Case Analysis PepsiCo

Paulo Nazario, Onur Saka and Juliette Clark

International Business Policies and Strategies, Winter Quarter 2011 11/29/11

CASE 11: PepsiCo’s Diversification Strategy in 2008

1. BACKGROUND INFORMATION Time frame 1965-2008 1965 1970s 1980s 1990s 1997 2001 2008

Country(s) Involved MileStones Headquarters in Purchase, New York, USA. Operations global in scope. Merger with Frito-Lay PEPSICO Diversification outside snacks and beverages Acquisition of Pizza Hut, Taco Bell, KFC Acquisition of 7UP, Mug Root Beer, SunChips, Introduction of Aquafina - 1993 Portfolio Reconstruction Acquisition of Quaker Oat Company, Adding Gatorade to arsenal Re-Organization of Structure

Key Individuals & Titles Indra Krishnamurthy Nooyi, Chairman of the Board and CEO (2006-). Steven Reinemund (CEO 2001-2006). Roger Enrico (CEO 1996-2001). Donald Kendall and Herman Lay, Founders. CEO of Pepsi Cola, and engineer of Merger, Donald Kendal Wayne Colloway, CEO (1986-1996) Roger Enrico, CEO (1996-2001) Steven Reinemund (CEO 2001-2006) Indra Krishnamurthy Nooyi, Chairman of the Board and CEO (2006-).

Company Type & Size PepsiCo is a publicly traded company, listed on the NYSE, NASDAQ, and as a component of the S&P 500. In 2010 it had 294,000 employees worldwide. As of November 2011, it had a market cap of $101.02 billion. "Potato chips make you thirsty; Pepsi satisfies thirst." Donald Kendall on merger. ‘Balanced three leg stool’ describes Wayne Colloway, however, strategic fit problems occurs Bottled water business starts. Due to several strategic fit problems, restaurant businesses have been spun off to form Tricon, later Yum! Brands. FTC’s bans to jointly distribute Gatorade with Pepsi for ten years. Three division model. Strategic realignment.

2. BRIEF SUMMARY OF CASE SITUATION Business or Industry Description The case concerns the international food and beverage industry. The situation and position of PepsiCo, in addition to the evolving corporate strategy. The case is important for showing the related diversification strategy.

Particular Company Situation In 2008, PepsiCo was the largest snack and beverage company in the world, with a broad portfolio of businesses and a focus on growth through acquisitions and innovation. However, even a strong company like PepsiCo deals with several challenges, to name few, low international profit margins, product innovation, supply chain decisions and fierce competition.

3. ORGANIZATIONAL ANALYSIS Company Strengths • The 'Power of One' retailer alliance

strategy meant close collaboration between PepsiCo's marketing team and retailers, helping PepsiCo to understand consumer needs and reinforcing sales of both Pepsi and Frito-Lay products.

• PepsiCo's management team is responsive and proactive, and willing to restructure the organization to achieve more profitability internationally.

• The CEO, Indra Nooyi, is from India and retains strong ties to her home of Chennai; she is therefore better able to understand the dynamics of the important Indian market than an outsider might be.

• Product innovation is a major company strength.

• PepsiCo is responsive to consumer and governmental concerns about health: the company had begun to reformulate and repackage products to lower salt, fat and sugar content.

• The broadness of PepsiCo's portfolio is a major strength, as is the fact that the company has leadership across many product categories.

• PepsiCo has an excellent ability to integrate acquired companies, turning them into profitable business units quickly.

• Dominant in the US salty snack segment with its Frito-Lay brand; also the largest seller of nonalcoholic beverages in the US, with 26% market share in 2006.

Company Weaknesses • Relative lack of success at

internationalizing the Quaker brands. • International operations had a low

profitability, relative to US operations. • Despite making up some ground,

PepsiCo's share of the US carbonated soft drink market was still considerably lower than that of its traditional rival in the industry, Coca-Cola.

• PepsiCo remains highly dependent on the US market for revenues; profitability of its domestic businesses is still far greater than that of its international units.

• The continuing changes in the company's organizational structure hints at a possible internal weakness and instability.

PepsiCo’s Corporate Strategy • The strategy was to achieve dominance in the category in which PepsiCo's products

were competing, and by 2008 most PepsiCo brands were either the leader or the number two player in their category.

• The key was sustaining the momentum that followed the company's post-1997 restructuring, in order to maintain PepsiCo's impressive performance.

• To further PepsiCo's corporate goals, a vigorous acquisition strategy has been followed. • In addition, a key part of corporate strategy is innovation, and the continuous introduction

of new products. • The company took the challenge of developing 'better-for-you' snack foods very

seriously, and prioritized this in its strategic vision. • PepsiCo saw major growth potential overseas and was focused on increasing market

share and relative profitability outside of North America, especially in emerging markets. • By utilizing the 'Power of One' retailer alliance strategy, PepsiCo aimed to exercise

greater control over how its products were displayed in stores, helping to boost sales.

PepsiCo’s Business Strategy Among Its Divisions All of the four business divisions followed the general strategic approach laid out by PepsiCo's corporate team. Frito-Lay North America: this was a major component of PepsiCo's overall business, accounting for 29% of total revenues and 36% of operating profits. Management was concerned with maintaining Frito-Lay's strong market dominance by keeping pace with consumer demands and trends including the continuing desire for convenience, the increasing awareness of nutritional content, and the developing demand for 'indulgent' snacking. Frito-Lay's products underwent reformulations to improve their health credentials, and packaging was changed to allow smaller portion sizes. Strong growth was seen in the 'better-for-you' products offered, like SunChips and Quaker rice cakes, and strategic acquisitions of healthy snackfood companies like Flat Earth allowed PepsiCo to continue its push into the health-conscious segment of the market. PepsiCo Beverages North America: As the largest seller of nonalcoholic beverages in the United States, PepsiCo controlled 26% of the market in 2006. This was also an extremely profitable part of PepsiCo's overall business, accounting for 28% of the corporation's total revenues and 31% of its profits. Revenue growth had been strengthened through a broadening of the product line to include not only Pepsi but Gatorade, Tropicana, Lipton tea, and other strategic acquisitions. This positioned PepsiCo well for future shifts in consumption, as although carbonated beverages still accounted for almost half of all nonalcoholic refreshments sold in the US, the segment was losing ground to apparently healthier options like juices, enhanced water products, and energy drinks. Pepsi's ongoing battle with Coke for the carbonated soft drink market was in essence a battle lost (Coke vastly outsells Pepsi in cola sales in the US), but as seen as part of the larger war for overall beverage market share, PepsiCo appears to be positioned well as consumer tastes transition towards healthier options. Still, Pepsi sales were bolstered by the use of the 'Power of One' program, which entailed the cross-promotion of Pepsi and Frito-Lay products and made use of the strong relationships PepsiCo had built with its retailers. PepsiCo International: PepsiCo followed a strategy of pushing aggressively into international markets, and was rewarded with strong growth in international snack volume (up 9% in 2007 on average, with much higher growth rates in newly emerging markets such as Russia, the Middle East and Turkey). Frito-Lay's salty snack market share was strong in most international markets, and PepsiCo's share of the carbonated soft drink market was much larger in most international markets than in the US. The fastest growth in beverage volumes occurred in the Middle East, China and Pakistan. This overall growth experienced by PepsiCo internationally was spurred in large part by multiple acquisitions across many markets; the company also saw the potential for the implementation of the 'Power of One' strategy in order to increase the market share of certain weaker brands by piggy-backing on the popularity of stronger ones. Quaker Foods North America: The growth story of the Quaker family of foods in North America was not as strong as the other business divisions, although for the most part volumes increased through this period (the exceptions were sales of Aunt Jemima products and Rice-A-Roni and PastaRoni kits, which experienced declines in sales volumes). This portion of the business was probably the most natural fit for PepsiCo's strategy to bring more 'good-for-you' foods to market, and more than half of Quaker Food's 2007 revenues were generated by these products. In 2008, PepsiCo underwent a strategic realignment. It was split into three divisions: PepsiCo Americas Foods: All food and snack businesses in North America and Latin America. PepsiCo Americas Beverages: All beverage businesses in North America and Latin America. PepsiCo International: all of the company's snack and beverage businesses outside of the

Overall Organizational Assessment PepsiCo is in a strong position. Its dominance across the beverage and snack food industry worldwide has given the company strong revenues and enviable growth rates which have been supported by a series of strategic acquisitions, allowing the company to keep up with trends in the market, shifts in consumer wants and needs, and to place itself in a position in which it can leverage its sophisticated supply chains and distribution networks globally to foster further growth and to insulate itself from the risks inherent in the global food and beverage business. The strength of the company is reflected in its stock price, which has consistently outperformed the S&P 500 average over the past decade and, even through a period of economic contraction and crisis, has remained relatively stable.

4. EXTERNAL SITUATION Opportunities • The company is present in fast growing international markets: PepsiCo's international

sales of snack foods grew by 9% in 2007, with even stronger growth rates in developing markets like Russia, Turkey and the Middle East.

• There is room for significant growth in the international noncarbonated beverage market. • The growing desire for healthy food options among consumers in many of PepsiCo's

markets means that the company's strategy to reformulate snack foods and to focus on functional beverages and water products was well-timed; this market will continue to grow. This presents a good opportunity for the Quaker Foods brands, which are largely characterized by 'better-for-you' qualities.

• PepsiCo will be able to use the same distribution channels for Gatorade as for its other beverage products once the FTC's 10-year prohibition on bundling beverage contracts with retailers and jointly distributing Gatorade and the company's other soft drinks come to an end. This will provide an opportunity to increase Gatorade sales by leveraging the company's existing distribution and retail networks and achieving efficiencies of scale in marketing.

• PepsiCo can use its flagship products as a way to introduce consumers to other products in its range: for example, if Pepsi-Cola sells well in one market, but Lays chips do not, the company can use the 'Power of One' strategy in retail outlets to achieve effective cross-promotion.

• The economic crisis can be an opportunity as PepsiCo can offer consumers small indulgences that are affordable.

• PepsiCo can seek further cost efficiencies by capturing strategic fit benefits within PepsiCo's stable of businesses, achieve economies of scale through global coordination of marketing, distribution, procurement, and so on.

Threats • Increasing concerns about health: even

though PepsiCo is reformulating products, salty and sweet snack foods can still be the target for government legislation.

• Growing environmental concerns may lead consumers to reject buying bottled water, canned drinks, and prepackaged food.

• Economic crisis may erode household budgets and result in less expenditure on unnecessary snack foods.

• Volatile commodity prices may make it difficult for PepsiCo to control margins and may necessitate price rises.

• New entrants to the market pose a significant threat. Barriers to entry to the food and beverage industry are relatively low.

Risks/Constraints • PepsiCo is a convenience food company,

so how legitimate can their 'good for you' food really be?

• PepsiCo's best established brands (including Pepsi and Frito-Lay) are unhealthy snack foods; they must continue to profit from these brands in order to preserve shareholder value.

• Ongoing risk of shortages or disruption in supply of key raw materials.

• As an international operator, exchange rate risk is a concern.

• Changing consumer preferences may lead to a rejection of PepsiCo's product offerings.

6. STRATEGIC ANALYSIS SWOT Analysis (graph + narrative)

PepsiCo is a company with substantial internal strengths, including the vision of its management team, the integration between business units that allows for the realization of significant efficiencies throughout all levels of operations, and an enviable worldwide reach. The environment in which it operates can be risky, but PepsiCo does a good job at minimizing this risk by investing in research and development and spreading its interests across many market segments. There are many opportunities for PepsiCo in this environment, and the company is well poised to take advantage of them. Therefore, PepsiCo should continue to follow a strategy of aggressive diversification, placing it on the borderline between cells 1 and 2.

7. MODELS

Industry Attractiveness Assessment Attractiveness Measure Weight

Soft Drinks

Bottled Water

Chilled Juices

Isotonic Beverages

Salty Snacks

Hot Cereals

Market Size & Growth Rate 0.25 9 2.25 8 2 6 1.5 4 1 8 2 5 1.25 Industry Profitability 0.15 8 1.2 7 1.1 6 0.9 7 1.05 9 1 7 1.05 Intesity of Competition 0.15 5 0.75 4 0.6 7 1.1

10 1.5 5 1 8 1.2

Emerging Opportunities & Threats 0.2 7 1.4 8 1.6 6 1.2 7 1.4 7 1 5 1 Resource Requirements 0.05 9 0.45 7 0.4 7 0.4 8 0.4 7 0 8 0.4 Product Innovation 0.15 8 1.2 10 1.5 8 1.2 5 0.75 6 1 7 1.05 Social Political Environmental Factors 0.05 7 0.35 8 0.4 7 0.4 7 0.35 6 0 7 0.35 Totals 1 7.6 7.5 6.6 6.45 7 6.3

Competitive Position/Business Strength Competitive Position / Business Strength Weight PepsiCola Aquafina

Tropicana, Dole, Sobe Gatorade

Frito-Lay

Quaker Oatmeal

Relative Market Share 0.25 3 0.75 2.5 0.6 2 0.5 6 1.5 6 2 6 1.5 Market & Promotion 0.2 7 1.4 5 1 6 1.2 8 1.6 8 2 6 1.2 Product Innovation 0.1 6 0.6 6 0.6 8 0.8 8 0.8 7 1 6 0.6 Distribution 0.15 7 1.05 6 0.9 6 0.9 7 1.05 7 1 6 0.9 Resources 0.1 8 0.8 8 0.8 8 0.8 8 0.8 7 1 8 0.8 Brand Name / Image 0.2 6 1.2 5 1 7 1.4 8 1.6 8 2 6 1.2 Totals 1 5.8 4.9 5.6 7.35 7 6.2

Nine-Cell Industry Attractiveness/Business Strength Matrix

Competitive Strength/Business PositionL

ong-

Ter

m In

dust

ry A

ttrac

tiven

ess

Strong Weak

Medium

Average

High

Low

Narrative summary of model analysis results All of PepsiCo's businesses are relatively attractive, although some trump others. Over the long term, the carbonated soft drink market may see significant loss of the beverage market share to other refreshments, and Pepsi-Cola is weaker in key markets than its main rival, Coca-Cola. Bottled water sales may also come under pressure due to increasing environmental concerns. PepsiCo's star business units, according to these analyses, are Frito-Lay, Gatorade, and Tropicana; Quaker Oatmeal is also a standout performer. The key reasons for the strength of these business units are their dedication to R&D, their excellent brand names, and the fact that they offer products that appeal to consumers seeking healthier options for snacks and drinks.

Gatorade Frito-Lay

Quaker Oatmeal

Pepsi-Cola

Aquafina

10

1

7

7

6.3

6.2

6.45

7.35

6.6

5.6 Tropicana Dole, Sobe

7.5

4.9

7.6

5.8

Strategic Fit Potentials Between PepsiCo’s Business Units

PepsiCo’s Related Diversification Strategy and Strategic Fits in Value Chain

CS = cost sharing benefits ST = skills transfer opportunities BS = brand sharing

Does PepsiCo’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see?

PepsiCo's portfolio does exhibit good strategic fit. It seems as though, for the most part, PepsiCo has pursued a strategy of acquiring businesses that have certain elements in common in terms of production, distribution, and marketing. The areas of the business in which PepsiCo has demonstrated particular success in exploiting strategic fits in the value chain are in purchasing, where Aquafina and Pepsi-Cola enjoy cost-sharing benefits, operations, where cost sharing benefits are achieved among hot fill operations of Tropicana, Dole and SoBe, distribution, in which cost sharing and skills transfer may be achieved among the longer-established beverage units and Gatorade, and in sales and marketing, where Frito-Lay products and all other convenience products (especially soft drinks) can be cross-marketed using brand sharing. PepsiCo should continue to explore new opportunities for skills transfer, brand sharing and cost sharing benefits across all business units, in order to maximize its advantage as a diversified company.

PEPSICO Value Chain Activities

Business Unit

Pepsi Cola

CS with Aquafina CS/ST with all carbonated beverages

CS with all carbonated beverages/ST with Frito-Lay snacks

Cross-selling with Frito-Lay products/ST with all convenience products and

BS

Potential BS with Frito-Lay

Frito-Lay

Some potential CS with Quaker products

Potential CS/ST with Quaker products

ST with Pepsi Cola and other carbonated beverages, CS with Quaker branded products

Cross-selling with Frito-Lay products/ST with all convenience products And BS

Potential BS with carbonated beverages, ST/CS among all Frito-Lay products

Tropicana/Dole/SoBe

Some potential CS with hot fill beverages

CS among hot fill

operations

CS with all convenience beverages/ST with convenience snacks

Cross-selling among all non-carbonated healthy drinks/Potential ST with healthy snacks

Potential ST/CS among fruit juices and healthy beverages

Aquafina

CS with Pepsi

Cola

CS among hot fill operations

Potential CS with all beverages

CS/ST with Gatorade None

Gatorade

Some potential CS with hot fill beverages

None Potential CS/ST with other beverages, except Pepsi-Cola.

Potential CS with all beverages/ST with healthy snacks

Potential CS with other beverages

Quaker hot cereals

CS with Quaker Snacks

CS/ST with other Quaker snacks

ST with other PepsiCo products, CS/ST wıth Frito-Lay

None ST/CS with Quaker branded products

Model of Grand Strategy Clusters

Narrative summary of model analysis results PepsiCo's strong competitive position and the rapid growth of the global market for food and beverages indicates that the company fits into cell I. This applies across its business units; some, which are experiencing particularly strong growth rates (Frito-Lay, for instance), are well-matched to a concentrated growth strategy, while other units would benefit from further diversification into related products.

Grand Strategy Selection Matrix

Narrative summary of model analysis results PepsiCo has considerable strengths as a company, which it can maximize to enable further growth. It can do this by leveraging both its internal and external advantages, such as its ability to innovate quickly in response to market needs, the ability to growth market share in key products, and the strong company will that exists to open up new markets for PepsiCo's businesses. It can also engage in concentric diversification to continue to add new, complementary businesses to the company's portfolio. Therefore, PepsiCo fits between cells III and IV.

Resource Fits: Cash Flows for 2007

Resource Fits: Cash Flows for 2007

2007Frito-Lay North America

PepsiCo Beverage North America

Pepsi International

Quaker Foods North America

Total Division Corporate Total

Operating profit 2,845$ 2,188$ 2,322$ 568$ 7,923$ (193)$ 7,730$ Depreciation / other amortization 437$ 302$ 564$ 34$ 1,337$ 31$ 1,368$ Amortization of intangible assets 9$ 11$ 38$ -$ 58$ -$ 58$ Interest expense(1) (80)$ (62)$ (66)$ (16)$ (224)$ -$ (224)$ Income taxes (2) (579)$ (512)$ (790)$ (93)$ (1,974)$ -$ (1,974)$ Capital expenditures (624)$ (430)$ (1,108)$ (41)$ (2,203)$ (227)$ (2,430)$ Dividend payments (3) 854$ 656$ 697$ 166$ 2,377$ -$ 2,377$ Estimated free cash flow 2,007$ 1,498$ 960$ 452$ 4,917$ (389)$ 4,528$ Narrative summary of analysis results PepsiCo presented an excellent result in terms of free cash flow. This approach is allowing the company to continue put money in Acquisitions, dividends, share repurchases, capital spending, short-term investments and borrowing. Frito-Lay North America has generated more than 40% of total free cash flow. While the International business has the worst result among the business segment.

Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007 Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007Division 2004 2005 2006 2007Frito-Lay North America 25% 25% 24% 25%PepsiCo Beverages North America 23% 22% 21% 21%Pepsi International 13% 15% 16% 15%Quaker Foods North America 31% 31% 31% 31%Total Division 21% 21% 21% 20%

Narrative summary of analysis results PepsiCo has an outstanding operating profit margin compared with competitors in its market. Company as a whole has a operating profit margin of 18%. Its four business segments: Frito-Lay North America, PepsiCo Beverage North America, Pepsi International and Quaker Foods North America presented stability in its results from 2004 to 2007. Although Quaker is the smallest division, its operating profit margin was the best of all divisions in these years with 31%. On the other hand, Pepsi international presented the worst result among divisions. This point has made the company to concentrate efforts to enhance this business’ results.

Resources Fits: Revenue Contribution by Business Segment: 2004 - 7

Resources Fits: Revenue Contribution by Business Segment: 2004 – 2007Division 2004 2005 2006 2007Frito-Lay North America 33% 32% 31% 29%PepsiCo Beverages North America 28% 28% 27% 26%Pepsi International 34% 35% 37% 40%Quaker Foods North America 5% 5% 5% 5%

Revenue growth by Business Segment: 2004 – 2007Division 2004/20052005/20062006/2007Frito-Lay North America 8% 5% 7%PepsiCo Beverage North America 10% 5% 7%Pepsi International 15% 14% 22%Quaker Foods North America 13% 3% 5%Total Division 11% 8% 12%

Narrative summary of analysis results With a CAGR of 10% from 2004 to 2007, PepsiCo showed that its growth strategy through acquisitions and business improvement were in a good way. However, there are two questions to its internal segmentation: Quaker was so smaller than others and international business was less lucrative than others divisions. Besides this, international business presented the biggest opportunity to grow with 22% between 2006 and 2007and Quaker seemed stagnated in the US market in the last two years.

9. MODEL GUIDANCE (What do the models suggest?) SWOT: PepsiCo should pursue a highly aggressive strategy, due to its current market position, its internal strength, and its ability to cope with the risks inherent in the environment and to take advantage of the many opportunities for growth, especially into emerging markets. 9-cell Analysis: The strongest of PepsiCo's business units going forward will be those best poised to take advantage of shifts in consumer demand and those most responsive to changing pressures due to government policies regarding the nutrition contend of food. Frito-Lay, Tropicana, Gatorade and Quaker Oatmeal are the star players here. Value Chain Match-ups: This is an area in which PepsiCo should focus, so that they can maximize their advantage as a diversified company. By choosing new companies to acquire based upon their relevance in the overall corporate value chain, PepsiCo can achieve a lasting competitive advantage. Maximizing cross-promotional potential should be a priority. Grand Strategy Clusters: PepsiCo enjoys market leadership across growing segments of the food and beverage industry. A concentrated growth strategy is recommendable for the strongest business units, and the company should aim to continue its diversification into related business areas in order to maintain its leadership. Strategy Selection Matrix: Following a strategy of aggressive diversification combined with a focus on innovation and market development for its existing businesses will ensure that PepsiCo remains competitive over the longer term. Resource Fits: PepsiCo faces a significant challenge in that its revenues from the North American units are very strong, yet the company must invest heavily in much less profitable international markets in order to plan for the future. PepsiCo must address this issue, and it must also address the issue of exactly where Quaker Foods fits in its structure; the smallest but also the most profitable division, it is set to play an important role in the company's future growth. 10. STRATEGIC ALTERNATIVES GOING FORWARD # 1 CONCENTRIC DIVERSIFICATION Continue actively acquiring new businesses and diversifying into new (but strategically related) market areas. Acquisition of an alcoholic beverage maker is a possibility.

#2 VERTICAL INTEGRATION Pursue a strategy of acquiring key players in the value chain, such as bottlers, agricultural producers, or biotechnology companies.

#3 HORIZONTAL INTEGRATION Move aggressively to buy Kraft Foods and become the new leader in the global market, overtaking Nestle.

#4 MARKET DEVELOPMENT Continue moving into international market, restructuring their organizational structure .

11. Evaluating Alternatives “Tests of a Winning Strategy”

How do these alternatives rate? Alt #1 Alt #2 Alt #3 Alt #4 Does the strategy fit the situation (Y/N)? Yes Yes No Yes

Will the strategy achieve a sustainable competitive advantage (Y/N)?

Maybe Yes Yes Yes

Will the strategy result in better company performance (Y/N)?

Maybe Yes Maybe Yes

Summary (Good or Poor choice?) Good Good Poor Good

12. RECOMMENDED STRATEGY/POLICY

PepsiCo should continue its aggressive growth strategy, utilizing concentric diversification where possible in order to grow into emerging market segments and also to achieve meaningful expansion into international markets. In the North American market, PepsiCo should increase profit margins by means of a vertical integration strategy, acquiring bottlers and perhaps other key players in the value chain. In the future, the company can consider horizontal integration, in order to growth its overall dominance in the food and beverage industry. 13. SUGGESTED ACTIONS What strategic actions should Indra Nooyi take to sustain the corporation’s impressive financial and market performance? Should its free cash flows be used to fund additional share repurchase plans, pay higher dividends, make acquisitions, expand internationally, or for other purposes? What other strategic actions should be pursued by corporate level management?

Indra Nooyi and her team should focus on the aggressive expansion of the Pepsi brand internationally, aiming for market dominance in sodas in the international arena. In the US, the best strategy to compete with Coca-Cola in this market segment is to engage in vertical integration (in order to realize economies of scope) and also to build on the company's famously strong relationship with retailers. Furthermore, the company can strengthen its other soda brands, and perhaps introduce Miranda onto the US market in order to compete with Fanta.

PepsiCo should increase international growth and profits by changing the organizational structure in a way that focuses on markets other than North America, and enables the company to ensure that new acquisitions are made profitable rapidly.

PepsiCo should retain its strong focus on innovation and keep investing heavily in research and development, in order to keep ahead of the curve in this competitive industry.

The aggressive diversification strategy is a major strength of PepsiCo. The company should continue along this path, but should also seek to specifically acquire companies that can offer it excellent strategic fit benefits, in order to capture efficiencies in the value chain.

In terms of cash allocation, PepsiCo should seek to increase spending on R&D , acquisitions of companies that are a good fit for its portfolio, and pay higher dividends to shareholders, thus having a positive impact on the company's share price. The company should reduce expenditure on share buybacks.

Case Analysis PepsiCo

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