19114298 Strategic Management Analysis of PepsiCo

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PEPSI

Growth, Balance, and a World of Fun

Strategic Management Audit Conducted By:

Provided To:

May 16, 2007

TABLE OF CONTENTS

EXECUTIVE SUMMARY .............................................................................................. 2

CURRENT SITUATION ................................................................................................. 3

CORPORATE GOVERNANCE..................................................................................... 7

EXTERNAL ENVIRONMENT ...................................................................................... 8

INTERNAL ENVIRONMENT ..................................................................................... 12

ANALYSIS OF STRATEGIC FACTORS................................................................... 15

STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY................ 18

IMPLEMENTATION .................................................................................................... 19

EVALUATION AND CONTROL ................................................................................ 20

BIBLIOGRAPHY........................................................................................................... 21


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Executive Summary

Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is one

of the strongest beverage and convenient food companies in the world. Originally started

in 1898, Pepsi Cola became the first branded soft drink in the world. Its brand is

available in over 200 countries around the world and generated sales in excess of $92

billion last year. Headquartered in Purchase, New York, PepsiCo is the number two

beverage company in the world behind the Coca-Cola Company.Financially, 2006 was a year of progress with an overall growth of 5.5%, revenue

of nearly 36 billion USD and a return on investment of 26%. These numbers are all well

above the industry average, with their main competitor still being the Coca-Cola

Company. PepsiCo has continued their brand image by appealing to Generation Y and

becoming synonymous with music, entertainment and sports. In addition to their

financial success, PepsiCo is also dedicated to ethics and social responsibility in the

community. They have invested heavily in recycling programs and in developing nations

in Africa. PepsiCo even has a sustainability mission that states PepsiCos responsibility

is to continually improve all aspects of the world in which we operate- environmental,

social, economic- creating a better tomorrow than today.

They believe that they have the competitive, sustainable advantage in the industry

because of three things: big brands, proven innovation and differentiated products, and


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powerful go-to markets. With their strong brand, socially responsible employees and

corporate beliefs and focus on the younger generation, PepsiCo will continue its stance as

one of the most powerful companies in the world.

Current Situation

Current Performance

Pepsi Co is a worldwide corporation that has been in existence since the late 19 th

century when Caleb Bradham, a pharmacist from New Bern, North Carolina first started

experimenting with different soft drink concoctions. It was in 1898 that Pepsi Cola first

became a branded soft drink and from that point forward their product and the companyhave grown to be the most recognized brand in the world. 1 This past financial year, Pepsi

Co continued it three-year positive growth strategy by maintaining an aggressive

presence in the United States and worldwide, boasting healthy profits and market share.

The company is broken into four major branches: Frito-lay North America,

PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North

America. Pepsi Co has one of the largest footholds in each of these markets compared to

relative competition, holding the following rankings worldwide: #2 in Carbonated Soft

Drinks. #1 in Sports Drink #1 in PET Water Brand (non-jug) #1 in chilled Juices and

Juice Drinks #1 Enhanced Water Brand #1 In ready to-Drink Coffee #1 in Ready-to-

Drink Teas #1 in Potato Chips #1 in Tortilla Chips #1 in Corn Chips #1 in Extruded

Snack #1 Multigrain Snacks #2 in Pretzels #1 in Hot Cereal #1 In Grits #1 Rice Side Dish

#1 Brand Pancake Syrup #2 Pancake Mix. 2

Financially PepsiCo delivered a very strong 2006: Volume grew 5.5%; net

revenue grew 8% to 35,137 in millions; total operating profit increased 9% to 6,439 (in

millions); return on investment was 26%; total return to shareholders was 8%; cash flow

1 PepsiCo Company Website. History Overview. http://www.thecoca-colacompany.com/heritage/chronicle_birth_refreshing_idea.html. Last updated January 2007 . AccessedMay 10, 2007.2 PepsiCo Rankings Worldwide. Hoovers. http://0-premium.hoovers.com.bianca.penlib.du.edu/subscribe/co/ops.xhtml?ID=ffffrfyhsffytsjrkh. Last updated January 2007. Accessed May 5, 2007.


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from operations was 6.1 billion USD, and earnings per share increased 13%. 3 Much of

the strong financial performance can be attributed to the intense marketing, product

diversification, and strong market presence in the United States. In addition, Pepsi Co

Has a solid share of snacks in major markets such as Mexico, the United Kingdom,

Brazil, Australia, India and Russia, and are developing markets such as China, of which

offers additional revenue from emerging markets. As will be discussed later, Pepsi Co

still remains second in the international beverage industry, with Coca-Cola maintaining

its strong market share.

Brief Annual Review 2006

- PepsiCo Launches Pepsi Limon in Peru

- PepsiCo Completes Acquisition of Stacy's Pita Chip Company- Pepsi Celebrates 20th Consecutive Super Bowl With New Diet Pepsi

Campaign

- North American Coffee Partnership Launches New Starbucks Beverages,

Starbucks Iced Coffee, Starbucks Iced Coffee Light as well as Strawberries

and Creme Frappuccino and Starbucks DoubleShot Light

- SoBe Launches New SoBe Life Water

- Frito-Lay announces the launch of a new line of snack chips called Lay's

Sensations and Tostitos Sensations

- Frito-Lay cuts saturated fat in Lay's, Ruffles by more than 50% with move to

NuSun Sunflower Oil

- Starbucks and PepsiCo sign a distribution agreement for Ethos Water

- PepsiCo, National Hockey League and National Hockey League Players

Association sign multi-year deal, giving PepsiCo exclusive rights in the

beverage, sports beverage, bottled water and snack categories. With this deal,

Gatorade becomes the official sports drink of NHL

- Frito-Lay kicks of its nationwide rollout of Lays with 100% Pure Sunflower

Oil

3 Financial Releases of PepsiCo. Phoenix Corporate. http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-financial_releases. Accessed May 10, 2007.


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- Pepsi acquires IZZE beverage company

- Cold Stone Creamery announces a multi-year agreement making Pepsi its

exclusive beverage supplier

- Pepsi signs 5-year sponsorship renewal with Major League Baseball

Properties making Pepsi the Official Soft Drink of Major League Baseball

- PBSG Parkwood and Frito-Lay headquarters associates raise more than $1.8

million dollars in the American Heart Association Walk

- PepsiCo announced intent to acquire Naked Juice Company

- PepsiCo announces it will acquire New Zealand snack company Bluebird

Foods 4

Strategic PosturePepsi Cola has a very concise mission statement which offers its employees,

shareholders and consumers a clear offering of what Pepsi Co embodies. We have

absolute clarity around what we do: We Sell Soda. We commit ourselves to these

Operating Principles: Rules of the Road 1. Drive local market success 2. Act Now. Do it

today. Get Results. 3. Set Targets. Keep Score. Win. 4 Respect Each other. Our success

will ensure: Customer build their business, Employees build their futures, Shareholders

Build their wealth. 5 Each of the operating principles of Pepsi Co deliver the actions that

all employees are expected to perform and the quality that shareholders and consumers

alike should come to expect. In the paragraphs below, their operating principles will be

detailed to clarify their current strategic posture in the market and in the industry.

Drive local market success. Pepsi Co, an American company since its inception,

continues to expand into developing markets while maintaining its major stronghold of

the United States. To drive domestic market success, Pepsi Co has three main sub-

objectives: 1. To compete locally 2. To be a small company within a big company,

insuring that the company remains maneuverable, and not a stagnant giant and, 3. to have

4 Annual Review 2007 for Pepsi Company. AngelFire. http://www.angelfire.com /ga/struitt /pepsi.html. Accessed May 9, 2007.

5 PepsiCo Objectives.http://pepsico.com/PEP_Company/BrandsCompanies/index.cfm. Last updated

January 2007. Accessed May 9, 2007.


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visible community leadership. Pepsi Co continues to be a client centric company,

focusing on this objective now more than ever. Due to the recent trend of healthy

living, PepsiCo has been forced to expand into other markets to meet the health

conscious demand of its consumers. Carbonated beverages remain the most popular

beverage category, with some 85% of U.S. households purchasing them. However, non-

carbonated beverages represent a fast-growing category- a place where consumers are

migratingWe recognized the need to broaden our portfolio early on and moved to

extend our presence in non-carbonated beverages in 1992Providing consumers with

choices has long been a part of our mindset 5 . Ahead of its time, Pepsi Co introduced

Diet Pepsi in 1964 and its Reduced Fat Ruffles in the mid 1980s. In 2006 Pepsi Co

stated, Its about growing a business profitably for the long term.We believe we can

do this in ways directly related to our business, beginning with our productsHumansustainability, and were continuously transforming our portfolio of products to meet

consumer needs. Weve improved the nutritional profiles our global and flagship brands

by changing to healthier oils, reducing sugar and sodium content, and by expanding the

range of products we offer. This includes products ranging from indulgences or treats-

to good for you products that offer functional benefits like hydration or heart

healthWhat we call Smart Spot eligible products represented over two-thirds of our

growth in North America in 2006And weve set a goal of deriving 50% of all our U.S.

revenues with Smart spot eligible products by 2010. 6

Secondly, Pepsi Co focuses on its strategy for result: Act Now. Do it today. Get

Results. This objective is designed to accomplish tasks with a sense of urgency, to fix

problems before they become major issues, and to build upon passion.

Third, Pepsi Co accomplishes goals by setting targets, keeping score, and

winning. They created five simple rules to promote this idea throughout the company:

Every front-line job has tarots, reinforce goals, plan performance, protesting, focusing,

and simplifying, clear accountability for result and no excuses. These objectives are goal

oriented with emphasize on how individual actions can affect the entire corporation,

positively or negatively.

6 PepsiCo Strategies and Objectives. PepsiCo Corporate Site.http://www.pepsico.com/PEP_Investors/AnnualReports/06/PepsiCo2006Annual.pdf. Last updated January 2007. Accessed May 9, 2007.


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Their fourth objective focuses on the employees relationships within the company

and throughout their daily lives: Respect each other by treating everyone fairly, and with

dignity, operating with integrity and justice, and keeping in mind that everyone is

important.

It is crucial to note that the current mission, objectives, strategies and policies of

Pepsi Co reflect the corporations attempt to progress in international operations. Pepsi

Co follows a relatively simple strategy with the four objectives that can be applied to

almost any corporation around the world, offering a base concept to all of its employees

and consumers. The mission statement We sell Soda is only three words, but it speaks

volumes in it meaning. It projects the idea that this company has developed a business

that they are exceptional at and will not pretend to be anything more than what their core

competencies can offer.

Corporate Governance

Board of Directors

The members that make up the directors are very diversified in their skills,

experience, and knowledge. Members are from various places of the world and have held

contrasting positions from CFOs to Medical Professors. Although the ages of the

members are similar, the experience and knowledge of the diversified group is a great

asset for PepsiCo. One interesting fact is the CEO is a woman that has been involved in

many facets of the business from Strategic Planning President to Corporate Strategy.

Committees within the group are the Nominating and Corporate Governance

Committee, an Audit Committee, and Compensation Committee which are all comprised

of individuals from the Board of Directors. The directors have performed very well in the

past and have received many awards for their performance and leadership. 7 Successful

performance by the board members may be attributed to the fact that some are financially

7 PepsiCo. Company Honors. http://pepsico.com/PEP_Company/Honors/index.cfm.Last updated January 2007. Accessed May 11, 2007.


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involved in PepsiCo and others are not associated with the firm. 8 The combination of the

two groups serves as an excellent medium between serving the companies interests while

maintaining ethical and responsible decisions.

External Environment

As a beverage and food producer and distributor developed in the late 19 th

century, Pepsi Co is in a dominant market position that has little qualms about emerging

competitors in the market. Its current concerns remain its top competitor, Coca-Cola who

maintains a similar stance in the beverage market as well as Cadbury-Schweppes who

controls the international market share of beverages and confectionary goods. Inaddition, acquisitions and mergers of current mid-size beverage companies could prove to

be an external threat to Pepsi Co, while not in the near future. In the following section of

the strategic management audit, Coca-Cola and Cadbury Schweppes will be detailed

according to their financial statements, management schemes, marketing campaigns and

recent acquisitions.

Financial

As a company that employs over 71,000 individuals around the world and

engages in the manufacturing, distribution, and marketing of non-alcoholic beverages

worldwide, Coca-Cola remains Pepsi Cos most aggressive and threatening competitor in

existence. In 2006, Coca-Cola maintained revenues of nearly 25 billion USD and a gross

profit of nearly 16 billion USD.9

Their return on equity remains one of the strongest inthe industry and in the market, at a staggering 31.15% (compared to the industry average

8( Reference Chart 1) Mergent Online Journal. Company Insiders.http://www.mergentonline.com/compdetail.asp?company=1&company_mer=6581&fvtype=a&Page=insiders. Last updated March 2007. Accessed May 11, 2007.9 Coca-Cola Company. YAHOO Finance. www.finance.yahoo.com. Last updated May14, 2007. Accessed May 14, 2007.


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of 14.3%) in 2006. Pepsi Co has managed to maintain nearly 97,000 more employees

and 10 billion USD more in revenue in 2006, yet their net incomes remain comparable at

5.5 billion USD. This statistic shows that while Coca-Cola may employ fewer

individuals and therefore generates smaller revenue, they are still able to remain

competitive with Pepsi Co in regards to their net income. Coca-Cola is the number one

soft drink company in the world and owns four of the five top selling brands. Although

Coca-Cola does not do its own bottling, it does own 35% of Coca-Cola Enterprises, 32%

of Coca-Cola FEMSA, and 23% of Coca-Cola Hellenic Bottler (the largest European

bottler). 10 Coca-Cola was also ranked number 94 in Fortune 500, while Pepsi ranked at

63.

ManagementCoca-Colas current CEO and chairman is E. Neville Isdell, a 63 year old who has

remained at this position since 2004. Prior to his current position, Isdell was an

international consultant to the company and has held a variety of positions within the

company since 1966. Isdell has proven to understand the company values and the

industry in which it deals, and provides the glimpse of an opportunity for others in the

company to work their way through the ranks. He has also offered an international

viewpoint which has increased awareness and sales overseas. 11 In 2007, Coca-Cola re-

structured their business units for a more strategic approach, organizing them into the

sparkling beverages, still beverages, and emerging brands. 12 This will allow their

functional areas to focus on what kind of marketing to do and other issues based on the

type of product it is.

10 Hoovers.

http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=rfyhsffytsjrkh.Updated January 2007. Accessed May 10, 2007.11 Coke Overseas Sales Bolster Turnaround. Wall Sreet Journal. February 17, 2007.Page A14. http://0-proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=6&did=1216359421&SrchMode=1&sid=5&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179

373335&clientId=48347.12 Hoovers.http://premium.hoovers.com/subscribe/co/overview.xhtml?ID=ffffrfyhsffytsjrkh.Updated January 2007. Accessed May 10, 2007.


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Marketing

As the classic cola brand in America, Coca-Cola tends to focus its marketing

efforts on the baby boomer generation and the loyal Coca-Cola consumers. Unlike Pepsi,

Coca-Cola does not feel the need to expand into industries that are not of its core

competencies and continues its marketing scheme to that of what theyre good at: making

soda. Coca-Cola does not attempt to recreate its image as something new and hip that the

entertainment industry can play off of, they simply portray themselves as the best

beverage maker in the world. They have also recently began a campaign called Every

Drop Counts, and have announced that they are retooling their Atlanta headquarters to

conserve natural resources and combat global climate change. Recently, Coca-Cola has

also initiated a clean water program in Africa by creating a chlorine purifying substance

and gave jobs to people in the community to create these products. Coke is not wellknown in this area, but with the involvement and assistance they are offering, this

community will soon become Coke consumers. 13

Recent Acquisitions

Coca-Cola has been attempting to take over the bottled teas and juices market

share for a long time. In February 2007, they announced plans to acquire FUZE

Beverage LLC, which is an enhanced juice and tea company. 14 The have also announced

in March 2007 that they will continue refining beverage partners worldwide joint venture

with Nestle. They also acquired full ownerships of Phillipines Bottler San Miguel

Corporation in late February 2007. As well, United Airlines has ended their contract

with PepsiCo and has now signed a five year agreement with Coca-Cola to only provide

their beverages on their flights. 15 Each of these acquisitions and joint ventures amount to

Coca-Cola expanding their doors internationally and in different industries.

13 McKay, Betsy. Why Coke Aims to Stake Global Thirst for Clean Water. Wall Street Journal. March 15, 2007. Accessed May 10 ,2007.14 Coke Buys Fuze to Light Up Its Lineup. Wall Street Journal. February 2, 2007. PageB3. http://0-proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1208970671&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179

373236&clientId=48347.15 United Returns, Ending Five-Year Pepsi Deal. Wall Street Journal. May 1, 2007.Page A17. http://0-proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=4&did=1263011991&SrchMo


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Financial

Although Cadbury is at a far away third marking place of beverage sales in the

world, and only had 14 billion UDS in sales in 2006, they still remain a viable competitor

to PepsiCO. In addition, Cadbury Schweppes increased their sales by 29.3% from 2005

to 2006, meaning that their growth is extremely high and that they are a competitor that

PepsiCo must keep an eye on. This is mostly due to their international expertise and

recognition. They have nearly as many employees at Coca-Cola does, yet their market

cap is only 27 billion USD as compared to Coca-Colas 121 billion USD and PepsiCos .

Their net income was only 1 billion USD, where the industry standard was 24 billion

USD. This shows that Cadbury has some financial cost structure issues and that they are

not as large or efficient as PepsiCo or Coca-Cola Company.

Management

Currently, Todd Stitzer is the CEO of Cadbury Schweppes and has been since

2004. He is an American and Harvard educated, but has worked his way up in the ranksto become the CEO of Dr.Pepper/7UP for almost six years and then move on to become

the current CEO of the entire company. Their management structure is set up to be

divided first into four different geographical regions and then into six different functional

areas. This allows for a decentralized system that can still fall back on the company

brand name. They are able to change marketing, financial and human resource schemes

to fit the region and then focus on profit from there. Recently they have had issues with

salmonella in 1 million chocolate products, bringing scrutiny to their work. They

recalled the products, but the city council is still bringing three suits against them.

Marketing

de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179

373042&clientId=48347.


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Cadbury Schweppess marketing strategy tends to be one of brand recognition

and the consumers understanding of a long-standing company that provides the majority

of international confectionary and beverage goods. They are also large proponents of

social responsibility and believe that good values and good business go hand in hand. 16

Because they have a wide array of goods and international markets, they have several

different marketing strategies that seem to be working for them quite well.

Recent Acquisitions

Recently announced was the expected split between Cadburys confectionary and

beverage divisions. Many critics expect that the confectionary division will be bought

out by Americas Hershey brand and that the value of the product will decrease.However, this move was made after careful consideration and the belief that the two

divisions would be better off splitting than being together. 17 There are also a few mergers

that may be in the works for the beverage side of Cadbury, including Canadas Cotts.

This would join the number 3 and 4 beverage producers in the United States and bring the

competition even close to PepsiCo and Coca-Cola, capturing nearly 20% of the market

share. 18

Internal Environment

Corporate Culture

PepsiCos corporate culture is based on performance and quality of their

products, services, and social responsibility. The guiding principles and commitment

16 Cadbury Schweppes Society and Environment.

http://www.cadburyschweppes.com/EN/EnvironmentSociety/. Last updated January 2007. Accessed May 14, 2007.17 Jargon, Julie. The case for a Hershey-Cadbury Romance; Play for UK firm Maypinch Stock Now, But Set Stage for Growth. Wall Street Journal. April 19, 2007.Page C1. Accessed May 12, 2007.18 McKay, Betsy. Canadas Cotts Explores Cadbury. http://0-proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1253948821&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179

377829&clientId=48347. Wall Street Journal. April 15, 2007. Page C3. Accessed May14, 2007.


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consist of:

The culture is clearly communicated throughout the company and is very strong

in consumer and social responsibility. 19

In fact, many efforts have been made to be environmentally conscious by heavily

investing in recycling, and also extensive efforts have been made to better the lives of

impoverished people in regions such as Africa.

One of the main lacking components of PepsiCos values is their

employees. Of the many concerns they have about the consumer and clients, little is said

about the way employees are treated and what expectations and responsibilities are

towards them. Programs exist that help employees take part in the community, and also

future employees by offering school programs and scholarships. However, little effort is

directed towards the responsibility of the company to employees. Coinciding with their values, objectives, and commitment, employees are left out of the grand scheme and may

even be considered a means to an end. The limited focus on employees may be a problem

in the long-run due to retention issues and resulting lack of quality.

Corporate Resources

Marketing

Due to the many product lines PepsiCo markets, there are many different

types of marketing strategies, but can all fall into several main categories. Much of the

marketing efforts are directed towards a younger crowd that is associated with music,

entertainment, sports, and various other market niches such as corporate sponsorship.

19 PepsiCo. Company Values.http://pepsico.com/PEP_Citizenship/pepsicoValues/index.cfm. Last updated



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For a company that solely depends on the happiness of the consumer,

PepsiCo invests in R&D in many different ways. Not only does research go into products,

but also into additional opportunities to profit with concentric diversification. PepsiCo

does not explicitly state R&D objectives and goals, but implicitly through their values

and mission to create quality product that serves the consumer. Consequently, R&D can

be assumed to constantly occur, and has been shown through the addition of many

products throughout the years.

Operations and Logistics

Headquarters are in New York, but several smaller headquarters for each product

are distributed throughout the U.S. and the world. Since PepsiCo is mainly a U.S.

company, factories and distribution centers are mainly located throughout the U.S.,although there are a couple exceptions of plants in the United Kingdom, Puerto Rico, and

Ireland. Most likely to PepsiCos advantage, offices, warehouses, plants and distribution

centers are located in the U.S. which provides quick and convenient access and also is

less associated with the complications of operating and producing internationally

ANALYSIS OF STRATEGIC FACTORS

Pepsi Co has been consistently living up to its mission and objectives, as they

offer the most valuable products and beverages to their clients. The main areas they need

to focus on for improvement is continuing of recycling of containers. Due to the liquid

nature of Pepsis product, it is necessary that a solid and non-porous container be used to

store the products. In way to the recover, their position in the minds of the public

externally, and with employee satisfaction internally. In light of the various

discrimination lawsuits brought on in 2001 and 2004, the company has been faced with

the task of how to improve from within themselves, thus portraying a more positiveexternal image. Their mission clearly their dedication to client satisfaction through the

integration of all employees on an equal opportunity playing field. This mission has to be


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carried out more effectively in the future for them to be able to progress forward in the

most opportune manner possible. 22

Due to the liquid nature of Pepsis product, it is necessary that a solid and non-

porous container be used to store the product. This fact leads to the use of plastics,

aluminum, and glass as materials for the containers that Pepsi is stored in. These

materials work very well for the purpose of their use, however these materials do not

biodegrade easily. Every day, 93 million empty soft drink bottles and cans are thrown

away, rather than recycled. In November 2000, the boards of Pepsi and Coke passed

resolutions for future container recycling targets. The resolutions call upon management

to establish recycling targets and prepare a plan to achieve them by January 1, 2005.

There are two goals: (1) achieving an 80 percent national recycling rate for bottles and

cans; and (2) making plastic bottles with an average of 25 percent recycled plastic. Theimplementation of these resolutions will have a future effect on the cost basis of Pepsis

product, and a positive environmental impact if the recycling targets are met. 23

Growing in another sections, declining Colas interest. Beverage industry is

moving towards another choice of drinks sector. . Although in recent times, normal

beverages have been making a renewal, it is obvious that alternative drinks will continue

to grow. Pepsi can utilize its excellent brand recognition and reputation to invest in and

capitalize on growth in this area, and increase it market share against Coca-Cola at the

same time. 24

Also increasing the use of exclusivity agreements with restaurant chains and

college campuses. Coca-Cola has a majority of exclusivity with restaurant chains

including McDonalds and other major fast food chains. The benefits of exclusivity

agreements give Coca-Cola a major advantage in channel distribution. The major reason

Taco Bell was purchased by Pepsi was to create a new channel for Pepsi to be sold in

restaurants. In addition to restaurants, soft drink manufacturers are willing to engage in

"cola wars" to win the rights to supply all the machines in a given school in return for a

22 Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGARArchives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 200723 PepsiCo. Sustainability Report. http://www.pepsico.com/PEP_. Last updated

January 2007. Accessed May 10, 2007.24 Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGARArchives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 2007


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commission. The funds go to support financially starved school programs that could

range from buying new library books to beefing up the computer lab.

Coca-Colas is now the market supremacy. The dominance of Coca Cola in the

soft drink market has always been considered a major factor for Pepsi management. As

long as Coca Cola continues to retain a dominant market share, Pepsi should continue to

aggressively acquire Coca Cola market share.

The excessive work pressure results in evacuation of Pepsi management. The

creative tension which is constantly being placed on Pepsi management has resulted in

a number of management leaving the company for Coca Cola. Coca Cola has consistently

been able to acquire the Pepsi Tigers, or very good managers, away from Pepsi.

Review of Mission and ObjectivesAccording to the companys official website, PepsiCo Incorporateds mission is

to make this company: the worlds premier consumer products company, focused on

convenient foods and beverages. PepsiCo strives to produce healthy financial rewards to

investors as it provides opportunities for growth and enrichment to its employees, So the

overall mission of PepsiCo is to increase the value of shareholder's investments. This is

achieved through sales growth, cost controls and wise investment of resources. PepsiCo

believes that their commercial success depends upon offering quality and value to their

consumers and customers; providing products that are safe, wholesome, economically

efficient and environmentally sound; and providing a fair return to their investors while

adhering to the highest standards of integrity. 25

Objectives

Concentration of resources on growth of businesses through internal growth and

carefully selected acquisitions PepsiCo has adopted a plan for growth by continually

addressing the opportunities and risks associated with the global marketplace. The

corporation's success reflects their continuing commitment to growth and a focus on

those businesses where they can drive their own growth and create opportunities.

25 PepsiCo. http://www.sec.gov/ Archives.com . 12 May 2007"Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGARArchives. 20 Feb 2007.


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Contribute to the quality of life in communities. PepsiCo believes that as a

corporate citizen, it is responsible to contribute to the quality of life in the communities it

serves. This policy is implemented through support of social agencies, projects, and

programs. The company also supports employee volunteer activities through

contributions of time, talent, and funds. Each PepsiCo division is responsible for its own

giving program with corporate giving focused on supporting employee volunteer

activities. 26

The strategic objectives seem to address most of the strategic problems facing PepsiCo

Inc. For example, the risk that demand for PepsiCos products may be adversely affected

by changes in consumer preferences is addressed by the strategic objective of caring for

customers and their changing needs and wants. The issue of damage to PepsiCos

reputation that could have an adverse effect on its business is addressed by the companysobjective of respecting employees, vendors, customers, and by its commitment to

diversity, and by its commitment to candor and openness.

PepsiCo is among the worlds largest consumer products companies. In fact, it is

one of the largest companies in the world. PepsiCo is focused on various strategic

initiatives that it believes will drive growth and ensure the companys success. When

considering whether to change the mission and objectives, it is important consider the

impact of such a change on the companys long-term strategies. It is also important to

note that PepsiCo reported a sales revenue increase of 8 percent for fiscal year 2006

compared to 2005. In 2006 PepsiCo also reported net income of more than $5.6 billion

representing a 4 percent increase relative to fiscal year 2005. Whatever PepsiCo is doing,

it seems to be doing well. The biggest risk associated with a change in mission and

objectives would be a loss of focus and a loss of momentum (PepsiCo Vision and

Strategy).

Strategic Alternatives and Recommended Strategy

Pepsi Co is currently a strong worldwide leader in the food and beverage industry.

Throughout its growth, it has stayed true to its mission and objectives, while becoming a

26 "PepsiCo Vision and Strategy." PepsiCo Inc. 2007. PepsiCo Incorporated. 11 May2007


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dominant force within the United States as well as abroad. Known throughout the world

for quality products and customer care, Pepsi Co should make no major strategic changes

to its plan. However, like in any business situation there are areas that Pepsi Co can

improve upon. Some of the recommendations are as follows:

- Continue to expand with their Human Sustainability. The healthy eating

market is a demographic that will continue to grow in the future, and will

provide generous profits if Pepsi Co is able to obtain a large market share.

- Expand more into social benefits, especially for those in developing nations.

Pepsis main competitor Coca Cola has implemented a water purification

program for African Villages, which provides a valuable need and at the same

time introducing their brand name where it was before unknown. If Pepsi

followed this same ideology with food products and water purification it toowould significantly increase brand recognition

- Capture more of the aging populations market share. Pepsi is a company

focused on a younger market hoping to repeat the worldwide success of Coca

Cola in regards to brand loyalty with the generations born after 1980;

however, there is still a large market with the Baby boomer demographic that

they could break into.

- A minor yet still important change that needs to be made is to their website.

After comparing it to competitors we feel that it needs to be simplified.

Implementation

Overall PepsiCo is a successful company with substantial revenue, and a large

footprint in the marketplace. PepsiCo should continue to expand their growth and take

advantage of potential opportunities by continuing to improve on areas at the corporate

top level, in the markets that they currently are in, and in new markets and market

segments that they wish to expand into.


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PepsiCo should expand into markets and market segments that they are currently

not in, such as Asia, India, and South America, in order to expand their market

share at the global level and to increase their overall revenue.

PepsiCo should improve their employee relations in order to create employees all

over the world that will promote the product both during their work day and in

their personal life in order to create word of mouth marketing.

PepsiCo should look to cut some of their expenses as they currently have $10

billion more in revenue than the competition, but they have a similar Net Income

of $5.5 billion.

PepsiCo needs to continue to expand their market share in the markets where they

currently have a strong presence in order to maintain their market share and their

footprint in the marketplace.

PepsiCo should become more proactive in the health food/product marketplace

rather than being reactive to the market trends. They need to improve their

responsiveness and future projections to market trends and changes that can

therefore allude to different product segments and target markets.

Evaluation and Control

PepsiCo should expand into markets and market segments that they are currently

not in, such as Asia, India, and South America, in order to expand their market

share at the global level and to increase their overall revenue. In doing so, they

should increase the revenue percentage above the current below 20%. They

should evaluate the situation and growth again in one calendar year, and analyze

the total effect.


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PepsiCo should do market surveys of their target market segments in order to

analyze the existing brand awareness in the marketplace every two quarters and

then analyze the overall change and trend on the calendar year.

PepsiCo should cut their expenses by a set percentage every quarter in order to

increase their Net Income each quarter and year. This would increase the bottom

line and benefit the stockholders. It would be advised to reduce costs by 10% as

an original amount, and then potentially increase the percentage after a few trial

quarters.

PepsiCo should position themselves on the cutting edge of the health trend in the

marketplace by increasing funds for R&D in order to research potential new product ideas. Funding should be increased significantly and then the ROI on the

positioning should be analyzed after multiple quarters of study.

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19114298 Strategic Management Analysis of PepsiCo

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