets).
• Operands (physical assets).
• Arbitrage(7)
• Center for Global knowledge transfer.
• Utilization of corp. resources in local markets.

95

1. Strategy

1. Ghemawats AAA Model - takeaway

• Ghemawats AAA model is analytic and allows us to
  take the Transnational model apart, so we can
  look inside of it and actually understand how the
  model works (just like a mechanic looking inside
  of a car).
• Aggregation and Adaptation are the highest (10).
• All Aggregation, Adaptation, and Arbitrage
  represent high scores, which proves that PepsiCo
  follows a Transnational model.

96
Strategy

1. Strategic objectives

• Sales target for the next 5 years (2020) - 75
  billions.
• Reduce leverage to 25 and before interest rates
  raise.
• Create more products that meet the demand for
  healthy products (broad differentiation
  strategy).
• Reduce operating costs (lower-cost strategy).

97
Strategy
PORTFOLIO OF GLOBAL BUSINESSES

1. Strategic objectives

Strategic Importance High Low
High Competence of local
Leader (North America)
Contributor (Europe, Sub-Saharan Africa)
Competence of Local Organization
Organization Low
Black Hole (Asia, Middle East, North Africa)
Implementer (Latin America)
98
Strategy

1. Strategic objectives

Strategic Objective

Gap 15 billions
Baseline Forecast
99
Strategy

1. Strategic objectives Projects and programs

• Strengthen its positioning in established markets
• Largest portion of sales from domestic
• Invest in emerging countries
• Short-term India, Mexico, China, ASEAN, Russia
• Long-term Latin America (MERCOSUR), Africa
  (Nigeria)
• Products
• RD
• Innovative, refreshing, and healthy products
• Reduce operation costs

100
Implementation Priorities

1. Projects and programs

• Food and beverage portfolio restructuring.
• Fun for you, better for you, good for you.
• Wholesome ingredients, energy use, water and
  packaging.
• Segregate the foods and drinks- drinks is more
  profitable.
• Automation of bottling plants and bakeries.
• Operations.
• Zero-base budgeting.
• workforce diversification.
• Network optimization.
• Performance with Purpose (social responsibility).
• Power of One.
• Fritos in China and India where population has
  not been exposed to snacks.

101
Implementation Priorities

1. Projects and programs New Cost Management

• Data market analysis on who is purchasing each
  product.
• Value lever analysis to identify ways to reduce
  price.
• Create an accountability matrix to ensure
  dual-ownership of every expense.
• Zero-base budgeting (eliminate unproductive
  expenses).
• Executive strategic sourcing events to realize
  price reductions with suppliers.
• Monthly review to identify budget variances,
  owners responsible, and action plans to resolve
  them.

102
Implementation Priorities

1. New skills and resources

• CEO Succession.
• Indra Nooyi is 61 years old!
• Al Carey, the current CEO of its North America
  Beverages division, is the one believed to
  succeed Nooyi in the future.
• Diverse and talent workforce (intangible
  resource, operant) activates tangible resource,
  operand (foster new products).
• Identify alternatives ways to fund investments
  (banks are not going to lend more money by
  looking at PepsiCos exorbitant leverage ratio).

103
Implementation

1. Organization structure- Stopford Wells

Global Matrix
104
VII. Conclusions and Recommendations

1. How has this firm been faring in Darwinian
   competition during the past 3-5 years? Summarize
   your reasons.

PepsiCo
Coca-Cola

• PepsiCo and Coca-Cola have been in the past 3-5
  years the two main companies in the non-alcoholic
  beverage industry. Thus, they are the fittest in
  Darwins game.
• PepsiCo with Frito Lays has also been the leader
  in the snack foods industry.
• In the breakfast industry, PepsiCo still has a
  lot to go through in order to be the leader with
  Quaker. Nestle and Kelloggs are the ten-thousand
  pound gorilla!

Survival of the two Fittest
105
VII. Conclusions and Recommendations

1. As conditions change in the external environment,
   what strategic shifts will be required in the
   future? What new capabilities will be needed?

• Shifting consumer behavior
• Changing retail environment
• Adapt to significant changes in the Macro
  environment
• Slowing growth/recession
• Geopolitical instability (Syria, U.S, Russia,
  ISIS)
• Regulatory change
• Growing environmental consciousness

106
VII. Conclusions and Recommendations

1. Summarize the firms salient strategic objectives
   for the next 3-5 years.

• Increase sales in the next 5 years to 75
  billions.
• Reduce leverage before interest rates raise.
• Create more products that meet the demand for
  healthy products (broad differentiation
  strategy).
• Reduce operating costs (lower-cost strategy).

107
VII. Conclusions and Recommendations

1. Which near term actions will be most critical to
   assure effective implementation of this firms
   strategy?

• Keep up with changing tastes (global market
  research)
• Continued/ Increased economies of scale
• Expanding foreign markets ( China, India)
• Beverage focus (higher profit margins)
• CEO succession is a strategic issue
• Establish a market position in Latin America
• (long-term)

108
VII. Conclusions and Recommendations

1. In your view, how likely is this firm to be a
   competitive winner in 2020?

• Yes, PepsiCo has great chances to be a
  competitive winner in 2020!

109
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110
References

• http//www.imf.org/external/index.htm
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  172949254.html
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  pPEP
• http//www.pepsico.com/docs/album/annual-reports/p
  epsico-2015-annual-report_final_s57dqszgmy22ggn.pd
  f?sfvrsn0
• http//markets.ft.com/data/equities/tearsheet/fore
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• http//fortune.com/2016/04/08/indra-nooyi-career-a
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• http//www.valueline.com/Stocks/Highlights/PepsiCo
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• http//panmore.com/pepsico-five-forces-analysis-po
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• http//fortune.com/2016/03/31/pepsico-ceo-indra-no
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• http//www.pepsico.com/live/pressrelease/pepsico-a
  nnounces-formation-of-power-of-one---americas-coun
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