Question 1: What is PepsiCo’s corporate strategy?
PepsiCo PepsiCo was the world’s world’s largest largest snack snack and beverag beveragee company company.. More More exactl exactly y the company company’s ’s corporate strategy had diversified the company into salty and sweet snacks, soft drink, orange juice, bottled bottled water, water, ready to drink tea and coffee... coffee... About picking new industries industries to enter and deciding on the mean of entry, PepsiCo used related diversification through acquisition and merger to quicker launch a brand-new operation, hurdle entry barrier as acquiring technology knowhow, establish supplier relationships, match rival’s efficiency… and to move directly to the task of building a strong market market position. As early as 1968, the company began to pursue growth through through acquisition outside snacks and beverages. A list of acquisition is 1977 acquisition of Pizza Hut, 1978-tacobell. 1986-Kentucky Fried Chicken, Mug root beer, &UP international, Smartfood ready to eat popcorn, Walker’s Crisps, Smith’s Crisps, Mexican cookie… Briefly identify the business strategies that PepsiCo is using in each of its consumer business segments .
The company was organized into four business division, which all followed the corporation’s general strategic approaches: Fristo-Lay North America: the business strategy for this segment
The first thing need to consider is how PepsiCo provide convenience to its customer over time with its product. For example, they produce snacks packaged in smaller bags to address the overeating concerns and were additionally convenience to take along on an outing. The convenience foods included both salty and sweet snacks. Going abreast with the more conscious about nutritional and healthy healthy content, content, FLNA FLNA provide providess better better for you and goo good d for you snacks. snacks. They improve improve the performance performance of the division’s division’s score salty brands and further further developing developing health and wellness wellness
productas productas a key strategic strategic action. They offered offered fruit and vegetable vegetable snacks which is deficientcy deficientcy in most diets PesiCo Beverages North America
For PepsiCo PepsiCo carbonated soft drinks drinks business, business, PepsiCo use “Power of one” which is a strategy strategy for supermarkets to place Pepsi and Frito –Lay products on shelves. Not only that, they try to improve the local distribution, the information flow coming from retailer through “Innovation Summits”. Lastly, Lastly, they enhanced the nutritional nutritional properties of soft drink with attempt to develop new types pf sweeteners that would lower the clorie content of nondiet drinks. In other hand, for PepsiCo’s non carbona carbonated ted Beverag Beverages es Brands, Brands, PepsiCo PepsiCo offered offered healthie healthierr beverage beveragess like like –flavor –flavor and vitamin vitamin enriched water... PepsiCo International
Applied the global strategy, PepsiCo sale of beverage in international market utilize using “Power of One Strategy “ with a modification for snack foods international to suit the different form country to country Quaker Foods North America
PepsiCo tried to enhance the quality of product while diversifying the product’s categories with hot and ready to eat cereals, pancake mixes and syrup, and rice and pasta side dishes….
Questi Que stion on 2: Wh What at is your your assess assessmen mentt of the the long-t long-term erm attrac attractiv tivene eness ss of the the indus industri tries es represented in PepsiCo’s business portfolio? Industry Attractiveness Measure
weight
beverage
Market rket size size and and proje rojeccted ted growth rate Intensity of Competition
0.2
8
1.60
6
1.20
7
1.40
0.15
9
1.35
8
1.20
7
1.05
0.15
6
0.90
6
0.90
6
0.90
0.15
9
1.35
7
1.05
7
1.05
0.05
8
0.40
8
0.40
8
0.40
0.25
8
2.00
6
1.50
7
1.75
0.05
8
0.40
7
0.35
7
0.35
Emergin Emerging g Op Oppor portun tuniti ities es threats Resource Requirements
and
Societal Political, Regulatory & Environmental factors Industry Profitability Industry Uncertainty Business Risk TOTALS
&
1
cereal
8
snack
6.6
6.9
Since all of the industries holding by PepsiCo is cored more than 5, so they pass the attractiveness test as a whole. What is your assessment of the competitive strength of PepsiCo’s different business units? Competitive Strength Measure
Weigh t
Frito-Lay N.A in snack industry
Pepsi N.A in beverage industry
Pepsi International in snack, cereal & beverage industries
Quaker N.A in cereal industry
Relative Market share
0.15
8
1.20
7
1.05
5
0.75
5
0.75
Costs relative to competitors' costs Ability to match or beat rivals on key product attributes Ability to benefit from strategic fits with sister business Barraging leverage with suppliers buyers calibre of alliance Brand image and reputation Competitively Competitively valuable capabilities
0.15
7
1.05
8
1.20
5
0.75
6
0.90
0.10
9
0.90
7
0.70
6
0.60
5
0.50
0.10
8
0.80
8
0.80
6
0.60
4
0.40
0.10
9
0.90
6
0.60
6
0.60
3
0.30
0.10
10
1.00
9
0.90
7
0.70
5
0.50
0.10
8
0.80
8
0.80
5
0.50
5
0.50
Profitability relative to competitors Total
0.20
9
1.40 8.45
8
1.60 7.65
4
0.80
5
5.3
Since the Frito-Lay N.A Frito-Lay N.A in snack snack industry, industry, Pepsi Pepsi N.A in beverage beverage industry industry have the the score of competitive strength rating above 6.7 so they are strong market contender in the industry. The other 2 which is Pepsi International in snack, cereal & beverage industries and Quaker N.A in cereal industry have the score in the 3,7-6,7 range so they have moderate competitive strength comparing to other rivals. What does a 9-cell industry attractiveness/busi attractiveness/business ness strength matrix matrix displaying displaying PepsiCo’s PepsiCo’s business business units look like?
So Fristo-Lay N.A, PepsiCo NA and PepsiCo international are for growth and built base on their big size size and high level level of industry industry attractive. attractive. Besides, Besides, Quaker Quaker N.A is for maintain, maintain, harvest harvesting ing base on their average industry attractive and relative market size comparing to other industry
1.00 4.85
Question 3: Does PepsiCo’s portfolio exhibit good strategic fit?
Yes,they had a noteworthy successes with $160 million cost saving from product ingredients and packing material, material, $40 million million cost saving form joint venture. PepsiCo’s PepsiCo’s management management team was dedicated to capturing the strategic fit benefits within the business line up throughout the value chain. The company’s procurement activities were coordinated globally to achieve the greatest possible possible economies economies of scale, best practices. practices. They also share marketed marketed research research information information to better enable enable each division division to develop develop new product product What value-chain match-ups do you see?
they combine purchasing activities, gain more leverage with suppliers, and realize supply chain econo economi mies es;; share share techn technolo ology gy,, trans transfe ferr techn technica icall skil skills ls,, combi combine ne R&D; R&D; combi combine ne sale saless and market marketing ing activit activities ies,, use common common distri distributi bution on channel channels, s, brand brand name, name, and combine combine afterafter-sal salee service activities and usingcross-business collaboration to create new competitive capabilities. What opportunities for skills transfer, cost sharing, or brand sharing do you see?
I believe that PepsiCo have the all 3 opportunities. For skill transfer, since PepsiCo include much of business units and divisions, they can have skill transferring within the own corporate and the globe. The best practices were routinely transferred between its 230 plants, 3600 distribution systems, and 120,000 service routes around the world. For cost sharing, since PepsiCo can capture the strategic fit and resources fit benefits, they also prove to have cos-saving over time. Like, they achieve achieve $160 millio million n in cost-sav cost-saving ing result resulting ing from from corporat corporate-w e-wide ide procure procurement ment of product product ingredients and packaging material. And for Brand Sharing, we have to mention one of the most successful strategies was “Power of One”, they allow PepsiCo to obtain the synergistic benefit of combining Pepsi-Cola and Frito-Lay. For instance, in Chile, Frito-Lay has over 90% of the market,
but Pepsi Pepsi is in lousy lousy shape but due to to Frito-Lay Frito-Lay image image Pepsi able to get get a shelf shelf space. Does PepsiCo’s portfolio exhibit good resource fit? What are the cash flow characteristics of each each of Pepsi PepsiCo Co’s ’s four four segme segments nts? ? Wh Which ich bu busin siness esses es are are the strong strongest est contr contribu ibutor torss to PepsiCo’s free cash flows?
Yes, PepsiCo’s portfolio exhibit good
2004
2005
2006
2007
Net Net Cash Cash Provid Provided ed by operating activities Capital Spending
5,054
5,852
6,084
6,934
(1,387)
(1,736)
(2,068)
(2,430)
Sale of property, property, plant and equipment Managemen Managementt operating operating cash flow
38
88
49
47
situ situat atio ion n is goo good. d. There There is no Cash Cash
3,705
4,204
4,065
4,551
Hogs ogs
resource urce
fit.
Overall all
and Dog. og.
busines ness’s
Fritoito-L Lay
is
the
stronge strongest st cash cash generate generated d business business unit and Pepsi Pepsi Internat Internationa ionall is less less efficie efficient nt busines businesss unit (revenue/profit/asset) Based Based on the preceding preceding analysi analysis, s, what what is your overall overall evaluat evaluation ion of PepsiCo PepsiCo’s ’s business business portfolio? Does the portfolio provide the company’s shareholders with an opportunity for above-average market returns?
Since there is no cash hogs which will erode all of the cash flow using to fund their expansion, or no Dog which also hurt the cash flow of PepsiCo. All of business units are in its good condition, they they can generate generate enough cash cash flow flow for themse themselves lves and also also for support supporting ing other other operati operating ng activities. With the company’s business portfolio’s growth and more than sufficient cash-flow, PepsiCo is expected to generate above average market return for now, but in the future if it want to keep it’s position and profitability, there will need funding to build its business unit further not just stop and be satisfy with what it own right now.
Question 4: What strategic actions should Indra Nooyi take to sustain the corporation’s impressive financial and market performance? Should its free cash flows be used to fund addit additio ional nal share share rep repur urch chase ase plans plans,, pay pay higher higher divide dividends nds,, make make acqui acquisiti sition ons, s, expan expand d internationally, or for other purposes? What other strategic actions should be pursued by corporate level management?
PepsiCo has used very successfully the related diversification corporate strategy as their basic approach. PepsiCo should remain their related activities within the value chain between the various beverage beverage and snack food brands to utilize utilize the strategic strategic fit and resources fit in order order to reduce costs and increase profits. profits. Some of the elements of the value chain should be considered is marketing, marketing, processing, processing, research and development. development. An importance importance noting here is that, PepsiCo should define clearly their priority in order to have a proper decision making and resources allocation. Beside form what is mentioned above, if the company cash flow is enough to pursuing more, then PepsiCo should go after some other option like fund additional share repurchase plans, pay higher dividends and buying security, investing in mutual fund… to strengthen their financial performance and secure its profit again rivals. Based on the videos we watched, what strategic actions is Indra Nooyi taking to sustain the corpora porati tion on’s ’s
imp impressi essiv ve
fin financia nciall
and
market ket
perf erforma rmance?
Also Also,,
what
does does
“sustainability” “sustainability” mean to Indra Nooyi at PepsiCo
According to the video, with some change and modification, Indra Nooyi had taken an initiate to restru restructu cture re the busines business, s, he created created the new 3-divis 3-division ion structu structure re which which is PepsiC PepsiCo o Americ Americaa Beverage, PepsiCo America Food and PepsiCo International. Further detail, PepsiCo America
Food include 3 units - Frito-Lay North America, Quaker Foods North America, Latin America Foods, and PepsiCo International includes UK & Europe, Middle East, Africa & Asia “Sustainability “Sustainability”” is defined as "Performance with Purpose”. With the consideration consideration that customers now combine the own rules, value and principle with the purchasing decision. Consequently, PepsiCo tried to join purpose and performance in to one. Three specific aspects of Performance with Purpose is presented. First, offering foods and beverages with social responsibility to provide good nourishment to not only customers but also societies is executed. Second, there is a mission to minimize the company’s operating impact on the surrounding environment. environment. And third, creating a safe, healthy and inclusive environment where the best people want to work is lead by PepsiCo’s management and participated by the company’s employees. What recommendations would you make to Indra Nooyi and her management team as they expand globally around the world?
First, since PepsiCo prove its current Strategy to develop the company is effective, they should remain remain and pursue pursue it restles restless. s. As for internat internationa ionall market market,, company company can continue continue with the multinational strategy to earn every benefit while implementing global strategies and executing market marketing ing and distri distribut bution ion simila similarly rly in all regions regions.. Further Further,, PepsiCo PepsiCo need need to reconsi reconsider der their their corporate strategy within their international markets to ensure they are able to increase their market share as well as the company growth throughout their sectors. Also, revalue the growth and attractive at the some countries to pull out from country with sluggish growth with low market share, decreasing decreasing sale… About the R&D, first PepsiCo PepsiCo need to acquire more market market information information to better enable each division to develop new product. From there, they can continue pursuing product innovation innovation to account for the healthy healthy trend trend and social social responsibil responsibility ity recently. recently.
Question 5: Conduct a financial analysis using the template provided on Beach-board. What does the financial information reveal about the company’s success and performance during the 2001-2010 years? Year (Numbers in $Mil) Revenue
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$23,512.0
$25,112.0
$26,971.0
$29,261.0
$32,562.0
$35,137.0
$39,474.0
$43,251.0
$43,232.0
$57,838.0
COGS
$10,750.0
$11,497.0
$12,379.0
$13,406.0
$14,176.0
$15,762.0
$18,038.0
$20,351.0
$20,099.0
$26,575.0
SG&A
$8,189.0
$8,523.0
$9,460.0
$10,299.0
$12,314.0
$12,711.0
$14,196.0
$15,489.0
$14,612.0
$22,326.0
Operating Income Net Income
$4,021.0
$4,730.0
$4,781.0
$5,259.0
$5,922.0
$6,502.0
$7,182.0
$6,959.0
$8,044.0
$8,332.0
$2,662.0
$3,313.0
$3,568.0
$4,212.0
$4,078.0
$5,642.0
$5,658.0
$5,142.0
$5,946.0
$6,320.0
Total Assets
$21,695.0
$23,474.0
$25,327.0
$27,987.0
$31,727.0
$29,930.0
$34,628.0
$35,994.0
$39,848.0
$68,153.0
Total Liabilities Total Equity
$13,047.0
$14,176.0
$13,453.0
$14,464.0
$17,476.0
$14,562.0
$17,394.0
$23,888.0
$23,044.0
$46,989.0
$8,648.0
$9,298.0
$11,874.0
$13,523.0
$14,251.0
$15,368.0
$17,234.0
$12,106.0
$16,804.0
$21,164.0
Some financial indicator of PepsiCo from 2001-2010 Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
COGS as % of Revenue SG&A as % of Revenue Operating Income as a % of Revenue Net Income as a % of Revenue Return on Assets Return on Equity Financial Leverage (Assets/Equity)
45.7%
45.8%
45.9%
45.8%
43.5%
44.9%
45.7%
47.1%
46.5%
45.9%
34.8%
33.9%
35.1%
35.2%
37.8%
36.2%
36.0%
35.8%
33.8%
38.6%
17.1%
18.8%
17.7%
18.0%
18.2%
18.5%
18.2%
16.1%
18.6%
14.4%
11.3%
13.2%
13.2%
14.4%
12.5%
16.1%
14.3%
11.9%
13.8%
10.9%
12.3%
14.1%
14.1%
15.0%
12.9%
18.9%
16.3%
14.3%
14.9%
9.3%
30.8%
35.6%
30.0%
31.1%
28.6%
36.7%
32.8%
42.5%
35.4%
29.9%
2.51
2.52
2.13
2.07
2.23
1.95
2.01
2.97
2.37
3.22
Some financial indicator of PepsiCo as a percentage of revenue
First, the revenue steady rose about 246% from 2001 to 2010 which may show a good indicator for the company current performance. Also, at about the same rate of 247% the cost of good sold increases from 10,750 to 26,575. Additionally, The trend of CoGS’s fluctuation indicates a good control over the rising cost over years-not above 50% of revenue is remained. The operating expense is enlarged at the faster rate-273% comparing to the operating income which have the
rising rate of 207%. Despite all of that the net income in PepsiCo shows a good trend of stable increasing-237%. PepsiCo did a lot of acquisition after 2001 with the hope for valuable strategic fits over the value chain of related businesses. Those acquisition-fast-growing food and beverage companies in enable PepsiCo to make a good use of the cost-savings. Its bargaining power and supplier relationship help much in producing at lower cost. Moreover, the ROA has decrease from 12,3% to 9,3%. This may happen due to the aggressive expansion of PepsiCo which pretty much offset the increasing of net income. ROE also in the same road with ROA but its decreasing is just small from 30,8% to 29,9%. The only considerable about ROE is its fluctuation over time which may be the result of the unstable change in the number of share outstanding.
From 2001 to 2006, PepsiCo not really use the financial leverage to finance it operating, but the from 2006 to 2010, the trend of using leverage is gradually increasing. This is understandable since PepsiCo expand its business though numerous acquisition which need to make use of debt.
