PepsiCo is the largest snack and non alcoholic beverage manufacturing company in the world. Its product range includes grain based snacks, carbonated and non- carbonated beverages and foods. It operates through four operating segments: Frito-Lay North America (FLNA), PepsiCo
Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA).It sells its products in 200 countries with major operations in the US, Canada, Mexico and the UK. It distributes its branded products through multi channels such as direct stores, broker warehouses, food service centers and vending machines.
PepsiCo in India
PepsiCo entered India in 1988 and concentrated on three focus areas – soft drink, snack foods and food processing. PepsiCo got permit to import cola conecnterate and to sell soft drink under Pepsi label in Indian market and in return to export juice concenterate from Punjab.
Main objective put forward was “To promote the development and export of Indian made and agro based products and to foster the introduction and development of PepsiCo products in India”.
Pepsico entered in India in the form of joint venture with PAIC holding 36.11%, voltas 24%, PepsiCo holding 36.89%.
PepsiCo was coupled with the ‘punjab card’. They made certain commitments to Indian cental government.PepsiCo specifically supported national priorities in area like export and agriculture. Some of the commitments are as follows:
1) the project will create employment for 50000 peope nationally, including 25000 jobs in Punjab alone.
2) 74% of total investment will be in food and agro processing.
25% will be in manufacturing of soft drinks.
3) PepsiCo will bring advanced technology in food processing and provide thrust by marketing Indian products abroad and giving them global market.
4) 50% of total production will be exported.
5) an agro research center will be established by PepsiCo with ICAR and PAU.
6) no foreign brand name will e used for domestic sales.
7)export import ratio will be 5:1.
Within few years pepsi was recorded as one of non compliance companies that did not fulfill the commitments it made to Indian government. The company nowhere met its obligations.
On September 4,1991 george fernandes said that Pepsi co has failed to meet its commitments and the company became a challenge to the government.
The failed commitments are as follows:
Employment generated by PepsiCo
Source: data taken from balance sheets of pepsi foods ltd.
Pepsico by 1996 increased the employment figure to 2400 which was just 3% of the commitment made.
Branch name commitment
Pepsi committed not to use its brand name pepsi in india. During first year pepsi used Indian brand name Lehar pepsi bt with the introduction of new policy in 1991 pepsi immediately changed its drink name from lehar pepsi to pepsi.
Pepsi commited that 50% total product will be exported but instead of exporting its own products it exported basmati rice, tea, leather products
Agro research center:
No agro research center was established.
PepsiCo, Inc., SWOT Analysis
Strong Growth Prospects
Efficient Use of Resources
Expanding Operating Margin
Declining Market Share in
Overdependence on Few
Huge Potential in the
Increasing Bottled Water
Growing Organic Foods
Highly Competitive Market
Private Label Brands Gaining
Global Economic Conditions
PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code: GDCPG35119FSA
PepsiCo, Inc. – SWOT Analysis
SWOT Analysis – Overview
PepsiCo, Inc. (PepsiCo) is one of the leading snack and beverage companies in the world. Dominant market position and
diversified brand portfolio are its strengths. Further, the rising demand for bottled water and strategic acquisitions could
ensure a strong future. However, poor profitability and overdependence on a few customers are areas of concern to the
company. Highly competitive market and growing demand for private label products coupled with global economic
slowdown could also impede the company’s growth.
PepsiCo, Inc. – Strengths
Strength – Strong Growth Prospects
The company was trading at a price/earnings (P/E) ratio of 16.16 at the end of fiscal year 2009. This was above the S&P
500 companies average* of 9.2. A higher than S&P 500 companies average P/E may indicate that the company may have
high growth prospects which is reflected in its stock’s premium pricing. Investors may be expecting higher earnings growth
in the future compared to other companies in the S&P 500 index.
Strength – Efficient Use of Resources
The company’s return on equity (ROE) was 35.4% for fiscal year 2009. This was above the S&P 500 companies average*
of 12.9%. A higher than S&P 500 companies average* ROE may indicate that the company is efficiently using the
shareholders’ money and that it is generating high returns for its shareholders compared to other companies in the S&P
Strength – Expanding Operating Margin
The company’s operating margin was 18.61% for the fiscal year 2009. This was above the S&P 500 companies average* of
14.7%. A higher than S&P 500 companies average* operating margin may indicate efficient cost management or a strong
pricing strategy by the company. The company’s operating profit was USD 8,044.00 million during the fiscal year 2009, an
increase of 15.59% over 2008 while the net profit was USD 5,946.00 million, an increase of 15.64% over 2008. The
operating margin has increased 252 basis points (bps) over 2008, which may indicate management’s high focus on
Strength – Strong R&D Activities
PepsiCo has a strong R&D arm that focuses on various activities, which could help the company in cost reduction and
process improvement, quality assurance, process control, and system development. The company also places emphasis
on developing new manufacturing methods, improving on the existing manufacturing processes, new product developing
and improving the existing products. For the fiscal year 2008, the company spent USD 388 million on its R&D initiatives,
against USD 364 million in 2007. Thus, such a strong focus on R&D activities provides the company with an edge over its
competitors in generating higher operational performances. New product and technology innovations also strengthen the
company’s innovating capabilities and provide a source of future revenues for the company.
Strength – Diversified Brand Portfolio
PepsiCo boasts of a broad brand portfolio in the beverages and snacks categories, which helps it cater to the diverse
needs of its customer base. The top 18 brands of the company generate USD 1 billion or more each in annual retail sales.
Some of the major brands offered by the company include Pepsi, Mountain Dew, Diet Pepsi, Gatorade, Tropicana Pure
Premium, Aquafina water, Sierra Mist, Mug, Tropicana juice drinks, Propel, SoBe, Slice, Dole, Tropicana Twister and
Tropicana Season’s Best. This diversified brand portfolio of the company provides it with the economic stability and an
edge in attracting and retaining a diverse customer base. It also helps the company to mitigate the risks associated with
overdependence on a particular brand or product category.
Strength – Dominant Market Position
PepsiCo enjoys a leading market position that helps it attract and serve a diverse customer base. The company is one of
the leading snack and beverage companies in the world. It is engaged in manufacturing, marketing and sale of a variety of
salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods. The company
sells its products in more than 200 countries. It is the market leader in the US savory snacks market with a market share of
about 39%. It is also the leader in the US liquid refreshment beverage category with a market share of 25%. Furthermore,
the company occupied 52nd position in the Fortune 500 rankings in 2009. The Frito-Lay brand is the world’s leading
manufacturer of snacks. This dominant market position helps the company diversify its risks associated with the cyclical
nature of most of these markets and puts the company at an advantage over its rivals while expanding its product lines.
PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code: GDCPG35119FSA
PepsiCo, Inc. – Weaknesses
Weakness – Declining Market Share in Sector
The company’s compound annual growth rate (CAGR) for revenue was 7.34% during 2005-2009. This was below the S&P
500 companies average* of 11.1%. Further, the company reported revenue of USD 43,232.00 million during the fiscal year
ended December 2009, a decrease of 0.04% from 2008. A lower than S&P 500 companies average* revenue CAGR may
indicate that the company has underperformed the average S&P 500 companies growth and lost market share over the last
four years. The company’s underperformance could be attributed to a weak competitive position or inferior products and
services offering or lack of innovative products and services.
Weakness – Overdependence on Few Customers
Overdependence on a few customers has been a major area of concern to the company. A significant portion of the
company’s revenues are generated from few customers. For instance, in 2008, sales to Wal-Mart and Sam’s West, Inc.
represented 12% of the company’s net revenue. The top five retail customers represented about 32% of its 2008 North
American net revenue, of which Wal-Mart (including Sam’s) accounted for about 18%. The loss of one or more of the top
customers in any of these segments could have a material adverse effect on the results of these segments. Due to
overdependence on a few customers, the company may not be able to find suitable alternatives to sell its products in time if
any of these customers is unable to buy the products on terms favorable to the company.
Weakness – Geographical Concentration
PepsiCo’s overdependence on the US market for its revenues exposes the company to various risks associated with
geographical concentration. Though PepsiCo has operations in various geographic regions, a majority of its revenues still
comes from the US. During the fiscal year 2008, the company generated 52% of its total revenue from the US region.
Further, during the fiscal year 2009, PepsiCo generated over 71% of its revenues from North America. This dependence on
the US could impact its operational and financial performance in the event of any economic, political or climatic change. It
also could restrict its market share and growth opportunities.
PepsiCo, Inc. – Opportunities
Opportunity – Huge Potential in the Emerging Markets
The company could benefit from the growing markets in the Asia Pacific region. According to the World Bank, the GDP
growth rate of high income countries came down from 2.6% in 2007 to 0.4% in 2008. The economies of these countries are
expected to have contracted by 3.3% in 2009. Despite the global economic slowdown, the emerging and developing
economies recorded a GDP growth rate of 8.1%, 5.6% and 1.2% during 2007, 2008 and 2009, respectively. Growth in the
East Asia and Pacific region (especially China) as well as in South Asia (especially India) has been resilient. This was
mainly due to the massive fiscal stimulus package in China and India’s skillful macroeconomic management. China’s GDP
grew at 9% in 2008 and 8.4% in 2009, while India’s grew at 6.1% and 6% respectively, during the period. The growing
economy in these countries has generated new employment opportunities for the residents and has provided a boost to
their earnings. Rise in disposable income has changed their buying behavior. Now more and more people are buying
luxury and lifestyle goods unlike in the past when they used to confine their spending to basic necessities. Customers in the
emerging countries are becoming more brand conscious and prefer to buy branded goods. With competition at its peak and
markets getting saturated, the company can look out for new growth avenues in these regions.
Opportunity – Increasing Bottled Water Market
The strong growth in the bottled water market is emerging as a major boon for the company. The global bottled water
industry has been witnessing strong growth over the past few years, especially in the US. Bottled water is sold mostly in the
industrialized countries where it costs between USD 500 and USD 1,000 per cubic meter, compared to USD 0.50 for
municipal water in states such as California, US. With the strong profitability offered by the segment, many players have
started foraying into the bottled water business. The demand for bottled water has also been on the rise in emerging
countries. PepsiCo’s established presence in the bottled water segment, along with its strong brand image puts the
company at a competitive edge over its rivals in attracting and retaining a loyal customer base. The strong distribution
network also helps the company to cater to a geographically diverse customer base.
Opportunity – Growing Organic Foods Market
The company has a significant opportunity to grow as the demand for organic food is set to rise by an average of 18% in
the US by 2010, according to the Organic Trade Association (OTA). Rising Health consciousness in the US has made the
organic foods segment one of the fastest growing segments in the food retailing industry. Though, the organic food
segment represented a mere 2.8% of the US food and beverage market, the organic food market in the region generated
USD 21.2 billion in 2007. According to a recent report from the OTA, the global demand for organic products has been
growing at USD 5 billion a year. PepsiCo offers its all natural and organic product line under the Tropicana and Quaker
brands in the US. The company can thus capitalize on its distribution network and organic food offerings to increase its
market share and revenues.
PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code: GDCPG35119FSA
Opportunity – Strategic Acquisitions
Strategic acquisitions offer a strong growth opportunity for the company, especially while foraying into new markets or
launching new products or services. The company has grown over the years by acquiring or merging with some of the
major brands like Frito Lays, Quaker Oats, Gamesa and Sabritas. Further, in October 2009, the company’s Pepsi Bottling
Ventures, LLC signed a Letter of Intent to acquire the assets of Pepsi Cola Bottling Company of Conway-Myrtle Beach,
Inc., the Pepsi-Cola franchise bottler based in Conway, South Carolina. Earlier, in August 2009, PepsiCo Inc. entered into
definitive merger agreements with its two largest bottlers, The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc.
(PAS). Under the agreement, PepsiCo will acquire all of the outstanding shares of common stock of these two bottlers.
Currently, the company owns 33% and 43% of the outstanding shares of PBG and PAS respectively. During the same
period, the company also announced an agreement to acquire Brazil’s largest coconut water company, Amacoco Nordeste
Ltda. and Amacoco Sudeste Ltda. (Amacoco). Earlier, in April 2008, PepsiCo acquired the UK based vitamin water brand,
V Water. These mergers and acquisitions offer a steady revenue source, apart from geographical expansion for the
PepsiCo, Inc. – Threats
Threat – Highly Competitive Market
Growing competition could impact the business operations of the company. The company faces stiff competition from the
various companies that are in the business of beverages, snack and food products. Key competitors include General Mills,
Inc., Groupe Danone, Hershey Foods Corporation, Nestle S.A., Coca-Cola Company, The Procter & Gamble Company,
The Kraft Foods, Inc., National Beverage Corp., Jones Soda Co. and Kellogg Company. Apart from the established players
in the developed countries, the players from emerging countries too are competing hard to garner maximum market share
in their respective regions. If the company fails to maintain product quality and consumer loyalty, this intense competition
could reduce the sales volume of the company, thereby hampering its market position.
Threat – Private Label Brands Gaining Momentum
The growing demand for private label products has been a major area of concern to the company. According to a report by
the Confederation of the Food and Drink Industries of the EU (CIAA), there is a shift in the consumer spending towards
private label products. Also, it is observed that the private label products have reached as high as 48% in traditional
retailers and 94% in discounters. In the UK, almost all the top 30 retailers witnessed an increase in the private label share
in 2008. Private labels may become even more popular due to the current economic slowdown. Apart from low prices, the
increasing quality of private label products has been driving away the sales of branded products. Thus PepsiCo faces a
major challenge from these private label manufacturers in sustaining its growth.
Threat – Global Economic Conditions
The company faces a major challenge in sustaining its revenue growth due to the slowdown in the global economy,
especially the US. The banks have tightened their credit lending process thereby affecting the consumers’ shopping ability.
Even the market volatility concerns have made them shop only for basic and essential goods, thereby creating a major
challenge to the goods manufacturers whose sales have been on the decline. According to The World Bank, overall global
GDP contracted by 2.2% in 2009, with 1.2% growth rate in the developing economies – well below the 5.6% growth rate in
2008. In 2009, the GDP growth in the US weakened to -2.4% while in the Eurozone, GDP contracted more sharply by 3.9%
from 0.5% in 2008. Further, the global output is expected to expand by 2.7% in 2010, and 3.2% in 2011 – still below the 5%
generated in 2007. Thus, adverse economic conditions could adversely affect the demand for the company’s products,
which poses a major challenge to the company in sustaining its revenue growth.
Transforming its beverage portfolio
PepsiCo sought to transform its beverage portfolio by increasing the health and
wellness quotient of its products through R&D. It has strengthened. its carbonated soft
drinks (CSDs) segment, comprised of Pepsi, Diet Pepsi and Mountain Dew. In 2007, it
launched Diet Pepsi Max in the US. It is a zero calorie energy drink and targets young
men. It also introduced the high caffeine Mountain Dew Game Fuel in 2008, aimed at
video gamers. PepsiCo has also introduced new carbonated juice drinks such as Izze,
which is free of caffeine, refined sugars and artificial ingredients and is naturally
sweetened with fruit juice. Izze fruit juices primarily targets carbonates customers who
want alternatives to artificially sweetened soft drinks.
Growth through partnerships
PepsiCo concentrates on partnerships and joint ventures to expand its operations. In
2007, it extended the scope of its partnerships with Starbucks and Unilever on RTD
beverages, and is expanding into other categories through acquisitions. In January
2008, it announced plans to acquire Penelopa nuts and seeds in Bulgaria, and in 2006,
it purchased Duyvis nuts business. Also In 2006, the company entered the salted snacks
business in New Zealand with the acquisition of Bluebird Foods, and expanded its
snacks business in Brazil with the purchase of Lucky snacks.
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