Introduction

PepsiCo Inc. was established in 1965 following a merger between Pepsi-Cola Company and Frito-Lay. PepsiCo is comprised of four major divisions- PepsiCo Americas Beverages, PepsiCo Americas foods, PepsiCo Europe and PepsiCo Africa, Middle East and Asia. Pepsi Co is headquartered in New York and is ranked the second in the world within the foods and beverages sector by net revenue. Each of this divisions are in charge of manufacture and licensing of the company’s products in respective regions, with PepsiCo Americas Beverages and PepsiCo Americas foods operating in North and South America while PepsiCo Europe operates in Europe and Russia and PepsiCo Middle East, Africa and Asia operates in the Middle East, Africa and Asia. The company operates in over 200 countries and produces products such as Aquafina, Mountain Dew, Diet Pepsi, Tropicana and Gatorade (PepsiCo, 2018). This report aims to conduct an internal environmental analysis of the company using a SWOT analysis and a value chain analysis. The analyses will be used to inform recommendations on what further strategies the company can apply after a consideration of its existing strategies.

 

 

 

 

 

 

 

 

 

PepsiCo Vision and Mission

The company’s vision is to carry out activities that benefit the society, focus on environmental stewardship as well as increase shareholder value through ensuring that PepsiCo is indeed a sustainable company. Its mission is to perform with a purpose (PepsiCo, 2018).

SWOT Analysis

Strengths

Strong Brand Presence

Just like its competitor Coca Cola, PepsiCo is one of the largest brands within the world that is easily recognized by the consumers. During marketing, the global presence of the brand name makes it easier to market it to numerous target audiences, with most of its products riding on the popularity of the PepsiCo brand name. In addition to marketing, this has made the introduction of new products into the market by the company easier as the company name has already been accepted within the market.

Broad Product Rage

To cater for all its market segments, PepsiCo constantly innovates new products that would appeal to its customers. This has resulted in the company having a broad product portfolio, one that appeals to almost all of its consumers ranging from the sugar free to the dietary enthusiasts. Currently, the company has over 100 brands, with 22 of this having generated over $1 billion dollars each in 2015 (PepsiCo, 2016). With this, the company increases its market reach, making it possible to penetrate even the smallest of market segments.

High profile sponsorship deals

Within North and South America, PepsiCo has sponsorship tie-ups with a number of well -known sports leagues. Its deals with leagues such as the NBA, the NHL, the NFL and the Major League Baseball make it easier for the company’s products to reach millions of its consumers worldwide thus increasing its global presence.

Strong retailer Partnerships

PepsiCo has an established network of small and mega retailers that help the company of get its products to the final consumer. Such retailers include discount stores such as Walmart and food restaurants, serving the company’s products as drinks complementing the food. As a result of such partnerships, the company has been able to ensure that its products are available all around the world, regardless of how remote a region could be.

Large Distribution Network

To reduce on the transportation and storage costs PepsiCo has established a large number of bottling units all around the world. With this, the company is able to handle a large distribution network supported with the fact that the products are produced very near to the final consumers.

Weaknesses

Over-reliance on franchised bottlers

To support its large consumer base, the company makes use of franchised bottlers in a number of regions to produce its products. However, over time, the bottlers have become strong enough to not be affected by control from the company, making it impossible for PepsiCo to exert pressure on them when need be. This further results in increased opposition, be it to the manufacture of select products or the introduction of a new product, affecting the company’s operations. In addition, the franchise system makes it difficult the company to expand its operations as it does not own the bottling companies and thus cannot invest in them in order to support the rest of its operations.

Low Penetration out of America

The company acquires about 70 percent of its total revenues from its North American and South American markets. This implies that the company is yet to maximize on its potential within the other regions, affecting its brand presence, recognition and market share within this regions.

Over-dependence on large supermarkets

In 2015, PepsiCo’s sales to Walmart Stores (Sam’s Club included) accounted for 13 percent of the company’s net revenue. In addition, five of the company’s retail customers accounted for 32 percent of its net revenue within North America, 18 percent of this being represented by Walmart and Sam’s Club (PepsiCo, 2016). By over-relying on such large retailers, the company is giving them a higher bargaining power, a situation that could affect it in future as they could use this to make price and product feature demands.

Opportunities

Global Alliances

With its market position within North and South America, PepsiCo is well placed to establish global alliances with other businesses, whether in or out of the foods and beverages industry. In doing this, the company can increase its business portfolio while at the same time expanding to new markets.

Growth of health conscious market segment.

With the trend of consumers preferring healthier products to those with excess sugar, salt and fat content persisting, and a niche within the market is developed. Currently, PepsiCo already has three products competing within this market Tropicana, Gatorade and Quaker. However, there is a greater opportunity for growth for the company by expanding into this section and increasing their portfolio of products that pay attention to its nutritional components.

Clean Water Scarcity

Climate change and other environmental conditions are increasingly making clean water scarce. As such, most consumers are and will continue to opt for bottled water, giving the company an additional growth segment that it can take advantage of in order to increase its revenues.

Market Penetration

With a limited presence in areas out of North and South America, PepsiCo has a wide choice on the number of regions it can penetrate into. In addition to boosting its market presence, such a move would increase its revenue generation, helping to complement the two core regions’ revenues.

Product Innovation

To stay ahead, the company has increasingly innovated new products so as to appeal and attract new customer segments. Its latest products, Quaker oatmeal bars and Aquafina sparkling waters were well received within the market, indicating that the company is well placed to understand and satisfy consumer needs. If well taken advantage of, product innovation is a good opportunity for the company to break out even in the healthy consumers segment, helping to stay ahead of its competitors through the introduction of new and innovative products.

Threats

Trends towards healthy lifestyles

In the recent past, most consumers have increasingly become wary of the nutritional benefits of the foods and drinks they consumer as a result of the increased awareness on lifestyle related complications such as diabetes and high blood pressure. For PepsiCo, this is a significant threat as most of its products are considered to be unhealthy as a result of the high salt, sugar and fat content. The persistence of this trend will therefore result in increased loss of customers that would ultimately led to reduced revenues.

Competition

Within the beverage industry, the company faces stiff competition from Coca Cola. In addition to being a globally recognized brand, Coca Cola also increasingly invests in research and development to enable it to constantly produce new products to appeal to it’s to its large market. If not handled well, the aggressive competition yielded by Coca Cola could result in the downfall of the company by overshadowing all of its efforts to attract new customers or retain its existing ones.

Clean Water Scarcity

Even though this could act as an opportunity for the company to provide more bottled water, it could also act as an inhibition as the company relies on clean water in its production processes. Despite its current strategies to improve on its water use efficiency, the company needs to do a lot more in ensuring that the scarcity of water does not inhibit its future operations.

Unfavorable economic conditions

Most of the countries PepsiCo operates in, especially the United States and America, the economic conditions are stagnating. Should this persist, the company will be faced with increased taxation or interest rates, crippling its operations in this regions. On the other hand, there is increased economic growth in emerging countries, with the trends indicating an upward pedestal. However, the company has not diversified much into this countries, serving as an avenue through which the company is most likely to lose revenues in the future.

Competitive Advantage

When compared to other industries, the beverage industry within the world is one of the most competitive, with each player trying to outdo the other and achieve maximum market share. Against a strong competitor such as Coca Cola, PepsiCo has to devise features that enable it to gain an edge over the rest of the players. In this case, the company uses its innovative line of products to stay ahead. The company uses its research and development department to constantly develop new products for various segments of its market, helping to make each one feel important to the company.

Core Competencies

Product Innovation. The company has invested significantly in its research and development departments so as to be able to aptly respond to consumer needs by constantly innovating new products. This ensures that they reach to more consumer segments thus increasing their revenues.

Marketing and Branding

PepsiCo has unique campaign ads that focus on its target markets. With its target audience mostly comprising of teens and young adults, the company uses its unique advertising and branding to appeal to this audience, creating a lasting impression of the company.

Value Chain Analysis of PepsiCo.

Primary Activities

PepsiCo’s primary activities comprise of inbound logistics, operations, outbound logistics, marketing and sales and service.

Inbound Logistics

The company’s brand portfolio is made up of 22 bestselling brands among them Pepsi-Cola, Mountain Dew, Tropicana, Diet Pepsi and Gatorade. This brands produced at least $1 billion retail sales in 2015. The inbound logistics involved for each brand reflect the proximity between the location of the manufacturing plant and the suppliers as well as the nature and quantity of raw materials used.

By locating its production sites (bottling plants) in close proximity to the source of the raw materials and the final consumer, the company saves on transportation and storage costs. The company also achieves economies of scale through its inbound logistics activities. In addition, the company is increasingly embracing the use of technology in its supply chain, with the current project being the application of 3-D printing.

Operations

PepsiCo’s operations are divided into six operational divisions;

North America Beverages- this comprises of the company’s beverage businesses within the United States and in North America.

Frito-Lay North America- this comprises of the company’s food snacks businesses within the United States and North America.

Quaker Foods North America- this comprises of Quaker Oats Company brands within the United States and North America.

Latin America- this comprises of all the company’s food, beverages and snack businesses within Latin America.

Europe and Sub-Saharan Africa (ESSA)-this comprises of PepsiCo’s beverages, food and snack businesses within Europe and Sub-Saharan Africa.

Asia, Middle East and North Africa- this comprises of all the company’s beverages, food and snack businesses within the Middle East, Asia and North Africa.

This diversification helped the company to reach out to more markets as well as cushion itself against volatility in either one of the markets using the others.

Outbound Logistics

To create value within its outbound logistics, PepsiCo applies a number of distribution formats using a variety of formats. The three commonly used formats are;

Direct Store Delivery- For the company’s products that are often restocked, the company delivers directly to the stores, allowing it to achieve maximum visibility through its merchandise. This prevents the products from having to be stored for an intermediary time and resulted in a reduction of warehouse costs.

Delivery to customer warehouses-The company distributes the less fragile and perishable products to customer warehouses.

Distributor networks- To get the products from the manufacturing plants to the storage warehouses, the company has to engage third party distributors.

In addition, the company also applies a picking order fulfilment strategy that enables automation of order management. This results in better inventory management by the company as well as easier work for the company’s employees.

Marketing and Sales

PepsiCo invests significantly in its marketing and sales functions, with social media marketing, media advertising, product placement and celebrity endorsements being the frequently used marketing channels. In all its marketing campaigns, the company strives to associate the consumption of its products to the enjoyment of life, being active and having quality time with friends and those that one loves.

 

Customer Service

PepsiCo does not directly sell to its customers but instead uses intermediaries and re-sellers such as grocery stores, supermarkets, catering businesses and fast food chains. The company therefore does not provide any customer service to its customers at the point of purchase. However, the company has customer service phone numbers through which it responds to customer inquiries and questions.

Unlike competitor companies, PepsiCo does not apply a standard design in the production of its products. Instead, the company tailors all of its products to a particular target segment so as to suit their tastes and preferences.

Support Activities

PepsiCo’s support activities include firm infrastructure, procurement, human resource management and innovation. The company’s tangible resource is the bottling companies it owns through which the production of its products is carried out. Its intangible resources include brand recognition, employee loyalty and customer loyalty. The procurement function ensures that all raw materials and other requirements for operations are availed while human resource provides the man power and guidance throughout all this processes. The innovation aspect of technology development is discussed in more detail below;

Innovation

The company applies innovation in its supply chain in three ways;

Environmental Sustainability. To achieve performance with purpose, the company is continually looking for innovative ways of reducing its impact on the environment as well as on its operating costs. This include strategies to help people get access to clean safe water, the use of electric trucks as well as the recycling of most of its waste generated during production.

Digitizing the value chain- The Company seeks to digitize its entire supply chain, and uses systems such as the Internet of Things (IoT) and cloud based systems.

Technology. Currently, PepsiCo is exploring the application of 3-D printing and vehicle technology that enables platooning in order to save on fuel. The company has also embraced e-commerce as a way of serving its customers.

Strategic Analysis

PepsiCo’s Existing Strategies

The company’s current strategies can be viewed from two levels- the business level and the corporate level.

Business level strategies– At the business level, PepsiCo applies the low cost differentiation strategy. The company takes advantage of economies of scale by mass producing its products and differentiating them from the rest through their taste and the marketing campaigns used.

Corporate Level

At the corporate level, the company applies a number of strategies. First off, the company has expanded into other markets such as Canada, Africa, Mexico and the Middle East. Before, the company was wholly reliant on its US market, making it highly susceptible to volatility within this market.

The company uses alliances and partnerships as a way of expanding into newer markets. In 2000, the company acquired Quaker Oats, a move that saw the company increase its product portfolio considerably.

 

 

Further Recommended Strategies

Further Market penetration. The expansion into countries like India, China and Saudi Arabia have seen the company register considerable revenue increases from the sale of its beverages and foods. As such, penetration into other markets, especially those within the emerging economies can be considered as a future growth strategy to help boost the company’s revenues.

Diversification. Currently, PepsiCo is only present in the food and beverages market segments, narrowing their market reach. To resolve this, the company can diversify into a new product line, helping to develop a competitive edge over its fiercest competitor, Coca Cola. This can be done through an alliance with other companies, a scenario that will also help the company to gain access to new markets.

Expansion into the nutritional segment. The health and wellness customer preferences are most likely to persist, requiring that all companies within the foods and beverages industry adjust accordingly in order to remain relevant. To prepare for this, the company can expand into this segment, developing more products that will be able to appeal to the health conscious and improve the company’s reputation within this consumer segment.

 

 

 

 

 

 

 

PepsiCo. (2016). Annual Report 2015. PepsiCo.

PepsiCo. (2018). Our History. Retrieved from PepsiCo: http://www.pepsico.com/About/Our-History

PepsiCo. (2018). Overview. Retrieved from PepsiCo: http://www.pepsico.com/About