FREE ESSAY ON PEPSICO

PEPSICO

pepsico 
1. Introduction: 1 What is PEPSICO? 1 Brief History of PEPSICO 1 Business Segments 1
Frito-Lay 1 Pepsi-Cola Company 2 Tropicana 3 2. Company Analysis: 4 External Analysis 4
PEST Analysis: 4 Porter's Diamond: 5 Five Forces 8 Internal Analysis 9 Porter's Value
Chain 9 Boston Consulting Group 12 Financial Analysis 13 SWOT 14 Strength 14 Weakness 14
Opportunities 14 Threats 15 3. Conclusions 15 Marketing 15 General 15 4. Recommendations
16 Bibliography 17 Appendix 17 Appendix I 17 Appendix II 17 Appendix III 17 Appendix IV
17 Appendix V 17 Appendix VI 17 1. Introduction: What is PEPSICO? PepsiCo is one of the
most successful beverage and snack food business in the world. The company consist of:
Frito Lay Co., Pepsi-Cola Co., and Tropicana Products. Brief History of PEPSICO PepsiCo
was funded in 1965 by Donald M. Kendall Pepsi-Cola president, and Herman W. Lay,
president of Frito-Lay. Caleb Bradham, a New Bern, N.C. pharmacist, created pepsi-Cola in
1890. Frito-Lay, Inc. was formed by the 1961 merger of the Frito Company, founded by
Elmer Doolin in 1932, and the H. W. Lay Company, founded by Herman W. Lay, also in 1932.
In 1998 PepsiCo acquires Tropicana Products from Seagram Company Ltd. Anthony Rossi
founded Tropicana in 1947. Business Segments Frito-Lay Frito-Lay, Inc was funded in 1961,
by merging of The Frito Company and H.W. Lay Company. Today, Frito-Lay brands account for
40% of the world, snack chip industry, and 56% of the U.S. industry. Often, Frito-Lay
Company products are known by local names (Matutano in Spain, Walkers in the United
Kingdom and others.) Major Frito-Lay Company products: - Lay's Potato Chips - Baked Lay's
Potato Chips - Ruffles Potato Chips - Doritos Tortilla Chips - Tostitos Tortilla Chips -
Baked Tostitos - Santitas Tortilla Chips - Fritos Corn Chips - Cheetos Cheese Flavoured
Snacks - Rold Gold Pretzels - Funyons Onion Flavoured Rings - Sun chips Multigrain Snacks
- Cracker Jacks - Chester's Popcorn - Grandma's Cookies - Munchos Potato Chips - Smart
food Popcorn - Baken-ets Fried Pork Skins - Frito-Lay Dips & Salsa - Sabritas Potato
Chips - 3D's - Smiths Potato Crisps - Walkers Potato Crisps Pepsi-Cola Company Caleb
Bradham founded pepsi-Cola in 1890. Brand Pepsi and other Pepsi-Cola products account for
nearly one-third of total soft drink sales in the United States, a consumer market
totalling about $58 billion. Outside the United States, Pepsi-Cola beverages are
available in about 160 countries. Today Pepsi-Cola products account for about a quarter
of all soft drinks sold internationally. The company has also established operations in
the emerging markets of the Czech Republic, Hungary, Poland, Slovakia and Russia, where
Pepsi-Cola was the first U.S. consumer product to be marketed. Pepsi-Cola provides
advertising, marketing, sales and promotional support to Pepsi-Cola bottlers and food
service customers. This includes some of the world's best and most recognized
advertising. New advertising and exciting promotions keep Pepsi-Cola brands young.
Pepsi-Cola Company products: - Pepsi-Cola - Diet Pepsi - Pepsi One - Mountain Dew - Slice
- Mug Root Beer - Mug Creme - All Sport - Lipton Teas (Partnership) - Aquafina Water -
Frappuccino Coffee Drink - Mirinda - 7UP (outside the U.S. only) - Fruit Works - Pepsi
Max Tropicana Anthony Rossi founded Tropicana in 1947. The company entered the
concentrate orange juice business in 1949, registering Tropicana as a trademark. In 1954
Rossi pioneered a pasteurisation process for orange juice. For the first time, consumers
could enjoy the taste of pure not-from-concentrate 100% Florida orange juice in a
ready-to-serve package. The company went public in 1957, was purchased by Beatrice Foods
Co. in 1978, acquired by Kohlberg Kravis & Roberts in 1986 and sold to The Seagram
Company Ltd. in 1988. Seagram purchased the Dole global juice business in 1995. PepsiCo
acquired Tropicana, including the Dole juice business, in August 1998. Today, Tropicana
is the world's largest marketer and producer of branded juices with products available in
50 countries worldwide. Tropicana products: - Tropicana Pure Premium - Tropicana Season's
Best - Dole Juices - Tropicana Twister. - Hitchcock - Looza - Copella. 2. Company
Analysis: External Analysis PEST Analysis: The Pest Analysis identifies the political,
economical, social a technological influences on an organization. Political influences: -
The production distribution and use of many of PepsiCo product are subject to various
federal laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health
Act ad the Americans with Disabilities. - The businesses are also subject to state, local
and foreign laws. - The international businesses are subject to the Government stability
in the countries where PepsiCo is trying get into (underdeveloped markets). - The
federal, state, local and foreign environmental laws and regulations. - The businesses
are also subject to de taxation policy in each country they are operating. - They also
have to comply with federal, state, local and foreign environmental laws and regulations.
Economic influences: - The companies are subject to the harvest of the raw material that
they use in their snack foods, soft drink and juice, like corn, oranges, grapefruit,
vegetables, potatoes, etc. - Because of they rely on trucks to move and distribute many
of their products, fuel is also an important subject, so they are subject to the fuel
prize fluctuation, and to possible fuel crisis. - Operating in International Markets
involves exposure to volatile movements in foreign exchange rates. The economic impact of
foreign exchange rates movements on them is complex because such changes are often linked
to variability in real growth, inflation, interest rates, governmental actions and other
factors. - PepsiCo is also subject to other economical factors like money supply, energy
availability and cost, business cycles, etc. Sociocultural influences: - PepsiCo and
moreover Pepsi is subject to the lifestyle changes, because of it bases her advertising
campaigns in a concrete kind of people with an special lifestyle, it is for that PepsiCo
has to pay a special attention on the lifestyle changes. - Particularly in the United
States Pepsi drinkers are very defined, there is a kind of people who drinks Pepsi
another kind who drinks Coca-Cola, it is for that they have to pay attention to the
social mobility for not losing a possible market. - Taking into account that PepsiCo is
trying to introduce itself in underdeveloped markets, they have to be careful with the
possible problems with the governments of this countries, and with the problems could
rise from PepsiCo act with the people of this countries. Technological influences: -
PepsiCo is subject to new techniques of manufacturing, for their three business sectors,
snack food, juices and soft drinks. - It has to pay attention to the new distribution
techniques. - And they have to fix their attention in the competence developed, to know
about the new products. Porter's Diamond: The Porter's Diamond Analysis tries to explain
the Competitive Advantage of Nations. There are four attributes of a nation comprise
Porter's Diamond of national advantage, they are: Factor Conditions: The basic factor
conditions are natural resources, climate, location, the more advanced factor conditions
are skilled labour, infrastructure and technology. There are some of these factors that
can be obtained by any company (like unskilled labour and raw materials) and, hence, do
not generate sustained competitive advantage. Even though, we have to take into account
that specialized factors involve a heavy and sustained investment, we have to know that
if we are able to achieve them, we could generate a competitive advantage. Some of the
factor conditions PepsiCo has to take into account, in each country where they want to
introduce are - Unemployment. - Interest rate. (Short term, long term). - Labour
legislation. Demand Conditions: We have to know that the nature of a country demand makes
PepsiCo dependent on them. For example if in one country exists a sophisticated demand,
these customers pressure firms to be competitive. Is for that, firms that face a
sophisticate domestic market are likely to sell superior products because the market
demands high quality and a close proximity to such customers enable the firm to better
understand the needs of the customers, in the same way it is easier spread their firms in
the global market. Some of the demand conditions PepsiCo has to take into account en the
countries where they want to introduce are: - Expectation of customers. - GNP & RPI. -
Competitive research (trends) - And with competitors are established in the country.
Related and Supporting Industries: For any company it is really important the Related and
Supporting Industry. Knowing who are the range of suppliers, and the related industries,
is necessary for deciding where we have to place our company. In some cases the
concentration of related and supporting industries provoke the concentration of the
similar industries in the same areas. Some advantages and disadvantages of locating close
to your rival may be: Some advantages to locating close to your rivals may be: o
Potential technology knowledge spillovers, o An association of a region on the part of
consumers with a product and high quality and therefore some market power, or o An
association of a region on the part of applicable labour force. Some disadvantages to
locating close to your rivals are: o Potential poaching of your employees by rival
companies and o Obvious increase in competition possibly decreasing mark-ups. Firm
Strategy, Structure & Rivalry: Concerning to the strategy and the structure of the firm,
they would be conditioned by the tradition of the country. There are different management
styles in each country, and besides they vary depending on the industry. PepsiCo has to
study the different styles of management, for acting in the best way in each country,
adapting its strategy and its structure as far as possible. As far as possible the
rivalry, in general is better the national than the international. In the case of PepsiCo
(Pepsi); for them it is more advisable that when they are introducing in a new market,
its main rival (Coca-Cola) not be positioned or at least it is not to absolute leader of
the market. Five Forces We do the same analysis for the three different markets of
PepsiCo: the soft drink market, the snacks market and the chilled orange juice market. We
treated the three markets as a the same industry, with some exceptions as the competence
The threat of entry Established brands with a lot of experience in the market that a have
a good channel of distribution. The brands deliver the products directly to the
supermarket, this means that is necessary a big company structure (lorries, warehouses,
producing plants, etc.) to arrive at retailers and supermarkets, all of this requires a
big investment of money. Suppliers Well looks that at first sight, suppliers are not a
problem because it's easy to find potatoes, corn and oil suppliers. The problem that we
find here is the possibility of variability of prices in the raw materials caused for
example by a bad year of harvesting, or there is another petrol crisis. Also in some
countries that have not petrol normally fuel petrol is more expensive and the fuel
suppliers have an oligopoly of the market. Buyers Considering that buyers are the final
consumers, we can say that in this markets the consumers get used at one kind of taste,
and they have this products for the importance of the brand, it's a marketing issue as
well. Substitutes In these three markets is quite difficult to find substitutes. More
than substitutes we can talk more of fashion, trends, or costumer's tastes. Suddenly
people stop has orange juice for breakfast and take more milk or coffee in mornings. It's
quite difficult to find a substitute for these products because normally the people get
used at one kind of taste of cola for example, then is very difficult to try to adapt the
public to a new cola. Competitive Rivalry Well these three markets are really full of
rivalry. First there is the Cola market where Coca-Cola owns an incredible 51% market
share, followed far away Pepsi with a 21% of market share, is very difficult to penetrate
in this market. Then there is the Snack market where Lays have the 40% of market share,
the second most important brand is Procter &Gamble (P&G), in this market the shares are
more distributed, but still being two majors competitors that have most of the market. An
at the last we have the orange Juice market, this maybe is the most open market, there is
a lot of competence and there is not a major brand that controls all the market. There
are three important brands that have more market share, like Tropicana Coca-Cola Company
and Chiquita. Internal Analysis Porter's Value Chain Primary activities Inbound logistics
Because the company is in a competitive environment is not possible to recover the
increasing costs with a higher pricing of the final products. For this reason PepsiCo
have special way to purchase the raw materials. They use "futures contracts" for cover
different fluctuation in the raw material market (Primarily oil, corn, fuel, etc.) is
like speculate with the market. Operations In Orange juice products, they only use
non-concentrate orange juice for creates a very tasty and healthy product completely
natural. Pepsi they just create the liquid that is sold to the bottlers, these bottlers
then they can the liquid and then is sold to the costumers. PepsiCo owns at same time
shares from the four bottlers companies. In fact in the past PepsiCo owned Pepsi Bottling
Group, and had as a franchise Pepcom industries INC companies. Outbound logistics PepsiCo
use the system "direct store distribution". This implies that PepsiCo products are
delivered to the retailer and put it directly to the shelves, this provide a great
business control to PepsiCo, and reduce work to the retailers and that fact give more
advantage over most competitors. Marketing and sales This is a very powerful tool that
PepsiCo use. It would be developed in another chapter. Service We can consider that the
service that makes PepsiCo value is the "direct store distribution" explained before.
Support activities Procurement Here PepsiCo uses economies of scale. Also the raw
materials are bought in future contract to prevent higher costs in the future because the
high prices of the raw materials. Technology development More than Technology development
we can talk of costumer preferences. Is very important to know what the costumers prefers
and wants, then is necessary to study the costumers' behaviour. For example Tropicana
Twister shelf-stable juice products had a very important volume growth because the
PepsiCo relaunched the brand in 1.75 plastic bottles instead of smaller glass bottles.
This provides to the costumers more value and convenience. Human resources management
Benefits At PepsiCo's Worldwide Headquarters Compensation Highly competitive salaries ?
Bonus opportunities at many levels ? Eligibility for stock options for almost all
positions Benefits Flexible benefit options include: ? Medical ? Dental ? Vision/Hearing
? Life Insurance ? Accident Insurance ? Long-Term Disability Insurance ? Group Legal
Services ? Health Care Reserve Account ? Dependent Care Reserve Account Stock Options.
The PepsiCo stock option plan is called SharePower. Here are some of the details: ? Once
eligible, you receive PepsiCo stock options normally each year based on at least 10% of
your prior year's earnings. ? Share Power stock options let you purchase shares of
PepsiCo stock in the future at a set price. ? You make money if the stock price goes up
and you stay with the Company. ? The longer you work for the Company, the more stock
options you get. Share Power is one way for PepsiCo employees to share in the success
that they create. Future Financial Security A Pension Plan fully paid for by the Company.
? A 401(k) Plan which allows you to save up to 15% of your pay on a pre-tax basis and
invest in any publicly traded stock or bond or in any of over 200 mutual funds. ? A stock
purchase program, allowing you to purchase PepsiCo stock through payroll deductions, with
no fees or commissions. Additional Benefits In addition, PepsiCo's portfolio of benefits
includes such valuable programs as: ? Tuition Reimbursement ? Educational Loans ?
Discount Car Purchase Program ? Matching Charitable Contributions ? Adoption Assistance ?
Vacation Time ? And More Firm infrastructure Executive officers Co-Founder PepsiCo
Corporate Officers (Roger A. Enrico) Principal Divisions and Officers Pepsi-Cola Company
Frito-Lay Company Tropicana Products, Inc. Boston Consulting Group a) Frito-Lays; this
product is a Cash Cow for PepsiCo; it generates more cash than it needs to maintain its
share market. Frito-Lays is the leader of its market, and it has its principal competitor
very far in the market share. PepsiCo should maintain this product, in the same way, and
invest its profits in other company products. b) Tropicana; it is a question mark for
PepsiCo, it is, due to, it is a new acquisition, and although it is a product leader in
its market, PepsiCo has to invest in Tropicana for achieving a bigger market share, and
for trying to increase the international market share. c) Pepsi; it is very difficult
place to Pepsi, in one of the squares, because in spite of it generates more cash than it
needs to maintain its share market, it is not the leader of its market, and we can
neither considerate it as a star product, because of the same reason, them it probably
could be place, in the middle of the matrix. Financial Analysis PepsiCo had reduce the
total net sales in 2,000 millions $ during the 1999, this was due to PepsiCo sold the
bottling company. But at same time the total sales from the three Business (Snacks, Soft
Drinks, Orange Juice) had increase in 4,000 millions $. This means that the company his
growing in the markets. Because the selling of the bottling Company the total cost and
expenses reduced in 2,000 millions of $. Because the reduced costs and the growth of the
net sales in the Snacks, soft drinks, and Orange juice, the company had at the end of the
1999 more profit. (Source: 1999 Annual report of PepsiCo) Resuming PepsiCo had in 1999 a
total net income of 2,050 millions $ more or less the same as at 1997 (2,142 millions of
$), but with the difference that in 1999 they stop earning money with the bottling
company. This means now the company generates more profit. (Source: 1999 Annual report of
PepsiCo) Is necessary to emphasise as well that PepsiCo reduced a lot one of the big
loans that he had due to PepsiCo didn't has the necessity of borrowing money. The loan
had an amount of 4,53 millions $ and was reduced to 1,55 millions $ in 1999. (Source:
1999 Annual report of PepsiCo) As the PepsiCo's Web page said: PepsiCo's earnings per
share jumped 17% in the third quarter ended September 2; to $.40 from a pro forma $.34 in
the prior year, the fourth consecutive double-digit gain. Revenues grew 7% to $4.9
billion, reflecting strong volume growth in worldwide snacks and juices. Operating profit
grew 12% to $826 million as every division generated double-digit growth. Roger Enrico,
chairman, said: Four consecutive quarters of double-digit EPS growth confirm that PepsiCo
today is strong and getting stronger. We are fulfilling our goal of delivering healthy
earnings gains generated by volume growth across our portfolio". This means the company
is going well but is not offering more dividends to the shareholders, after some bad
years now the company is having n important growing. And this will be reflected in the
dividends during the next years. SWOT Strength PepsiCo nowadays it is a very strong
Company with no financial problems, and with three important brands. Where Frito-Lays is
a very Strong brand, World leader in sells in the world snack chip industry, with a 40%
of the market share. (Source 1999 PepsiCo Annual report) In the last 3 years the company
had increase his sales (without bottling operations) in a 33% since 1997. (Source 1999
PepsiCo Annual report) Weakness Pepsi maybe is one of the weakness of PepsiCo, due that
is really far away from the leader Coca-Cola in the international market. Pepsi-Cola is
the second largest soft drink Company with a 21% of volume, far from the terrific 51% of
volume of Coca-Cola. The net sales of PepsiCo had increase in the last 3 years, this is
important but is necessary to say that is due the increase in sales only in USA, PepsiCo
didn't growth so much in the international market, what is happening then that only
growing in USA. Opportunities New markets are beginning to open in the world (China,
mainly in Asia). The opportunity to enter in the markets where the competence is not
established yet. For example in China, China is the country with more population in the
world, enter in the Chinese market and establish there before the competence arrive can
give to PepsiCo a great opportunity to success in the future. Threats The problem that in
these new markets the products of PepsiCo will not have a good welcome by the Asian
consumers. The flavours of the products are not really adequate for these countries.
Roger Enrico will leave the direction of PepsiCo in 2 years, this can create a little
situation of panic inside the Company. The increase the prices of the raw materials or
the fuel can cause an increase of the costs, and in the business environment that PepsiCo
live is not possible to increase the product price because is a very competitive
environment. 3. Conclusions Marketing Until now PepsiCo brand image was very linked to
Pepsi image, which has label of second best brand. But in the last four years, that has
changed, they have tried to lost the label of 'loser', linking its image to the rest of
firms company, that have a strong brand image in their markets. They have achieve that
through advertising campaigns where appeared together with other PepsiCo Brands. During
the last decade Pepsi had a war with Coca-Cola, in which Pepsi always lost. In the last
stage (since the arrival of Enrico) PepsiCo decides move away from that war, for focusing
in its own problems. Another step in the new strategy was the acquisition of the leader
companies in related markets, for achieving a new image of powerful and consolidated
corporation. In other way PepsiCo is giving a corporation image, which is committed with
subjects like racial and sex discrimination, and environmental problems. All that through
the special programs focused on each area. General In the last four year PepsiCo has
suffered radical changes in its internal structure and in its market strategies. All
these changes were propitiated by the arrival in the direction of R. Enrico, who
implemented a radical change in PepsiCo's mentality. He made very important decisions
like to come off the restaurants (Pizza Hut & KFC) and the bottlers, due to they were a
heavy weight for the company. Although they were come off them, they follow linked to
PepsiCo through strategic alliances, it is to say, that the restaurants still sell
PepsiCo products and the bottlers follow bottling Pepsi. Moreover PepsiCo has a minority
percent of share of these companies. Other important decisions that Enrico made were the
strategic acquisitions of leader companies in related markets, like Tropicana and
Mountain Drew. These acquired companies have given to PepsiCo as much profits as stronger
company brand image of New PepsiCo. 4. Recommendations After analysing PepsiCo we have
noticed that in spite of the company has increased its net product sales, that is not a
real increase because the sales have increased due to the new acquisitions, and not
because of the increase of the products, which already existed in the company. For this
reason we recommended that, they should consolidate its old product and try to increase
they sales. Another section, where we would like to make a recommendation, it is into the
international section of PepsiCo, we think that they are too focused in the U.S.
(although it is true that it is the market where they have biggest volume of sales), but
they should try to consolidate in the international markets, and as well to try to
penetrate in undeveloped markets, where its competitors are not established yet (i.e.
Chinese market). Bibliography Lamb Hair McDaniel (1998) Marketing. Ed. South Western.
Richard Koch (1995) Guide to strategy. Ed Financial Times Pitman Publishing G. Johnson &
K. Scholes (1999) Exploring Corporate Strategy. Ed. Financial Times Prentice Hall J.L.
Thompson (1997) Exploring Corporate Strategy. PepsiCo Annual Report (1999)
http://www.pepsico.com Appendix Appendix I Appendix II Appendix III Appendix IV Appendix
V Appendix VI