PepsiCo: A Refreshing Choice for Value, Growth, and Income - Case Study Example

Company Pepsi Co. Inc is a multinational corporation with interests in non-carbonated and carbonated beverages, rice, oat, and grain-based snacks, food, and other products. PepsiCo formation was a result of a merger between Frito-Lay and Pepsi-Cola in 1965 (PepsiCo). The company’s brands include Pepsi, Tropicana, Gatorade, Quaker Oats, Sabritas, Walkers, and Gamesa. The company has four business units. The first is PepsiCo Americas Beverages (PAB) that includes Pepsi Beverage Company and PepsiCo Beverages America. Second unit is PepsiCo Americas Foods that includes Quaker Foods North America (QFNA), Frito-Lay North America (FLNA), and all the Latin American Food (LAF) businesses. The next unit is PepsiCo Asia, Middle East, and Africa (MEA), that includes all snacks, beverages, and food businesses in the region. Lastly, there is Pepsi Europe that includes all snacks, beverages, and food businesses in Europe. The company units comprise of the six segments: AMEA, FLNA, LAF, QFNA, PAB, and Europe. Operations of the company are in United States, United Kingdom, Canada, Russia, and Mexico, with headquarters in Purchase, New York, in the US. Recent acquisitions by the company include complete acquisition of Pepsi Bottling Company in February 2010, and Mabel in Brazil (Mabel produces snacks, cookies, and crackers). Environmental Uncertain PepsiCo lacks vital information concerning the environment, specifically those elements with which the company interacts with like its stakeholders, the population, and others. The most crucial external factor that affects the company is competition from its rival, the Coca Cola Company. Other factors include economic force that incorporate economic cycles and inflation, political changes in its operation region, regulations changes, technology, and social changes. Pepsi Co Environmental risk expectations PEP acknowledges the stiff competition from rival Coca Cola, which is threatening to creep in and steal the market share of the company. Other risks include vulnerability to changes in economic in its operation base, which may affect the purchasing influence of customers to its products, inflation rates that have been rising consistently affecting its market operation and cost of production. There are also risks of changes in political climate in its market, which may affect its business operations like limitation of quantity of snacks into those regions, and legal changes that may affect some of the legislations associated with its success, or probable addition of more regulations (Daft & Marcic 367). Other concerns arise from the current Europe debt crisis that may have a profound effect on its Europe businesses, possible changes in laws and regulation that regards beverage bottling, recycling of the bottles, and the packaging material, the company’s capability in managing its brands and business segments properly, and the ultimate goal of maintaining a good corporate image. There is also the issue of environmental conservation, and the probable effects of climate change globally that may affect the company’s raw materials supply. Environmental Statement As a multinational global business, the company relies on natural resources from the earth. In line with expansion strategy of the business in developed and subsequent expansion in developing and other emerging countries, the company strives to use production tolls and methods that are scientifically proven as economically sound and socially responsible to the environment. PEP is committed in its effort to protect earth’s natural resources by innovative use of energy, land, water, and packaging in all its operations. Company stability Being the world’s largest snack food company, and second in producing soft drinks, PEP has established itself as a stable company in the multinationals world. The company has 18 strong brands, whose combined annual sales pass one billion dollars. More than 40% of the company’s sales originate from outside the US. The company maintains an oligopoly status with its two main product lines. PEP holds 31% of the soft drink market in North America and Frito-Lay holding 60% of North America’s salty snack market and 35% globally. In overall, the company commands 21% of the world’s soft drink market, enabling it to benefit from economies of scales in advertising, production, distribution, and research. Three factors contribute to its stability: strength of its brands, distribution, and shelf space. Creation of new products and their ability to compete with PEP would require billions of dollars, which is a challenge to upcoming businesses (Daft & Marcic 369). In addition, retailers will not easily give up the shelf space occupied by PepsiCo products for other new products. Furthermore, the company boosts possession of one of the most effective excellent distribution systems, literary unavailable to newcomers. Another of its stability strategy is investing in a wide variety of products, from non-carbonated beverages to snacks, focusing on the nutritional composition of its products. In addition, the company has acquired its bottling companies and other snack producing companies. Organization Effectiveness Marketing approach PepsiCo has become the most crucial competitor in the soft drink market in a matter of years, as compared to Coca Cola’s presence of over 125 years in the market. This is a great achievement for the company, attributable to the marketing approach that the company employs. Since the merger in 1965 with Frito-Lay, the company has been focusing on marketing as an opportunity to grow wide into the market. The company has been expanding its market share through acquisition of strategically positioned companies that tenable it to its base of operation throughout the world. With its headquarters in the US, the company has successfully penetrated through the European, Asian, and African markets, establishing one of the most effective distribution systems in the business world. One of its most essential tools of marketing is its website. The company’s website, Pepsi.com, is among the successful brand sites. The company chose its audience, identified their needs, determined their business objective in the site, and designed an excellent site for its products (PepsiCo). The site does not have a provision for purchasing the company’s products online, but provides a clear identity of its products, online marketing with promotions, and interactive function like music mixing applications. All these features of the company’s website encourage visitors to revisit and spread the sites viral influence, thus furthering its marketing strategies. Challenges PepsiCo faces the financial crisis that is common to all firms in the world. The current economic downturn and recent recessions have an effect to the company’s sales rates. In financial hardships, the general population tends to detach luxuries in their lives, which includes settling for brands with low prices than the usual loyal brands. The UK segment is facing a shortage of young talented employees due to the regions declining pool of young employees. Another significant challenge to the company is its role in environmental conservation. PEP has shown efforts in past for environmental sustainability, including the incorporation of reverse osmosis fro water conservation in its bottling plants. Another effort for natural conservation of the company is Frito-Lay’s new solar powered facility (PepsiCo). The environmental sustainability challenge is consistent, and PEP is on the search for new measures to reuse and reduce waste from its production. Another looming challenge is that of health. Recent concerns over the composition of food products have been a major topic in the health circles. PepsiCo, being a snacks and beverage producer, is at the center of the challenge that requires companies to change or reduce the quantity of calories in their products. The main challenge to PEP is the decision to tackle the issue while still maintaining its brand’s reputation in the market. Nevertheless, the company has had a good start to the challenge by the introduction of diet drinks and sun chips for its customers. Measurement The company measures its success based on financial performance, as well as ecological, environmental, social, and health sustainability to gauge its business process drive. The company’s performance sustainability statement says that the company strives to achieve super financial performance each financial year. In the effort to achievement these objective, the company has made a commitment to balance long-term and short-term goal through investing in acquisitions, research, innovation, emerging markets, and growth. Below is a graph highlighting the company’s 11-year dividend and price performance (PepsiCo). Size and Structural Characteristics PepsiCo is the second largest soft drinks maker and the largest salty snacks maker in the world. The company has more than 285,000 employees across its business units around the globe, with an annual revenue estimate of 60 billion dollars. PepsiCo operates under six business segments around the world, including AMEA, FLNA, LAF, QFNA, PAB, and Europe. These units encompass the world in their operations, enabling the company to establish its businesses solidly. Pepsi Co Life Cycle Stage In the four life cycle stages of a product (introduction, growth, maturity, and decline), PepsiCo products are the peak: Maturity. The company’s performance, which recorded a 5.5% return, and the global presence of its products are among factors that indicates its life cycle stage. Organizational Change The adaptive nature of PEP’s organization has been forcing the company to constantly improve and implement new market place ideas while the company’s products progress through the life cycle stages. These consistent changes in the organizational structure have enabled the company to manage all the units of the company’s business instead of the initial two (Dubrin 303). As is usual with companies, some old “guards” have been a barrier to organizational changes, but others have embraced it. Some of the notable changes in the companies profile is the employment of young innovative individuals who have brought technological changes in the company, like the company’s excellent website. Organizational Structure Pepsi Co Current Organizational Chart The current organization structure of PepsiCo incorporates the company’s CEO Indra Nooyi, the board of directors, and other top executives under the main units of the company. The overall authority of the company lies with the top management (Board of directors and the chair, Indra Nooyi). The company has a decentralized structure, which allows the business units to implement operational decisions while remaining under the governance of the board’s policies at corporate level (Dubrin 303). New Proposed Organizational Structure for Pepsi Co The new proposed organizational structure incorporates the three major units of the company, each with its own CEO and executives to oversee its operation (Carnevale). In Conclusion PEP has significantly grown in the soft drinks and food market since the merger in 1965. The company’s principles of operation, which include driving local market success, acting now, doing it today to get the results, setting targets, keeping the Score, and winning, and respecting each other, has enabled the company to climb and maintain its share in the market. Its distribution strategy, together with the other elements, will enable it to continue its dominance in the snacks and beverages market. References Carnevale, Chuck. PepsiCo: A Refreshing Choice for Value, Growth, and Income. Web 29 Nov. 2011. Daft, Richrad L. & Marcic, Dorothy. Understanding Management. Mason, OH: Thomson South-Western, 2006. Print. Dubrin, Andrew J. Essentials of Management. Mason, OH: South-Western Cengage Learning. Print. PepsiCo. PepsiCo Annual Report 2010. Web29 Nov. 2011. PepsiCo website. Accessed on November 29, 2011, from http://www.pepsico.com. Read More