Executive summary
Pepsi is one of the biggest food and beverage companies in the world with $66 billion in revenues and 25.65,000 employees all over the world. PepsiCo is listed at the New York Stock Exchange. The company is also listed at the Amsterdam, Swiss, Chicago and Tokyo Stock exchange. PepsiCo’s main customers are authorized bottlers and independent distributors and retailers. PepsiCo products are available in over 200 countries, with the largest operations in North America, Mexico, and the United Kingdom.
The company mainly operates in the non-alcoholic beverages and macro snacks market. They have become the largest macro snacks company in the world. Their main strategy is to diversify their business all over the world and keep abreast with the changing consumer preference. They invest in R&D to design their product lines to meet consumer needs. This in turn enables them to maintain and increase their market share. The main competitors of Pepsi are General Mills, Inc, Groupe Danone, Nestle S.A., Kraft Foods, Inc., Kellogg Company, ConAgra Foods, Inc., The Coca-Cola Company and Sara Lee Corporation.
The company has been striving to build a green company image and as a provider of healthy snacks. This was attributed to the changing customer needs and the shift of customer preference towards healthier drinks and snacks.
Company statement & organizational mission
PepsiCo owns some of the world's most popular brands, including Pepsi-Cola, Mountain Dew, Diet Pepsi, Lay's, Doritos, Tropicana, Gatorade, and Quaker (PepsiCo, 2012). Products are distributed through direct-to-store delivery, customer warehouses, foodservice, and vending.
PepsiCo’s mission of “performance with purpose” is to deliver sustainable growth by investing in a healthier future for people and the planet. Some of PepsiCo’s initiatives are to provide a healthier future which includes reducing the amount of sodium, fat, and sugar in products, improving water use efficiency, reducing packaging weight and incorporated recycled components in packaging, reducing the carbon footprint of operations, and using natural resources responsibly (PepsiCo, 2012).
The primary mission of PepsiCo is to increase shareholder’s value. PepsiCo gives out dividends and their shares perform well in the market. The company distributed $5.6 billion as dividends in 2011 (PepsiCo, 2012). They strive to achieve the goal of increasing shareholder wealth by maximizing their revenue. They focus on maintaining and increasing their market share all over the world and invest in R&D to launch products that meet customer needs and increase sales in turn. The company strives to increase its revenue from $66 billion in 2011 to $5.60 billion and $110 billion in 2016 and 2021, respectively (PepsiCo, 2012).
Core competencies & Competitive Advantages
The global brand image of Pepsi is one of their biggest competitive advantages. Pepsi is one of the most recognized brands in the world. The complementary combination of snack and beverage business also imparts unique competitive advantages to PepsiCo (PepsiCo, 2011). Their product line includes combination of world renowned brands in snacks and beverages. They have diversified product base and well established distribution channel which they use to distribute beverages and snacks all over the world. Products are distributed through direct-to-store delivery, customer warehouses, foodservice, and vending. Their revenues percentage is well balanced which protects them from ups and downs in any one particular market. In 2011, 45% of their revenues were from international markets (PepsiCo, 2012). They have been an experienced player in the market since 1965 and have been growing steadily with great leadership and strategic planning by its management. According to the company, their supporting fundamentals to success are, world class brand building and innovation, excellence in execution, optimal cost structure and capital allocation and best place to work (PepsiCo, 2012)
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One of the biggest advantages of PepsiCo is that they have overlapping products which are bought together, planned together and consumed together. The most common example is that Pepsi is bought with chips (PepsiCo, 2012)
Merger and acquisitions with companies across the world has been a key strategy of PepsiCo and it has allowed the company to gain competitive advantage. They have acquired bottling companies and various companies with local brands to strengthen their global presence.
Market Opportunities
The trend of growing per capita consumption of soft drinks and snacks across the world, presented PepsiCo with the great opportunity to expand their product line over the years and distribute them through the same supply chain. PepsiCo has advantage positions across the entire value chain in more than 40 developed and developing regions in which they operate as they capitalize on local manufacturing and optimized go-to-market capabilities in each region, as well as the ability to introduce locally relevant products using global capabilities (PepsiCo, 2012). PepsiCo holds a significant market share in the snack and beverage industry worldwide with brands such as Pepsi, 7UP, Lay’s, Doritos, Gatorade, and Tropicana. In salty snacks segment, the company is one the leading players with nearly 64% value share in the US, 75% in Mexico, 55.6% in Brazil, 46% in the UK, and 37% in India (Datamonitor, 2012).
Another trend of growing consciousness towards health and calories in carbonated drinks gave Pepsi an opportunity to target the health conscious market. They reacted to this changing trend by making zero calories and one calorie drinks without compromising on taste. They also launched a number of health drinks which in turn helped them retain and increase the market share in food and beverages. Non-carbonated drinks have become a huge category in beverages and Pepsi acted just in time to launch their drinks and capture the market. They launched a line of baked Lay’s chips that has much lower calories and fat value compared to regular Lay’s chips.
Organizational objectives and their accomplishment
The company’s main objective is specified by them as “performance with purpose”. The company has been trying to build a green image and of a company that cares about the health of individuals which combines into building a healthier future for everyone. Some of PepsiCo’s initiatives to provide a healthier future include reducing the amount of sodium, fat, and sugar in products, improving water use efficiency, reducing packaging weight and incorporated recycled components in packaging, reducing the carbon footprint of operations, and using natural resources responsibly. PepsiCo has a clear strategy of sustainability in most of its functional activities. The research and development functional group is exploring options for a sustainable environment by developing earth-friendly packaging that "degrades when exposed to air"(PepsiCo, 2011). Research and Development is also exploring more nutritious foods, like the Gatorade G-Series, that will allow for sustainable sales as consumers become more concerned with nutrition. The company achieved an average reduction in per unit thermal energy of 10.5% in their food plants and 27.6% in their beverage plants. Their overall water use efficiency also increased by 22.1% in 2011 (PepsiCo, 2012)
They also strive to increase shareholder’s wealth and they are one of the companies that regularly distribute dividends while growing steadily. The company distributed $5.6 billion in dividends to its shareholders and earned $66 billion in revenue (PepsiCo, 2012)
SBUs & product lines division
PepsiCo operates through four business units: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company's PepsiCo Americas Foods is further divided into Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), Latin America Foods (LAF) PepsiCo, 2012). The operating volumes of the company are reported based on; FLNA, PAB, QFNA, Europe and AMEA, International beverages, international foods and international snacks.
The company’s top brands include Pepsi-Cola, Lay’s Potato Chips, and Gatorade. In addition to these brands, PepsiCo has sixteen other brands that generate $1 billion or more in retail sales annually. These brands include Tropicana Beverages, Quaker Foods, and Aquafina bottled water, among others.
Cash Cow
FLNA is one of the more important divisions of PepsiCo and it was responsible for $13 billion in revenues from macro snacks in 2011. The increase in volume, revenue and profit was 1%, 4% and 7% respectively. It is referred to as the “Global Macro snacks Powerhouse” by the company. It can definitely be considered to be a cash cow. The organization did not harvest or divest any SBU’s in the past financial year.
Organizational strategy for growth
a. Market penetration
The total food and beverage sales growth for the company in 2011 was 4.5% from 3.5% the prior year. The FLNA division of the company increased the sales by 4% in 2011 which was attributed to the sales growth of Lay’s, Doritos, Cheetos, Ruffles, Tostitos and Fritos. The Quaker Foods North America grew by 8% in operating profit. The company also experienced 31% net revenue growth in Europe which was mainly attributed to the acquisition of Wimm-Bill-Dann (PepsiCo, 2012)
b. Product development
The company introduced new Tropicana Frutz sparkling juice drink that grew market share in 2011. A new Gatorade product line was introduced in 2011 that advanced the company’s market penetration (Forbes, 2011) Pepsi is all set to launch a new mid calorie beverage in March 2012 to target it’s in between customers that do not want as many calories as regular cola and also do not want the zero calorie or diet drinks because it compromise on taste (PepsiCo, 2012). In order to rapidly expand global brand platforms, PepsiCo created new global groups focused on snacks, beverages and nutrition. They have also increased their investment in research areas, from advanced sweetener technology to a 100 percent plant-based recyclable bottle (PepsiCo, 2012).
c. Market development
The company created one powerful consumer identity that they refer to as PO1. It included of two of their products marketed together such as Lay’s chips and Pepsi cola marketed together. They launched this campaign in Indianapolis during super bowl where they were the official sponsors of the game. They will try making this marketing campaign a success by introducing this new identity through joint merchandising, everyday merchandising and promotional merchandising (Forbes, 2012). They have launched new product Doritos tacos in the market to target customers who like Mexican food and consume tacos. The company partnered with Taco Bells for this venture (PepsiCo, 2012). Lay’s growth in 2011 was driven by expansion in many local markets, including Russia, where Lay’s has become the number one snack brand. For our Russian consumers, they created Lay’s pickled cucumber, which delivered strong volume growth in 2011 (PepsiCo, 2012). Their recently started distribution of healthy food products in China and a low-calorie fruit puree in the U.S. markets and it could spark market share gains for the company (Forbes, 2011).
d. Diversification:
In 2011, the company acquired Wimm-Bill-Dann Foods, a Russia-based manufacturer of dairy and fruit juice products. The acquisition marks the company’s entry in dairy segment, which makes up 70% of Wimm-Bill-Dann Foods’ portfolio. It would also make PepsiCo the largest food and drink business in Russia, and increase its presence in other eastern European markets and Central Asia (Datamonitor, 2012). They acquired Mabel which extended their macrosnack position in Brazil (PepsiCo, 2012). Pepsi has started to introduce a new line of healthy food options in China, where reports of chronic illnesses have been increasing. Pepsi now plans to continue its expansion into China with a $2.5 billion investment over the next 3 years. In October last year, it launched Quaker Herbal Oatmealin flavors such as wolfberry and tremella, a fungus considered in China to have therapeutic properties (Forbes, 2011).
8. Marketing Objectives
According to the company, snacks is a growing industry and there are 3 trillion snacking occasions in an year based on 9 billion snacking occasions a day. It is a $400 billion category and has an annual dollar of 6%. The company will focus on the macro snacks market and try to maintain and increase its market share. PepsiCo holds the largest market share in the macro snacks market in the world (PepsiCo, 2012).
9. Elements of the marketing strategy
The company’s strategic priorities for future are to build and extend macro snacks globally, and grow their beverage business sustainably, all over the world. The company plans to leverage GFY brands, promote Health & Wellness category momentum to grow their nutrition business, capitalize on cross category presence to grow country positions and ensure prudent and responsible financial management (PepsiCo, 2012).
a. Target market
The company is focused on macro snackers in the world because it’s one of the largest growing segments of the relevant food & beverage market. The company is also focusing on its value and premium customer segment by targeting them through specific product lines. The potential for these segments is $7 billion and $2 billion respectively. Global customers and health conscious customers are other big segments that the company is trying to target through new product launches and customizing the taste according to the regional preferences.
b. Marketing Mix
PepsiCo operates in the food and beverage industry and is the leading player in the market. Its products range includes snacks and soft beverages. They try to provide products at a low price while maintaining quality although they have started to focus on premium segment of customers. They market their products in 200 countries all over the world through their well established distribution channels. PepsiCo promotes its products through various modes of advertisements such as TV, newspapers, magazines, social networking websites, emails, flyers and through sponsorship of various events. Their marketing mix has been well-balanced and has proved to be one of their key points in their success over many decades.
10. Elements of the marketing plan
a. Short & long term marketing goals
The company’s long term growth model will be based on brand building, innovation, execution and productivity (PepsiCo, 2012). The company plans to increase A&M spend by 20% in 2012 (PepsiCo, 2012). PepsiCo will incorporate innovation as one of its primary marketing plans. They plan to innovate in their core brands; Lay’s, Doritos and Cheetos. They also plan to innovate based on consumer type; premium segment and value segment. They also plan to introduce new snack products.
PepsiCo would strive to improve its distribution strategy by improving general distribution, go to store models and in store capabilities. They would strive to achieve 100% distribution within 6 weeks of product launch. The company will have its primary focus on raising returns through productivity.
b. Trends and changes in customer preferences & main competitors
The customers are becoming health conscious and prefer whole grains snacks and low calorie beverages. This has driven the company to focus on making its products healthier for its customers. They prefer snacks that will help them meet their nutrition needs and also help them stay fit without packing extra calories. The consumers are also becoming more concerned about the environment and like the companies that prove to be more environmentally responsible. PepsiCo has aligned its objectives with changing customer preferences and included healthier products in its product line. They have strived to reduce their carbon foot print and conserve more energy through their manufacturing plants. It’s really commendable how Pepsi has made efforts to build a green image. Their annual reports and their campaigns are built around healthier snacks and caring for the environment that has led to a great company image.
The main competitors of Pepsi are General Mills, Inc, Groupe Danone, Nestle S.A., Kraft Foods, Inc., Kellogg Company, ConAgra Foods, Inc., The Coca-Cola Company and Sara Lee Corporation. According to Datamonitor estimates, Coca-Cola had 42.5% of market share in carbonated drinks category compared with PepsiCo’s 20%. The competitors of PepsiCo have tried to keep abreast with the latest trends and altered or launched products with the changing trends.
Market opportunities & problems
The company has a huge opportunity in the emerging markets, India, China, Russia and Turkey. The company plans to seize this opportunity and lead with market penetration and customized regional snacks. The productivity opportunities mentioned by the company are;
distribution network savings, advantaged agro practices, lean six sigma and general and administrative savings. The company identifies value, mainstream and premium segments as great growth opportunities. The company will initial focus its growth ventures on premium segment which is a $2 billion opportunity. They will also focus on value segment with is a $7 billion opportunity (PepsiCo, 2012).
According to Datamonitor, the growth in beverages in the next decade will come from emerging markets and Coca-Cola’s higher market share in these regions gives it an edge over PepsiCo. As a result, PepsiCo have to increasingly enhance its advertising and promotional outlay to expand its brand recognition. Intense competition from Coco-cola in the international beverage market can be a big challenge for PepsiCo.
The product recall incidences for PepsiCo had been a problem for the company. They recalled couple of its products due to varied reasons. In March 2010, the company recalled about 275,000 packages of Quaker Snack Mix Baked Cheddar in the US because the product contained hydrolyzed vegetable protein. In March 2008, PepsiCo's Quaker Oats unit has had to recall some Aunt Jemima pancake and waffle mix products due to potential salmonella contamination. Incidence like these had an adverse effect on the value of its brands. In March 2007, the company's Diet Pepsi cans were pulled off the shelves in Abu Dhabi after the linings of some cans were found to be disintegrating (PepsiCo, 2012). The company makes diligent efforts to improve the brand image but these incidences pull them back and actually result in brand damage. PepsiCo should be very cautious about their product quality and operations in order to avoid any such incidences in the future.
PepsiCo, Inc. (n.d). Team, T. (2011, January 1). Forbes.com. Retrieved from http://www.forbes.com/sites/greatspeculations/2011/01/12/pepsi-penetrates-new-markets-with-healthy-foods/
PepsiCo reports fourth quarter and full year 2011 results. (n.d.). Retrieved from http://www.PepsiCo.com/Download/Q42011Earnings_Release.pdf
Investing for growth. (2012, February 9). Retrieved from http://www.PepsiCo.com/Download/PEP_Q411_Webdeck-FINAL.pdf
Company profile:PepsiCo. (2011, July 11). Retrieved from http://www.datamonitor.com/store/Product/PepsiCo_inc?productid=26FFE4D9-E51D-4F5B-AC02-76DC923525A7
