Introduction
PepsiCo is a worldwide manufacturer, marketer and distributor of beverages and food dealing in many brands. Some of the brands include Tostitos, Mountain Dew, Doritos, Tropicana, Pepsi, and Gatorade among others (Thompson et al., 2012). The brands of the company are sold in many countries around the world. In the year 2009, the company registered the highest sales of beverages in the world having a global market share of 26.5%. PepsiCo is the second largest beverage company in the whole world. The paper analyses the global and U.S alternative beverage industry.
Strategic Issues Confronting PepsiCo and Alternative Beverage Brands
- Decline in sales
The industry that recorded a high growth during the mid 2000 experienced a decline in sales between 2008 and 2009 (Thompson et al., 2012). The reduction in sales of the alternative beverages is mainly caused by the economic climate of the United States. The consumers limit their spending on specialty goods that they feel is not very necessary. This issue can be addressed by exploring new markets that can help in stabilizing PepsiCo with a high profit margin and premium price points (Peterson, 2013).
- Maintenance of carbonated drink sales
A strategic issue that PepsiCo faces is the maintenance of beverage sales while at the same time increasing the sales of carbonated soft drink through improvement of the product (Thompson et al., 2012). Because the consumers like a healthy lifestyle, PepsiCo should continue developing choices that are healthier in the alternative beverages. The company should also continue improving the industry of soft drinks with choices that are healthier (Peterson, 2013). The company should also continue expanding the lines and innovation of their products. PepsiCo should also come up with enhancements of energy shot making products so that they are safer than the existing energy shots.
Five Forces of Competitive Position
- Threats of new entrants
PepsiCo experiences competition from other companies because it operates in a market that has low barriers to market entry (Thompson et al., 2012). Many companies that are new thus enter the market taking a significant portion of the market share. An example of the company is the Five Hour Energy. In the year 2009, the company was holding a 85 percent share of the energy shot market. The alternative beverage industry faces this problem mainly because the bigger companies have the resources to carry out campaigns thus changing the loyalty of their consumers (Peterson, 2013).
- Supplier bargaining power
The suppliers include the makers of ingredients used in making the alternative beverages (Thompson et al., 2012). The suppliers also included manufacturers of plastic bottles, aluminum cans among others. The competitive pressure created due to the supplier bargaining power varies greatly in the industry. Some categories of suppliers such as the manufacturers of plastic bottles, aluminum cans and especially packaging and labels have different suppliers (Peterson, 2013). This creates competition in the alternative beverage business.
- Bargaining power of buyers
In alternative beverage industry, the bargaining power of the end consumers is low (Bachmeier, 2009). The consumers are a small group and the purchases of an individual do not account for a big portion of the profits of the manufacturers (Solomon, 2012). The high degree of the brand loyalty increases the bargaining power of buyers.
- Competitive rivalry
The alternative beverage industry faces an intense rivalry (Thompson et al., 2012). The rivalry created results to decrease in pressure and huge investments in advertisement to help in building and maintaining brand loyalty (Bachmeier, 2009). Therefore, the companies continue to steal from their rivals in order to gain share in the market.
- Product and technology development
Innovation of product has been an important feature of competing in the alternative beverage industry (Thompson et al., 2012). They competed on the basis of differentiation from the traditional drinks such as fruit juices. Alternative beverage sellers who were successful were required to have brand building skills that are well developed (Olson, & López, 2009). In order to be successful in the industry, the alternative beverage sellers were supposed to have distribution systems that are efficient.
Drivers of Change and Industry Dynamics
- Entry or exit of major firms
The alternative beverage industry is affected by micro environmental factors that lead to change (Thompson et al., 2012). The entry or exit of major firms is likely to bring change in the industry. Many leading companies often aim at driving growth of revenue and improving market share (Olson, & López, 2009). They achieve this through increased economies of scale obtained through acquisitions and mergers.
- Globalization and buyer preferences
The growing use of the internet has led to a rapid increase in global communication. This enables the companies to form collaboration within the market of their countries and expand into markets of the world. Globalization greatly drives competition as the companies will try to be first movers (Thompson et al., 2012). Many buyers also prefer innovations in the products they buy and thus raising the need to have new formulations and appearances. Therefore, product innovation is necessary to combat the need of buyers for tastes of different varieties (Olson, & López, 2009).
- Societal attitudes, lifestyles and concerns
The consumers are concerned about a healthy lifestyle especially in the United States and Europe (Thompson et al., 2012). The carbonated drinks sector experience problems due to the awareness of the consumers concerning the health problems of obesity. This forces the firms to differentiate their products to enable them increase sales (Olson, & López, 2009).
Macro-environmental Characteristics
Market size
According to exhibit 1, the sales of the beverage industry globally were $ 1, 581.7 billion in the year 2009 (Thompson et al., 2012). It was projected that the value will grow to about $ 1,775.3 billion by 2014. Likewise, in 2009 the volume of sales was 458.3 liters and it was estimated to reach 542.5 billion liters in the year 2014. Exhibit 2 shows that 48.2% of volume sales by segment of the beverage industry in U.S were taken with carbonated drinks and 1.2% went to energy drinks. The sport drinks had 4% while flavored or enhanced water had 1.6%. The dollar value for the alternative beverages in the global market in the year 2005 was $ 277.7 billion and $ 40.2 billion in 2009. The volume of liters in 2005 was 9.4 liters billions and in 2009 it was 12.7 liters.
Market growth
John Gamble shows that there was growth in the global dollar sales of alternative beverages such as the energy drinks, sports drinks and vitamin enhanced beverages (Thompson et al., 2012). The sales of the alternative beverages recorded growth of more than 13% every year between 2005 and 2007. Because there was steady growth in the consumer’s purchasing power, the growth of the industry was expected (Olson, & López, 2009). However, the economic conditions that were poor caused the beverage industry of the United States to experience reduced growth.
Market segments
The alternative beverage segment enables companies to sustain their growth in volume in mature markets where the consumers reduced carbonated soft drink consumption (Thompson et al., 2012). The products offered by the alternative beverage industry catered to different consumers. For example, the teens and young adults purchased more energy drinks while the adults mainly bought the energy shots to get an extra boost of energy during the working day. The sport drinks and vitamin enhanced drinks were bought mainly by the athletes and people who carried out the exercises (Olson, & López, 2009).
Strategic Group Map
The term strategic group refers to a group of industry rivals. For example Coca-Cola, Red Bull, PepsiCo and Hansen Natural Company form a strategic group (Thompson et al., 2012). The companies use the same approaches in competition and they offer the products that have a similar appeal to the buyers thus occupying market positions that are similar. The four leaders of the industry employ different strategies in order to remain competitive in the industry of the alternative beverage (Olson, & López, 2009).
Key Success factors
Recognition of consumer wants and needs
The key factors for successful competitive within the alternative beverage industry greatly relate to the macro environmental factors (Thompson et al., 2012). A constant innovation of a product is imperative. For the company to maintain its ability to adjust with the market that is changing, it must be able to take into recognition the wants and needs of consumers (Solomon, 2012). PepsiCo for example, must keep up with the trends that are changing.
Size of organization and global expansion
The distributors that are large have the ability of negotiating with school systems, universities and stadiums. This makes the distributors to supply the products exclusively for a given time (Thompson et al., 2012). In order to remain competitive, the companies must implement distribution channels that are effective. The taste of the product is also important for success. Global expansion is a very important factor for the success of the beverage industry. The market of the United States has reached saturation making it necessary to look for global industry to continue with the growth.
Brand loyalty and Price
The brand loyalty is a significant factor for success in the alternative beverage industry. Many consumers of carbonated beverages have a high dedication to a particular product and in few circumstances do they buy other varieties (Thompson et al., 2012). Therefore, the companies should develop and maintain a brand image that is superior. The price of the product is also a key success factor especially for the consumers that do not have a strong preference of brand (Bachmeier, 2009). These types of consumers will go for products with most competitive price.
Recommendations for PepsiCo
The company should continue innovating and expanding their product line. The beverage industry faces stiff competition (Thompson et al., 2012). Because the consumers are looking for healthier options, the company should take consideration of health when developing and producing products. By introducing the new products, the company will earn more profits and also become stable thus appealing to the creditors and investors.
The company should try to sustaining and increasing the global market share. The majority of the profits comes from the global market share making it necessary to sustain the market (Olson, & López, 2009). The final recommendation for the PepsiCo is to try increasing the brand loyalty. This can be done by carrying out advertisement. Maintaining brand loyalty is necessary because it sustains profits and maintains the company’s market share.
References
Bachmeier, K. (2009). Analysis of marketing strategies used by PepsiCo based on Ansoff's theory. Munich, Germany: GRIN Verlag.
Olson, J. S., & Lopez, C. (2009). Build Your Beverage Empire. Canada: Jorge Olson.
Peterson, E. (2013). Caffeine Catastrophe: Energy Drinks, Products Liability and Market Strategy. International Journal of Marketing Studies, 5 (2), p50.
Solomon, M. (2012). Better business. Upper Saddle River, N. J: Prentice Hall.
Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland III, A. J. (2012). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. New York: McGraw-Hill.
