Strategic Management Process of PepsiCo

Suleyman Demirel University

Faculty of economics

 

 

 

 

 

 

Course Project on Strategic Management

 

 

Strategic Management Process of

PepsiCo

 

 

 

 

 

 

 

 

Prepared by: Arman Umishev, management 4

Subject: Strategic Management

Submitted to: Saule Bolegenova

 

 

 

 

 

Kaskelen, 2012

Executive Summary

Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is one of the strongest beverage and convenient food companies in the world.  Originally started in 1898, Pepsi Cola became the first branded soft drink in the world.  Its brand is available in over 200 countries around the world and generated sales in excess of $92 billion last year.  Headquartered in Purchase, New York, PepsiCo is the number two beverage company in the world behind the Coca-Cola Company.

Financially, 2006 was a year of progress with an overall growth of 5.5%, revenue of nearly 36 billion USD and a return on investment of 26%.  These numbers are all well above the industry average, with their main competitor still being the Coca-Cola Company.  PepsiCo has continued their brand image by appealing to Generation Y and becoming synonymous with music, entertainment and sports.  In addition to their financial success, PepsiCo is also dedicated to ethics and social responsibility in the community.  They have invested heavily in recycling programs and in developing nations in Africa.  PepsiCo even has a sustainability mission that states “PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate- environmental, social, economic- creating a better tomorrow than today.”

They believe that they have the competitive, sustainable advantage in the industry because of three things: big brands, proven innovation and differentiated products, and powerful go-to markets.  With their strong brand, socially responsible employees and corporate beliefs and focus on the younger generation, PepsiCo will continue its stance as one of the most powerful companies in the world.

 

 

 

 

 

 

 

 

 

 

 

VISION

“PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today.”

Pepsi cola international vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

MISSION STATEMENT

Our mission is to be the world’s premier consumer Products Company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

Developing mission statement

We have absolute clarity about what we do ‘WE SELL HIGH QUALITY FOOD AND BEVERAGE PRODUCTS.’ Our success will ensure: customers will build their business, employees build their futures, and shareholders build their wealth."

• To be the world's best beverage company. Being the best means providing outstanding quality, service, cleanliness and value, so that their every customer is contented and happy with their products.
• To increase the value of their shareholder’s investment through sales growth, cost control and wise investment of resources.

Objectives

Strategic acquisitions

Product Reformations

• To make snack foods and beverages less unhealthy
• By producing (GFY) good-for-you or (BFY) better-for you products, that would create growth opportunities
• Related Diversification

Achieve Synergies

Close Relationships with distribution allies

International expansion

Maintain efficient distribution system

• Direct Store Delivery
• Broker Warehouse

The company has three main goals in terms of water conservation:” 

1. improve their water use efficiency by 20 percent per unit of production by 2015,
2. Strive for positive water balance in our operations in water-distressed areas.
3. Finally provide access to safe water to three million people in developing countries by 2015.
4. Pepsi follows five principles of sustainable packaging design: Reduce, Reuse, Recycle, Remove, and Renew.

 

 

External opportunities and threats

OPPORTUNITY:

  PepsiCo New Products Can Easily Penetrate In The Market.

  Noncarbonated Drinks Are the Fastest-Growing Industry

  Demand of Pepsi Is More than Of Competitor

  Changing Social Trends (Fast Foods)

  Internet Promotion and Ordering Processes

  May Tie Up or Liaison with Major Showrooms, Computer Centers & Restaurant

THREATS:

  Non-Carbonated Substitutes (The Mango Season)

  Beverage Industry Is Mature

  Fake Products (Imitators)

  Competitor’s Schemes

  Strong Competition with Coca-Cola Company

 

 

 

External Factor Evaluation (EFE) Matrix

EXTERNAL FACTOR ANALYSIS (EFE) MATRIX
Opportunity	WEIGHT	RATE	T.SCORE
PepsiCo New Products Can Easily Penetrate In The Market.	0.09	4	0.36
Noncarbonated Drinks .Are The Fastest-Growing Industry	0.11	3.00	0.33
Demand Of Pepsi Is More Than Of Competitor	0.07	3.00	0.21
Changing Social Trends (Fast Foods)	0.09	3.00	0.27
Internet Promotion And Ordering Processes	0.06	1.00	0.06
May Tie Up Or Liaison With Major Showrooms. Computer Centers &Restaurant	0.07	2.00	0.14
Threats
Non-Carbonated Substitutes (The Mango Season)	0.14	3.00	0.42
Beverage Industry Is Mature	0.12	4.00	0.48
Fake Products (Imitators)	0.10	2.00	0.20
Competitor's Schemes	0.05	2.00	0.10
Strong Competition With Coca-Cola Company	0.10	2.00	0.20
Total	1.00		2.77

 

 

 

 

 

 

 

 

 

 

 

 

Internal STRENGHTS and WEAKNESS

STRENGHTS:

  Strong Multinational (Brand Equity)

  Strong & Vast Distribution Channels

  Lack of Capital Constraints

  Record Market Share

  Strong Brand Portfolio

  Aggressiveness In The Market (Market Leader)

  Brand Promotion & Sponsorship

WEAKNESS:

  Targeting Only Young Customers

  Political Franchises

  Centralized Decision Making

  Decline In Taste

  Motivational Factor

     Not All Products Bear the Company Name

 

Internal Factor Evaluation (IFE) Matrix

INTERNAL FACTOR ANALYSIS (IFE) MATRIX
Strengths	WEIGHT	RATE	T.SCORE
Strong Multinational (Brand Equity)	0.11	3.00	0.33
Strong & Vast Distribution Channels	0.09	4.00	0.36
Lack Of Capital Constraints	0.07	3.00	0.21
Record Market Share	0.10	4.00	0.40
Strong Brand Portfolio	0.06	3.00	0.1
Aggressiveness In The Market (Market Leader)	0.07	3.00	0.21
Brand Promotion & Sponsorship	0.12	4.00	0.48
Weakness
Targeting Only Young Customers	0.09	2.00	0.18
Political Franchises	0.06	2.00	0.12
Centralized Decision Making	0.05	2.00	0.10
Decline In Taste	0.09	1.00	0.09
Motivational Factor	0.05	1.00	0.05
Not All Products Bear The company Name	0.04	2.00	o.o8
Total	1.00		2.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPETITIVE PROFILE MATRIX

		PEPSICO.		COCA COLA CO.		Kraft food
Critical Success Factors	WEIGHT	RATE	T.SCORE	RATE	T.SCORE
Plant Location	0.07	3.00	0.21	3.00	0.21	3	0.21
Strong Brand Image	0.1	4.00	0.44	4.00	0.44	3	0.33
Global Expansion	0.09	3.00	0.27	3.00	0.27	2	0.18
Market Share	0.12	4.00	0.48	3.00	0.36	2	0.24
Product Quality	0.12	3.00	0.27	4.00	0.36	4	0.27
Production Capacity	0.08	2.00	0.32	3.00	0.24	2	0.16
Innovation	0.11	3.00	0.33	3.00	0.33	3	0.33
Control Over Supply Chain	0.06	3.00	0.18	4.00	0.24	3	0.18
Availability	0.1	4.00	0.44	4.00	0.44	2	0.22
Advertising	0.1	3.00	0.33	4.00	0.44	3	0.33
Bottling Investment & Empty Mgt	0.05	3.00	0.15	3.00	0.15	3	0.15
Total	1		3.34		3.48		2.58

 

The Competitive Profile Matrix (CPM) identifies PepsiCo major competitors (Coca-Cola) and its particular strengths and weaknesses in relation to firm’s current strategic position.

The two most important factors to being successful in the industry are “market share” and “product quality,” as indicated by weights of 0.12. PepsiCo’s current strategy’s response to these factors is good, as indicated by its 2 rating.

Note in Competitive Profile Matrix  Coca-Cola is strongest on “product quality” and “Strong Brand Image” as indicated by a rating of 4, whereas Kraft food is strongest on “Product Quality”, PepsiCo is strongest in “market share” and “Strong Brand Image”.

Overall, Coca-Cola is strongest, as indicated by the total weighted score of 3.48. PepsiCo total weighted score is 3.34. It is above than average. Its current strategy’s response to “Product Quality” and “Market Share” . Company has to focus on this area of its business in order to overcome its competitors.

 

 

 

 

 

SWOT Matrix

	Strengths	Weaknesses
	Brand Promotion & Sponsorship Strong Multinational (Brand Equity) Record Market Share Strong  & Vast Distribution Channels Lack Of Capital Constraints   Aggressiveness In The Market (Market Leader) Strong Brand Portfolio	Decline In Taste Targeting Only Young Customers Not All Products Bear The Company Name Motivational Factor Political Franchises Centralized Decision Making
Opportunities	S-O Strategies	W-O Strategies
PepsiCo New Products Can Easily Penetrate In The Market. Noncarbonated Drinks Are The Fastest-Growing Industry Changing Social Trends (Fast Foods) Demand Of Pepsi Is More Than Of Competitor May Tie Up Or Liaison With Major Showrooms, Computer Centers &Restaurant Internet Promotion And Ordering Processes	S1,S2,S3,O2,O3,O4 Company Can Introduce New Product Or Non-Carbonated Drinks Because It Have Good Brand Equity, Large Resources S4,S5, O5,O3 By Having Good Distribution Channel and lack of capital can acquire small companies in new market and Can Focus Easily Fast Food Restaurants, Clubs.	W2,O2 By Introducing Non-Carbonated Drinks Pepsi Can Capture Different Age Groups.   Increase products with company name(O4, W3)
Threats	S-T Strategies	W-T Strategies
Non-Carbonated Substitutes (The Mango Season) Fake Products (Imitators) Beverage Industry Is Mature Strong Competition With Coca-Cola Company	S4,S5,T1,T3 Because Co. Has Financial Recourses And Distribution Channel Therefore It Can Produce Non-Carbonated Drinks.   Fighting fakes products(T2, S6)	W1,T3 By improving the taste & quality company can reposition its products can take long term position on maturity stage.   Produce healthy products(T1, W2)

 

Critical region: SO Strategies (Strength-Opportunities)

An Important Tool to Develop Four Types of Strategies:

• SO Strategies (Strength-Opportunities)
• WO Strategies (Weakness- Opportunities)
• ST Strategies (Strength-Threats)
• WT Strategies (Weakness-Threats)

 

 

The Strategic Position and Action Evaluation (SPACE) Matrix

Financial position	rating	Stability position	rating
Return on investment NI Liquidity Cash flow ROE ROA Earnings per share Inventory turnover   Average	4 3 4 5 4 4 4 5   4.125	Economic stability Demand Changes Price elasticity of demand Competitive pressure Barriers to entry new market Price range from competing products     Average	-2 -1 -1 -3 -2 -1       -1.67
Competitive position		Industry position
Market share Product quality Consumer loyalty Control over suppliers Brand recognition   Average	-2 -3 -4 -2 -3   -2.8	Growth potential Financial stability Ease of entry new market Resources utilization Profit potential Demand variability Average	5 4 6 3 3 3 4

SP average -1.67     IP average 4

CP average -2.8       FP average 4.125

X-axis: CP+IP=-2.8+4=1.2

Y-axis: SP+FP=-1.67+4.125=2.455

 

 

 

A firm whose financial strength a dominating factor in the industry,  so PepsiCo is very aggressive company in the market.

Aggressive profile

• Backward, Forward, Horizontal Integration
• Market Penetration
• Product Development
• Diversification  (Related or Unrelated)

 

 

 

 

 

 

 

The Internal- External (IE) Matrix

The IFE Total Weighted Score
	4	Strong             3	Average 2	Weak 1
	High       3	I	II	hold
The EFE Total Weighted Score	Medium       2	IV Invest	V hold	VI Harvest
	Low           1	VII hold	VIII Harvest	IX Divest
The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis EFE  2.77 IFE   2.79 V suggests the hold and maintains strategy. In this case, tactical strategies focus on market penetration and product development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The BCG growth –Share Matrix          

Division	Revenue	% Revenue	Profit	Profit %	Market Share	Market Growth
Frito-Lay North America	$ 13322	20%	$  3,621	33.5%	1	5.62%
Quaker Foods North America	$   2.656	4%	$     797	7.5%	1	0%
Latin America Foods	$    7.156	11%	$     1.078	10%	1	11.75%
PepsiCo Americas Beverages	$  22.418	34%	$  3273	30%	0.8	9%
Europe	$    13.560	20%	$  1.210	11%	0.4	20%
Asia, Middle East & Africa	$    7.392	11%	$     887	8%	0.3	14.9%
Total	$  66..504	100%	$  10866	100%

 

	Relative market share
	1      0.9     0.8      0.7      0.6     0.5        0.4        0.3        0.2       0.1      0
Industry Sales Growth Rate	10% +20   35.5% +10   7.5% 0     +10     -20	30%                                        Stars	11% 8%     Question marks
		Cash cows	Dogs

 

                         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From table we can see that PepsiCo is composed of 6 geographic divisions with annual total 66.504 million.  Circles represent sales volume of each division. The pie slices within the circles reveal the percent of corporate profits contributed by each division.

Asia, Middle East & Africa and Europe divisions is Question Mark. Because have a low relative market share position, yet they compete in a high-growth industry. PepsiCo has strengthened them by pursuing an intensive strategy (market penetration, market development, or product development).