Case Study of Pepsi
I. CURRENT SITUATION
A. Corporate Overview and Financial Performance:
PepsiCo, Inc. is one of the most successful consumer products companies in the world, with 2000 revenues of over $20 billion and 125,000 employees. The company consists of: Frito-Lay Company, the largest manufacturer and distributor of snack chips; Pepsi-Cola Company, the second largest soft drink business and Tropicana Products, the largest marketer and producer of branded juice. PepsiCo brands are among the best known and most respected in the world and are available in about 190 countries and territories.
In 2000, PepsiCo has a reported net sale of $20,348 and a comparable net sale of $20,144 in comparison to its 1999’s net sales of $20,367 and $18,666 respectively. PepsiCo has increased its comparable net sale of 8% in 2000 while it had an increase of 15% in 1999. This reflects the increasing rate is going slower. On the other hand, PepsiCo’s interest expense declines 39% showing that the company is significantly lower the average debt level. Back to 1999, the report shows that the company’s interest expense dropped 8%, which indicates that the company is performing well in managing its financial strategies. More details about the financial performance of the company will be discussed in the later part of this paper.
B. Strategic Posture:
PepsiCo's overall mission is to increase the value of shareholder's investment. They do this through sales growth, cost controls and wise investment of resources. They believe 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.
PepsiCo’s overriding objective is to increase the value of our shareholders' investment through integrated operating, investing and financing activities. Their strategy is to concentrate their resources on growing their businesses, both through internal growth and carefully selected acquisitions. Their strategy is continually fine-tuned to address the opportunities and risks of 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.
PepsiCo believes that as a corporate citizen, it has a responsibility to contribute to the quality of life in our communities. This philosophy is put into action through support of social agencies, projects and programs. The scope of this support is extensive -- ranging from sponsorship of local programs and support of employee volunteer activities, to contributions of time, talent and funds to programs of national impact. Each division is responsible for its own giving program. Corporate giving is focused on giving where PepsiCo employees volunteer.
As a consumer products company, PepsiCo does not have the major environmental problems of heavy industry. Their biggest environ-mental challenge is packaging generated by their products. Packaging is important to public health and a critical component of the distribution system that delivers products to consumers and commercial establishments. To meet both consumer demand and safeguard the environment, they recycle, reuse and reduce packaging wherever possible. Each business is also committed to responsible use of resources required in manufacturing their products.
Continually fine-tuned to address the opportunities and risks of the global marketplace. Concentrate our resources on growing our businesses, both through internal growth and carefully selected acquisitions. Company developed its traditional products and expanded into low-fat and no-fat snacks as well as salsas and dips.
• Employee networks to mentor and support minority & female employees.
• Actively and diligently seek out qualified M/WBEs for all possible company requirements.
• Make every reasonable effort to help qualified M/WBEs to meet company standards.
• Respect the privacy of all visitors who access and use the company’s corporate Web site
• Treating all customers with respect, sensitivity and fairness, while providing some of the greatest products on earth.
• We respect individual differences in culture, ethnicity and color. PepsiCo is committed to equal opportunity for all employees and applicants.
• Corporate program for training employees how to work and manage in an inclusive environment.
II. STRATEGIC MANAGERS
Roger A. Enrico, 56, is chairman of the Board and CEO. Mr. Enrico was elected as PepsiCo’s CEO in April 1996 and as Chairman of the Board in November 1996, after service as Vice Chairman since 1993. Enrico, who once wanted to be an actor, understands that great marketing is pure theater. In his 29 years at PepsiCo (PEP), he has staged some of marketing's most spectacular productions. ''Coke's leadership tried to put us out of business,'' he says flatly. ''But we did not look for a temporary boost or a short-term gain despite the self-destructive business philosophy by our major competitor. We've been honed by fire.'' He spun off Pepsi's capital-intensive bottling operations into an independent public company. He spent $3.3 billion to acquire Tropicana, the leading orange juice brand.
Indra K. Nooyi, 45, is a Senior Vice President and CFO. She joined PepsiCo in 1994 as Senior Vice President, Corporate Strategy and Development. Prior to joining PepsiCo, she was Senior Vice President of Strategy, Planning and Strategic Markets for Asea Brown Boveri. Nooyi is responsible for corporate staff functions, including legal, human resources and corporate communications, in addition to her current CFO duties overseeing finance, strategic planning, mergers and acquisitions, information technology, advanced technologies and procurement. She is also known in company circles for her analytical abilities, a key component behind her rise. Nooyi, whose remuneration for fiscal 1999 totaled more than $1 million, is also believed to be the chief strategist behind PepsiCo's competition with rival Coca-Cola.
Steven S. Reinemund, 52, is President and Chief Operating Officer. Mr. Reinemund was elected President and COO in September 1999. He began his career with Pepsi as Senior Operating Officer of Pizza Hut, Inc.
Peter A, Bridgman, 48, is Senior Vice President and Controller. Prior to assuming his current position, Mr. Bridgman was Senior Vice President and Controller of The Pepsi Bottling Group and he was the Senior Vice President and Controller for Pepsi-Cola North America from 1992 until 1999.
Matthew M. Mckenna, 50, is Senior Vice President and Treasurer. Previously, he was Senior Vice President, Taxes. Prior to joining PepsiCo in 1993 as Vice President, Taxes, he was a partner with law firm Winthrop, Stimson, Putnam & Roberts in New York.
B. Top Management:
The top one of fifty most talented executives of the company, Roger A. Enrico, demonstrates his excellent ability of leadership as representing the company to show the Wall Street that PepsiCo can deliver superior performance quarter after quarter. One of Enrico's top priorities is to attract more investors into the stock.
In international markets, Enrico still faces several obstacles in building Pepsi's soda business; however, he builds up his strategy to place his biggest bets on developing markets, such as India, China, and Russia. ''The key thing is not to merely plant flags,'' says Peter M. Thompson, CEO of Pepsi-Cola International. ''It's to make sure you build a business, customer by customer, block by block, day by day.'' In India, where per capita soft drink consumption is seven servings a year, vs. more than 700 in the U.S., and where deliveries are often done on three-wheel bicycles, Pepsi finds the most prominent businessman in each town and gives them exclusive distribution rights, tapping their connections to drive growth. Over the past five years, volume has risen at a 26% annual clip. Pepsi has stolen 19 points of market share from Coca-Cola, bringing Pepsi's share to 47%, close to Coke's 52%.
III. EXTERNAL ENVIRONMENT
A. Societal Environment:
1. Economic Factor:
The key elements taken into consideration are the principal market risks, which PepsiCo is exposed to interest rate, foreign exchange rate and commodity prices. These are specified as :
(a)Interest rate on PepsiCo’s debt as well as it short-term investment portfolio: PepsiCo can manage its overall financing strategies in term of balancing investment opportunities and risks. The company is using interest rate and currency swaps to effectively modify the interest rate in order to reduce the overall borrowing costs.
(b)Foreign exchange rate and other international economic conditions: Operating in international markets involve exposure to movements in currency exchange rates, which typically affect the economic growth, inflation, interest rate, government actions and other factors. Once these changes occur, they will cause PepsiCo to adjust its financing and operating strategies. Changes in currency exchange rates that would have the largest impact on translating PepsiCo’s international operating profit include Mexican peso, British pound, Canadian dollar and Brazilian real. Through years, macro-economic conditions in Brazil, Mexico, Russia and across Asia Pacific have adversely impacted on PepsiCo’s operations. Especially, the economic turmoil in Russia which accordingly resulted in the devaluation of the ruble in 1998 caused the significant drop in the soft-drink demand.
(c)Commodity prices that affect the cost of raw materials: PepsiCo is subject to market risk with respect to commodities because its ability to recover increased costs through higher pricing will be limited by the competitive environment in which it is operating.
2. Technological Factor:
Development of additives such as sugarless sweeteners, caffeine free products, and new flavorings enables PepsiCo to provide products that meet changing customer tastes and preferences. In addition, computerized manufacturing technologies are great contributions to higher efficiency and quality in bottling operations. For Pepsi, a critical business challenge is ensuring that the distribution processes can deliver the right products to the right place at the right time. According to Jerry Gregoire, Vice President, Information Services, “The competitive advantage will go to the company that can apply technology to areas such as logistics, getting costs out of the distribution pipeline and getting products into the stores less expensively while increasing the availability of sales information.” Pepsi NA’s data communication network is an important element in the company’s efforts to address sales and distribution challenges with technology. Connecting nearly 330 manufacturing, distribution, and sale sites around the U.S. and Canada, the Pepsi NA network transports data help management in controlling inventory. For instance, sales data helps managers identify regions where certain products are not selling well, and move any excess inventory to areas where those products are in demand. Sales data also helps Pepsi’s managers make decisions about products before they reach the freshness date and must be pulled from the shelf and discarded.
3. Political/Legal Factors:
(a)The Human Right Issue: Few years ago, PepsiCo did business in Burma (Myanmar) under the brutal SLORC regime, the State Law and Order Restoration Council. As the SLORC moved to attract international investment, two millions people have been forced to work for no pay under brutal conditions to rebuild Burma’s long neglected infrastructure. What PepsiCo did at the time was patronizing the SLORC regime in what they called “rebuild the country’s infrastructure”. PepsiCo also said it helps the economy by buying "products such as mung beans, sesame seeds and rattan from small, local farmers." The issue addressed is whether these products were made by forced labors. In fact, PepsiCo must export their products for hard currency because it cannot use Burma's nearly worthless currency to buy imports of supplies for its bottling plants. As the result, PepsiCo had lost contracts at Harvard, Stanford, Colgate and other universities because it refuses to name the sources of these farm products.
(b)FDA Regulation: As a food product manufacturer, PepsiCo is under the control of the Food and Drug Administration. For example, the FDA tests and certifies new ingredients such as high-intensity sweeteners before they are allowed to be used in soft drink production.
(c)Waste Management and Public Concerns: Growing environmental awareness is leading to increasing legislation. The company’s operation is affected by federal legislative proposals that address the four objectives:
-Minimize the quantity of packaging material entering the nation’s solid waste system
-Minimize the consumption of scarce natural resources
-Maximize the recycling and reuse of packaging materials
-Protect human health and the natural environment from adverse effects associated with the disposal of packaging materials. For example, Connecticut has already passed a law that regulates packaging to increase its recyclability.
4. Socio-cultural Factor:
Consumers today are not as much joyous to cola products as they were before. Age and ethnicity are two main characteristics that affect consumer preference for soft drinks and alternative beverages. With age, health concerns become more of a factor when choosing a beverage. To illustrate, some studies show that cola products or soft drink in general may cause kidney stones and other related diseases. In contrast to older consumers, younger consumers—particularly teens and those in their twenties—have less attention spans for products and are more likely to prefer products that seems to be fun and different . Although PepsiCo is the number one seller in carbonated beverages, it lost is market share in 2000 as consumers seek for alternative beverages. As the matter of fact, PepsiCo switches to non-cola products such as bottle-water, ready-to-drink tea and sports drinks. In turn, bottled water gained the market share up to 12.8% in unit sales.
B. Task Environment:
1. New Entrants:
It is important when PepsiCo can identify what costs potential entrants to enter the soft drink industry. The production technologies required for manufacturing soft drinks is widely available for the potential entrants. However, competing on a national or global scale requires the ability to manufacture and distribute a well-recognized brand. Therefore, not only PepsiCo is the one who have to spend a tremendous fund on advertising campaigns, other companies such as Coca-Cola and Cadbury Schweppes have to go on the same path. According to the Beverage Industry, PepsiCo had a great number of commercials during the super-bowl. Coca-Cola Co., PepsiCo, and Cadbury Schweppes spent a total of $469.1 million on media advertising in the U.S. market between January and September 1996. Will new entrants be able to spend a tremendous amount to advertise themselves, or in other words, to create their “big names” in order to deprive the market shares from PepsiCo or Coca-Cola.
Another aspect is the distribution challenging in some Asian countries such as China, Indonesia and India, where poor road conditions and other infrastructure problems may prevent the effective delivery by trucks. The question is whether PepsiCo can have a competitive advantage to overcome these difficulties, then it will be difficult for the new companies who want to distribute their products.
2. Existing Companies:
The U.S. and global soft drink industries are quite concentrated. Long dominated by two companies, Coca-Cola Co. and PepsiCo, the industry saw the emergence of a third significant player when Cadbury Schweppes acquired the Dr. Pepper and 7UP brands in 1995. Table below shows that the top three firms accounted for 90% of the U.S. soft drink market in 1998 vs. 2000. The top one is still Coca-Cola with market share of 44% in 2000, next would be PepsiCo with 30.9% share. Dr.Pepper & 7UP goes down slightly in 2000 at 14.4%. There are some changes on market shares to other companies but the changes are not significant.
U.S Soft Drink Market Share in 1998 vs 2000
Gallons Market Volume
Company Rank Millions(1998) Millions(2000) 1998 Share 2000 Share
Coca-Cola Co. 1 6,223.90 4,491.5 43.80% 44.0%
PepsiCo Inc. 2 4,370.20 3,157.4 30.80% 30.9%
Dr.Pepper&7UP 3 2,060.40 1,473.1 14.50% 14.4%
Cott 4 357 300 2.50% 2.9%
National Beverage 5 270 214.0 1.90% 2.1%
Royal Crown 6 254.6 106.3 1.80% 1.0%
Monarch 7 138.5 11.8 1.00% 0.1%
Big Red 9 32 26.7 0.20% 0.3%
As discussed in Social-cultural Factor part, consumers’ tastes change over the time. Instead of drinking cola products, consumers switch to water or fruit juices. Competitors may take this advantage to market their products. One example is the agreement between Ocean Spray Cranberries Inc. and Beijing Huiyuan Beverage Group, which is the largest juice company in China. Ocean Spray grants a ten-year license to Huiyuan manufacture, market and distribute its products.
The market for soft drink is expected to grow at a slower rate in the next four years, according to a series of new global soft drink reports published by Beverage Marketing Corporation. The industry had a five-year compound annual growth rate (CAGR) of 5.0% between 1993 and 1998. But for the five-year period from 1998-2003, the CAGR is estimated to drop to about 4%. Although colas are the most important soda flavor on the market, the strongest growth in the industry is in the non-cola segment.
IV. INTERNAL ENVIRONMENT
A. Corporate Structure
PepsiCo owns its corporate headquarters buildings in Purchase, New York. The company is engaged in the snack food, soft drink and juice businesses. Each product category is further divided into North America segment—US and Canada—and international segment. (PepsiCo 2000 Annual Report)
ØFrito-Lay North America (FLNA)
Frito-Lay North America manufactures, markets, sells and distributes salty and sweet snacks. Products manufactured and sold in North America include Lay’s and Ruffles brand potato chips, Doritos and Tostitos brand tortilla chips, Cheetos brand cheese-flavored snacks, Fritos brand corn chips, a variety of branded dips and salsas and Rold Gold brand pretzels. Low-fat and no-fat versions of several brands are also manufactured and sold in North America.
ØFrito-Lay International (FLI)
Frito-Lay International manufactures, markets, sells and distributes salty and sweet snacks. Products include Walkers brand snack foods in the United Kingdom, Smith’s brand snack foods in Australia, Sabritas brand snack foods and Alegro and Gamesa brand sweet snacks in Mexico. Many of our U.S. brands have been introduced internationally such as Lay’s and Ruffles brand potato chips, Doritos and Tostitos brand tortilla chips, Fritos brand corn chips and Cheetos brand cheese-flavored snacks.
Principal international snack markets include Mexico, the United Kingdom, Brazil, Spain, the Netherlands, Australia and South Africa.
ØPepsi-Cola North America (PCNA)
Pepsi-Cola North America manufactures concentrates of brand Pepsi, Mountain Dew, Mug, Slice, Fruitworks, Sierra Mist and other brands for sale to franchised bottlers. PCNA also sells syrups to national fountain accounts. PCNA markets and promotes its brands. PCNA also manufactures, markets and distributes ready-to-drink tea and coffee products through joint ventures with Lipton and Starbucks and licenses the processing, distribution and sale of Aquafina bottled water. In addition, PCNA manufactures and sells Dole juice drinks for distribution and sale by Pepsi-Cola bottlers.
ØPepsi-Cola International (PCI)
Pepsi-Cola International manufactures concentrates of brand Pepsi, 7UP, Mirinda, KAS, Mountain Dew and other brands internationally for sale to franchised bottlers and company-owned bottlers. PCI operates bottling plants and distribution facilities in various international markets for the production, distribution and sale of company-owned and licensed brands. PCI markets and promotes its brands internationally.
Principal international markets include Mexico, China, Saudi Arabia, India, Argentina, Thailand, the United Kingdom, Spain, the Philippines and Brazil.
Tropicana produces, markets, sells and distributes its juices in the United States and internationally. Products primarily sold in the United States include Tropicana Pure Premium, Season’s Best, Tropicana Twister and Dole brand juices. Many of these products are distributed and sold in Canada and brands such as Fruvita, Looza and Copella are also available in Europe.
Principal international markets include Canada, the United Kingdom and France.
B. Corporate Culture
PepsiCo, Inc. has been systematically changed over the past two decades from passivity to aggressiveness in order to avoid stagnation and to adapt to changing competitive threats and the changing economic or social environments.
•Once the company was content in its number two spot, offering Pepsi as a cheaper alternative to Coca-Cola. But today, a new employee at PepsiCo quickly learns that beating the competition, whether outside or inside the company, is the surest path to success. In its soft-drink operation, for example, Pepsi's marketers now take on Coke directly, asking consumers to compare the taste of the two colas. The culture of the company now is based on the goal of becoming the number one of soft drinks.
•Managers are pitted against each other to grab more market share, to work harder and to wring more profits out of their businesses. Because winning is the key value at Pepsi, losing has its penalties. Severe pressure was put on managers to show continual improvement in market share, product volume, and profits. All Employees know they must win merely to stay in place— and must devastate the competition to get ahead.
•To keep everyone on their toes, "creative tension" is continually encouraged among departments at Pepsi. The staff is kept lean and managers are moved to new jobs constantly, which results in people working longs hours and engaging in political maneuvering just to keep their jobs from being reorganized out from under them.
C. Corporate Resources
• Pepsi has now beaten Coke in the domestic take-home market, and it is mounting a challenge to Coca Cola overseas. Pepsi has been making inroads: Besides monopolizing the Soviet market, it has dominated the Arab Middle East ever since Coke was ousted in 1967, when it granted a bottling franchise in Israel.
• The company’s products are transported from manufacturing plants to its major distribution centers, principally by company-owned trucks. The company utilizes a direct store delivery system, whereby its sales force delivers the products directly from distribution centers to the store shelf. This system permits the company to work closely with retail trade locations and to be responsive to their needs. The company believes this form of distribution allows it to have a marketing advantage and is essential for the proper distribution of products with a short shelf life.
• PepsiCo has developed the national marketing, promotion and advertising programs that support the its many brands and brand image, oversee the quality of the products; develop new products and packaging, and coordinates selling efforts. (PepsiCo 2000 Annual Report)
PepsiCo, Inc. manufactures, markets and sells soft drinks and concentrates (Pepsi-Cola, Mountain Dew, Slice, etc.), snack foods (Frito-Lay) and Tropicana branded juices. For the 12 weeks ended 3/24/01, net sales increased 8% to $4.54 billion. Net income increased 18% ($498 million). Revenues benefited from volume gains across all divisions. Net income also reflects an increased gross profit due to higher effective net pricing. Even though sales of PepsiCo were going down slightly on the last three years but they still have very high profits on that years. On the Ratio PepsiCo just only 33% on debt/equity ratio and profit margin is 10.9 compare with industry just only 8.10%. On the first quarter of this year net sales advance 8% to over $4.5 billion with earnings per share increasing 17% to $.34. PepsiCo is very strong revenue growth.
• EPS grows 15% in the 16-week quarter to 38 cents, and 17% for the 52-week year to $1.45
• Each division boosts Q4 volume, and gains market share for the year
• Net sales advance 8% to over $6 billion for the quarter, annual sales grow 8% and exceed $20 billion
• Every division posts double-digit operating profit growth in the quarter, annual operating profits advance 13% to $3.5 billion
• Operating cash flow grows 33% to $2.7 billion
• Return on invested capital (ROIC) improves to 23% -- a 250 basis point increase
• 2001 outlook for continued double-digit earnings growth
• Most of the sales are through the company’s own direct store distribution (DSD) systems, where they actually take the products to stores and put them on the shelf. These systems reach hundreds of thousands of outlets, from the tiniest liquor stores to the mightiest club store. The DSD systems give the company the ability to merchandise its products for maximum appeal to consumers.
• PepsiCo has been adding new platforms for growth, which strengthen the company’s portfolio and enhance its vitally important innovation capabilities. For example, in January 2001 the company acquired a majority of the South Beach Beverage Company, whose SoBe line of drinks adds to the Pepsi-Cola portfolio some of the fastest-growing brands in the fastest-growing segment of the industry, non-carbonated beverages.
• Another example is the planned merger with the Quaker Oats Company, which is expect to complete in the second quarter of 2001. This is without question the biggest step to ensure a bright future of growth for PepsiCo. The merger will make PepsiCo an even more effective competitor in the expanding market for convenient foods and beverages. It will add two very powerful brands to its portfolio, Gatorade and Quaker, and create new opportunities for every PepsiCo division. The combined enterprise will rank among the world's five largest consumer product companies.
• PepsiCo bought $383 million worth of goods and services from minority-owned and women-owned suppliers in the year of 2000. The Women's Business Enterprise National Council named the company among America's Top Corporations for Women's Business Enterprise. PepsiCo minority and women business development programs were rated among the top-10 nationally by the National Minority Supplier Development Council.
• We were named by Fortune magazine to its list of America's "50 Best Companies for Minorities," by Hispanic magazine to its list of "The Hundred Companies Providing the Most Opportunities to Hispanics," by Latina Style magazine to its list of "The 50 Best Companies for Latinas," and by Minority MBA magazine to its list of "Ten Top Companies for Minority MBAs."
The company encourages conservation, recycling and energy use programs that promote clean air and water and reduce landfill. Last year, the Occupational Health and Safety Administration named two more PepsiCo facilities to its top "STAR" status as part of the agency's Voluntary Protection Program.
4. Human Resources:
• The company has a wealth of talent across the corporation. It starts with its exceptional frontline team, the people out there serving the customers 365 days a year, and it extends to our corporate staff. The company not only has great opportunities, but the skills, experience, dedication and intellectual horsepower to make the most of them.
• The company’s continued growth has created outstanding career opportunities for talented professionals in a variety of specialized fields, such as information technology, treasury, tax, human resources, law, accounting, public affairs, audit. All successful applicants share a commitment to PepsiCo's goals and an ability to thrive in a fast-paced, results-oriented environment. In exchange, the company offers a highly competitive compensation and benefits package.
• Pepsi executives are expected to be physically fit as well as mentally alert: Pepsi employees four physical-fitness instructors at its headquarters. It is an unwritten rule that to get ahead in the company a manager must stay in shape. The company encourages one-on-one sports as well as interdepartmental competition in such games a soccer and basketball.
5. Information Systems:
• In responding to market demands for efficient 24-hour "order-to-delivery" process for customer orders, PepsiCo has installed a computer system that links an effective wide area network that allows immediate transmission of customer orders.
• The outcome has been to integrate with a wide area network, transmit accurate, complete customer order data, allowing the company to more efficiently load trucks, schedule deliveries and save man-hours.
V. ANALYSIS OF STRATEGIC FACTORS
A. Key strategic factors are:
1. Recyclability of Containers
Due to the liquid nature of Pepsi’s 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. The implementation of these resolutions will have a future effect on the cost basis of Pepsi’s product, and a positive environmental impact if the recycling targets are met.
2. Continued growth to other segments, decline of cola interest
The beverage industry is moving towards the alternative drinks sector. Although in recent times, mainstream beverages have been making a revival, 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.
3. Increased 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 commission. The funds go to support financially starved school programs that could range from buying new library books to beefing up the computer lab.
4. Coca-Cola’s market dominance
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.
5. Excessive work pressure resulting in exodus 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.
B. Evaluation of the current mission and objectives
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.
a. 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.
b. 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.
VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY
Out of the many strategic alternatives that PepsiCo could choose to follow, we have chosen to endorse one that fosters continued growth and diversification. Although their over-diversified portfolio has hindered their International Growth, these strategies strengthen their overall corporate worth and market presence domestically.
As consultants for PepsiCo, we are making the following recommendations:
• Pepsi should focus on increasing sales globally to compete effectively with Coke. They have been beaten badly in some markets, and need to focus more on "un-tapped" areas.
• Continue to diversify their beverage selection through acquisitions. This will enable PepsiCo to combat the decreased interest in cola. Going along with this, PepsiCo needs to ensure that they can properly manage all of these acquired companies and should divest those that show limited potential.
• Increase the use of exclusivity agreements to boost their sales in key markets. This may make it harder to keep costs low but will ensure added revenues. Another reason why Coke has continued to beat Pepsi is through its exclusivity agreements with restaurant chains, sports and entertainment complexes, and college campuses. More attention in this area will help to battle Coke's dominance.
• Capitalize on their aggressive corporate culture in overseas dealings. This can help to combat the weakness of their current international strategies.
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