INTERNATIONAL STRATEGIC

MANAGEMENT

Clémentine BABONNEAU

Alice BEZIRARD

Léna BITTON

Carole GUIMBART

Maxime HUBIN

• External analysis

• Internal company analysis

Strategic Diagnosis

Alternatives

Recommendations

How can PEPSICO improve its diversification strategy in 2008?

EXTERNAL ANALYSIS

-MARKET TRENDS

-PESTEL

-OPPORTUNITIES & THREATS

-PORTER’S 5 FORCES

-KEY SUCCESS FACTORS

•Great-tasting

•Gourmet flavor

•Styles

•Diet and reduced calories food

•Non-carbonated beverages

Consumer health and wellness

concern

Consumers want to reward

themselves

Consumer desire to escape from the norm and taste snacks from a wider, often global

palate

Ready to eat and ready to drink consumption

Political Protectionism in emerging markets

Economic High growth potential of emerging markets

But…strong competition to enter

Social Healthier lifestyles promote different patterns of

consumption and represent new product opportunities

But…less interest in sodas with high sugar content

Technological Strong R&D departments to develop new products

Ecological Environment friendly packaging solutions

Legal More and more protected consumers

Stricter legislation to defend against obesity

Source: Xerfi, and case study

•“Better for you” – “Good for you” opportunities

•Changing lifestyles of consumers

•Taste preferences from country to country: adaptation to the local tastes

Consumer lifestyle:

•Emerging markets: developing countries China, India, Russia, Mexico, Brazil

•Developed countries: growing markets in healthy snacks outside US : new consumers needs and expectations: reduce saturated fats, cholesterols, trans fats, simple carbohydrates “China and Brazil would be the 2 largest international markets for snacks”

International Expansion

• Increasing consumption of water bottles in US

• Increasing consumption of savory snacks like Cheetos cheese (expectation: +27% by 2013)

•Broadening the products: Avoid the dependence on US markets by going abroad

Potential growth of markets:

Awareness for healthy, sugar and salt free meals Decline in Carbonated Drink Sales

• Legal barriers to enter new markets : protectionism

• Legislation involving environmental, health, and safety may force a reorganization in the industry

Potential Negative Impact of Government Regulations

• Fast-food industry: fierce price competition and low profit margins

• High rivalry between powerful global companies (The Coca-Cola Company, Nestlé, Danone, Kraft Foods...). Risk of influence on pricing pricing, advertising, sales promotion initiatives

Intense Competition

• In 2008 a strike in India shut down production for nearly an entire month

Potential Disruption Due to Labor Unrest

Rivalry among existing

competitors

Threat of new

entrants

Bargaining power of buyers

Threat of substitute products

Bargaining power of suppliers

--

Low power of new entrants

Few multinational groups own

the largest part of the market

share

Possible entrants for niche

markets or local markets

++

Very high

bargaining power

(retailers)

-Power of brand

recognition as an

argument to attract

the final customer

who is loyal

-Depends on the size

of the retailer

+

High

-All kind of food depending on

the taste

-Pay attention to healthy and

wellness categories

+/-

Medium

bargaining power

-Dependence on

raw materials

-But…a lot of

suppliers available

++

Very high rivalry

-High diversification from each

competitor

-Few strong groups control the

market

Share information and be transparent

regarding the stakeholders

Be able to forecast the trends at a local and

global level

Adapt to customer lifestyle and needs

Product innovation and diversification

Be visible everywhere

Good control over the manufacturing process

to achieve economies of scale

INTERNAL ANALYSIS

-ORGANIZATIONAL

STRUCTURE

-CORE COMPETENCIES

-COMPETITIVE ADVANTAGES

-STRENGHTS & WEAKNESSES

Frito-Lay North

America

PepsiCo

Beverages

North America

Pepsi

International

Quaker Foods

North America

$11,586 $10,230$15,798 $1,860

Non Alcoolics Beverages brandsSalty Snacks brands Oat Food and Cereals brands

PepsiCo’s organizational structure & Net Revenues for each Business Segment

(in $ millions) in 2007:

Organizational profile:

Diversification strategy = multi products & multi markets

• PepsiCo constantly improved its knowledge on the consumer behaviour by identifying trends such as healthier products:

• New brand value: PepsiCo’s better-for-you & good-for-you products

Market Research

• Launch of less saturated fat and less salted products answering to the trends found it by « Consumer Insight dept »

• Introduction of Lay’s traditional flavour with 50% less saturated fat

R&D: Product Innovation

• Close relationships with suppliers & customers under the Power of One program that allow PepsiCo to have direct information from both retailers & customers

Efficient Information System

• PepsiCo has succeed in creating an international exposure especially with Beverages & Salty snacks (increase of 22% in 2007)

International expansion

• Those acquisitions allowed PepsiCo to gain synergy in its whole business

Strategicacquisitions

Competitive Advantages

Product diversity

Differentation

Brand equity

Product diversity:

- 3 Business Units

- A wide and deep range of

products

Brand equity:

-Awareness

-Recognition

-Perception

Differentiation:

-High value products

-Strong positioning

Wide range of products

Efficient identification of trends Proactive instead of Reactive

International Exposure

High profit margins

Total control on the several steps of the supply chains (allow them to control & reduce the production and delivery costs)

Relatively unsuccessful in increasing the worldwide awareness of Quaker Foods Wide

In 2006, only 6 countries represented 75% of Quaker Foods International sales out of US

Difficulties to find a synergy between their restaurants & beverages they sold

GOOD FINANCIAL HEALTH WHICH ALLOWS THEM TO SELF FINANCE THEIR GLOBAL EXPANSION

Price in the stock exchange was about $33 in 1999 & about $64 in 2008 (+ 120%)

Net revenues by activity (2004-2007):

Frito-Lay North America=21%

PepsiCo beverages North America=23%

Pepsi International=60%

Quaker Foods North America=22%

Total Net revenues of PepsiCo Inc. from 1998 to 2007: increased by approximately 77%

-MAIN STRATEGIC CHOICES

-ACTUAL STRATEGY

-PEPSICO DIVERSIFICATION

-PEPSICO CHALLENGES

-PEPSICO DIFFICULTIES

1997

Restructuration of PepsiCo

Focus on snacks and beverages

Since 1997 Diversification and acquisition

strategies

Result 2008 Strategic

realignment in order to improve

the PepsiCo Profits

Focus on snacks

and beverages

Strategic International acquisitions

Large diversification of PepsiCo’s

products

Make healthy and wellness

products

Relevant innovations in

R&D

Strong presence in mature and emerging markets

Product differentiation to respond to health concerns (use of healthier oils, natural salty snacks)

Research on new flavors and new recipes: in order to attract more customers

With International acquisitions, PepsiCo offers a different kind of food and beverages

A GREAT SUCCESS

•new flavors, health and wellness products

•Frito lay North America, Quaker Foods North America, Latin American Foods, PepsiCo Americas Beverages, UK and Europe, Middle East, Africa & Asia

•Understand local taste•China and Brazil would be the two largest international markets for snack

To increase the market share in

developing countries and

continue the strong development in

emerging countries

To succeed in adapting to the customer tastes of customers worldwide

To innovate in order to improve the quality of their products while keeping going through the large diversification

To manage efficiently the new

six reporting segments

Stock Price: in 2008 PepsiCo Drops his stock

price in order to improve overall profitability

Quaker brand: under distributed in

international market

Gatorade: only one brand in growing market,

it‟s not enough!

Operating margin are not maximized

Industry Attractiveness Factor Weight Attractiveness

Rating

Weighted

Industry

Rating

Market size and projected growth 0.15 7 1.5

Intensity of competition 0.20 8 1.6

Strategic fits and resource fits with other

industries in portfolio

0.15 5 0.75

Resource requirement 0.15 6 0.90

Emerging industry opportunities and threats 0.10 4 0.4

Seasonal and cyclical influences 0.05 2 0.1

Social, political ,regulatory, and environmental

factors

0.15 3 0.45

Industry uncertainty and business risk 0.05 4 0.20

Sum of weights 1.00

Industry attractiveness rating 5.9

According to the rating scale, a result of 5.9 industry attractiveness rating is a

bit more than the average (all SBUs has been taken together).

We have defined 3 SBUs:

• Frito Lays

• Beverages

• Quaker

We considered both american and

international markets

Mark

et

Gro

wth

Rate

high

Low

1

Frito

lays

Int

Frito

lays

AMERICA

Stars

Cash cows

Question marks

Garbage can dogs

Bever

ages

Int

LEGEND

GREY :

AMERICA

BUSINESS

Pink:

INTERNATIONAL

BUSINESS

Relative Market Share

Quaker AMERICA

Quaker Int

Beverages

AMERICA

-OBJECTIVES

-OUR ALTERNATIVES

Increase International

Sales

Improve operating margin

Reinforce the

international presence

Manage the stock price

Choice number

1:

• Adapt their products to the local customers

Choice number

2:

• International acquisitions

Choice number

3:

• Forecast new trends:

• Improve the healthy products or make ecological packaging for egs

Adapt their products to local customers

Understand the consumer taste preference

Key to expand into international market

Taste are different in function of each

country

Follow the customer „s taste in order to

attract them, in Mexico : spicy food, in

Europe: healthy food with less saturated fat

International acquisitions

Increase PepsiCo presence

Reinforce their presence on new markets =

Internationalization

Increase the relationship with local

companies in order implement easier

New target: emerging countries

Forecast the trends:

Rely on marketing intelligence and

research & development

New customers expectations Nowadays, the

customer‟s taste is changing:

PepsiCo has to focus on healthy products in order to

respond to consumer health and wellness (reduce the

consumption of statured fats, cholesterol, trans fat,

and simple carbohydrates).

Improve the packaging in order to follow more and

more environmental criteria

Communication more about the sustainable efforts

Criteria Weight Alternative 1 Alternative 2 Alternative 3

COST 0,20 4 1 5

CONTROL 0,10 6 7 8

RISK 0,15 3 2 4

TIME 0,10 5 2 3

INTERNATIONALIZATION 0,20 9 10 5

BRAND EQUITY 0,05 8 9 10

FOLLOW CUSTOMERS‟

NEW NEEDS0,20 5 4 9

TOTAL 1 5,55/10 4,65/10 6,2/10

ALTERNATIVE 3.

Forecast the

trends

ALTERNATIVE 2.

International

acquisitions

ALTERNATIVE 1.

Adaptation to local

customers

To try to forecast customer‟s trends and to anticipate by providing new products

through innovation

How to do it ?

Rely on marketing

research in order to detect new

customer‟s needs

Rely on R&D to create new

products suiting the needs

According to our analysis, the best choice for

the company would be: