PepsiCo Internal and External Analysis - Essay Example

PepsiCo Internal and External Analysis Table of Contents Contents Page 1. Introduction…………………………………………………..3 2. Products and Geographical Markets…………………………3 3. PepsiCo Internal Analysis (SWOT Analysis)………………..4 3.1 Strengths………………………………………………….4 3.2 Weaknesses……………………………………………….6 3.3 Opportunities……………………………………………...7 3.4 Threats…………………………………………………….8 4. PepsiCo External Analysis (PEST Analysis)…………………9 4.1 Political Environment……………………………………..9 4.2 Economic Environment…………………………………...10 4.3 Socio-cultural Environment……………………………….12 4.4 Technological Environment……………………………….12 5. References……………………………………………………..14 Appendix……………………………………………………….16 PEPSICO INTERNAL AND EXTERNAL ANALYSIS Introduction PepsiCo Inc. was formed in the year 1965 after the original Pepsi-Cola Company merged with Frito-lay. The corporation has since then expanded to deal in a wider variety of beverage and food brands, which has seen a merger in 2001 with Quaker Oats in conjunction with acquisition of Tropicana of 1998. The corporation is centered in Purchase, New York and has major interests in the manufacture, together with the marketing and distribution, of beverages, snacks based on grain, and other products. Twenty-two of its product lines, by the start of 2012, had generated revenues of over one billion dollars each in over two hundred countries, which resulted in net revenue of over forty three billion dollars. The corporation is ranked second in the world while it is first in the American market, as the largest beverage and food business by net revenue. The corporation’s bottling and distribution of beverage is done by the company and licensed bottlers all over the world. Products and Geographical Markets The company’s product mix consists of thirty-seven percent beverages and sixty-seven percent foods by 2012. Globally, their product lines are inclusive of hundreds of brands that were approximated to have generated at least one hundred and eight billion dollars in annual sales (Aswathappa, 2012: p32). Twenty-one of PepsiCo brands fulfill the identifier of a main brand as standardized by the food and beverage industry, i.e., sales of over one billion dollars annually. These are Pepsi-Cola, Lay’s, Mountain Dew, Lipton teas, Doritos, 7Up, Tropicana, Gatorade, Aquafina, Ruffles, Mirinda, Cheetos, Quaker Foods, Walkers, Fritos, Sierra Mist, Tostitos, and Pepsi Max. The company’s worldwide operations have shifted over time resulting from global expansion. This saw the corporation separated in 2010 into four divisions: PepsiCo Africa, Middle East, and Asia, PepsiCo Europe, PepsiCo Americas Beverages, PepsiCo Americas Foods (Blythe, 2009: p41). PepsiCo employs approximately 285,000 employees across the world as by counts in 2010. PepsiCo Americas Foods is operational in North and South America and is segmented into Latin America Foods in Central and South America, Gamesa and Sabritas in Mexico, Quaker Foods and Snacks in North America, as well as Frito-Lay and PepsiCo Americas Foods in North America. PepsiCo Americas Beverages manufactures or licenses non-carbonated and carbonated drinks in South, Central, and North America. PepsiCo Europe makes up sixteen percent of PepsiCo’s net revenue and manufactures beverages and foods in Europe, as well as expanding into Russia in the year 2009 (Cherunilam, 2010: p50). PepsiCo Africa, Middle East, and Asia cover these regions and prefer to go about production by affiliate operations, joint ventures, contract manufacturing, and licensing, although it still owns some facilities for manufacturing and distribution in these regions. PepsiCo Internal Analysis (SWOT Analysis) Strengths In the year 2009, nineteen products in PepsiCo’s portfolio had reached revenue amounting to more than one billion dollars each, which went up to twenty one in 2012 (Bharat-Ram, 2012: p31). Additionally, the company’s products are distributed in over two hundred countries, and this helps it achieve annual net revenue of forty three billion dollars. As of the year 2010, the company had employed over two hundred and eighty five thousand employees around the globe. The second strength inherent in the company has to do with its position as the second largest food and Beverage Company in the world, based on their net revenue and the first in the North American market. The fact that PepsiCo is a multinational company that does its own manufacturing, marketing, and distribution of the products can be viewed as added strength (Daft & Richard, 2011: p21). The company’s diversified business units, for instance in soft drinks like Pepsi, Mountain Dew, snacks like Frito-Lay and Rold Gold pretzels, and beverages like Dole juices, bottled water, Lipton tea, Tropicana juices, and sports drinks, act to add to its strengths. PepsiCo has also adopted the world’s best go-to-market systems, which serve over ten million outlets around the world per week and operate along more than a hundred thousand routes with production of over three hundred million dollars in daily sales. PepsiCo has twenty-five percent of the globe’s soft drinks market with some seventy percent being in North America. PepsiCo also announced in 2012 that the Banner Sun portfolio for potato chips had earned annual sales of over ten billion dollars, making it the global market leader in the potato chip market, as well as the world’s largest food brand (Deepashree, 2012: p78). Weaknesses During the 70s and 90s, PepsiCo attempted various unsuccessful acquisitions that were meant to diversify their business portfolio out of the company’s primary business of beverages and foods (Dibb et al, 2007: p44). It suffered losses in the beverage industry during these attempts to build a new and more successful beverage company. PepsiCo has also continually failed to provide a road map for its attempts to be a big global corporation with a stirring vision. Their newly launched products, such as regular and diet sodas seem to have been introduced into the market without sufficient analysis of their target demographic, which led to significant losses. In the global market, PepsiCo heavily lags behind Coca Cola, coupled to its highly elastic product demand (Frank & Bernanke, 2011: p78). This caused it to adopt the same strategy used by Coca Cola, which puts it at a disadvantage to its rival. Opportunities Faced with a sluggish growth in its grocery business market, packaged food corporations are, over time, turning to snacks as a promising opportunity for growth (Ghosh & Purba, 2008: p61). Snacking, especially in the North American market, is a growing and seemingly long-term trend. This has also been seen around the world and is the future of the food industry. It is projected that snack market growth will hit the $560 billion mark by the year 2015. This should provide a big opportunity for PepsiCo to exploit the North American market since most Americans take snacks in the daytime. Additionally, there are changing trends in the developing markets, for example, the gradual growth of modern retail formats coupled with more women, who are a major snack market, entering the workforce (Jeffs, 2008: p83). According to market analysts, snack prices can be increased after the addition of value (Keillor & Timothy, 2011: p51). PepsiCo can offer premium and lower priced potato chips, as part of its portfolio in order to exploit extra growth as far as price ranges are concerned. PepsiCo also has other significant opportunities in the global supply chain, which will develop and encourage more sustainable industry practices that are meant to benefit its suppliers and customers. While the exploration of this opportunity is still in its nascent stage, PepsiCo has been dedicated to economic well-being, health, and vitality of its farm product suppliers that are engaged by their supply chain (McDonald, 2008: p132). The current environment makes it very hard for new entrants to establish themselves in the soft drinks industry. This has been occasioned by such factors as brand loyalty and image, fear of retaliation, retail distribution, advertising expense, and bottling network (Pickton & Pickton, 2010: p61). Concurrently, worldwide population is expected to climb to approximately 8 billion people by the year 2025 and to nine and a half billion by 2050, with the majority of growth occurring in the developing countries. By focusing on differentiation and advertising, PepsiCo can take advantage of these developments to increase revenue, especially with the consumption of bottled water expected to increase by a reported eleven percent. PepsiCo also supports and promotes sustainable farming methods because it makes perfect business sense as it purchases millions of tons of fruits and potatoes. This should help it capture a market segment concerned with the conservation of the environment (Mishra, 2010: p51). Threats The biggest threat that PepsiCo faces has to do with its primary rival and competitor in Coca Cola. This is because Coca Cola happens to be the world’s largest beverage corporation, serving more than five hundred consumers and growing (Mowen, 2010: p99). Coca Cola also has the largest distribution network in the world with products reaching over two hundred countries averaging of one and a half billion servings per day. Coca Cola, in 2011, was declared the most valuable brand in the world, according to report published by Inter-brand: best global brand. Because its main competitor is the market leader, this portends a big threat to the growth plans of PepsiCo. PepsiCo also faces a threat from smaller snack retailers like ConAgra foods and General Mills that are making ambitious attempts to gain the market’s largest share in the snack industry (Mowen, 2010: p101). PepsiCo is also facing unrelenting competition from local brands in the global market, for example, in South and Central America where Kola real is giving them a run for their money. There are also a large number of substitute products now available in the market, for example, coffee, tea, and juices, as well as water. PepsiCo is faced with varying and diverse policies and regulations set by governments in the countries in which they do business (Mowen, 2010: p102). Additionally, the slow growth in the carbonated drink industry that has recorded lower than 1% growth in the past five years affects PepsiCo’s primary market in foreign markets. This has been occasioned by changing consumer lifestyles that have indicated the harmful nature of carbonated drinks if consumed in excess. PepsiCo External Analysis (PEST Analysis) This PEST analysis will examine the changes to PepsiCo’s market place that are caused by technological, social, economic, and political factors. Political Environment Non-alcoholic beverages exist within the FDA’s food category. The government, therefore, plays a major role in the manufacture of the products made by PepsiCo in terms of policies and regulations. The FDA has potential fines for companies in this industry if they do not adhere to a set standard of regulations and laws (Pirayoff, 2009: p43). There are various factors that could lead to PepsiCo’s actual results materially differing from the results expected. One is changes in regulations and laws, such as alterations in accounting standards, environmental laws, and taxation requirements like revised law interpretations, new tax laws, and tax rate changes (Pirayoff, 2009: p43). Additionally, changes in the environment of non-alcoholic business, including competitive pricing and product pressures and the ability to maintain or gain share of sales in the world market as a result of competitive action. Political conditions, with emphasis on the international market, such as government changes, civil unrest, and restrictions on capital transfer across borders is another political factor that could affect PepsiCo (Pirayoff, 2009: p50). The ability of PepsiCo to penetrate the emerging and developing markets is also dependent on political and economic conditions, and their ability to form or acquire strategic business alliances with bottlers in the local market and infrastructural enhancements to their facilities of production, sales equipment and technology, and distribution networks. Economic Environment Economic changes like a recession can create increased activity in the lower end range of products (Singla, 2012: p62). The rate of interest also rises, which depresses the business and causes redundancies and decreased levels of consumer spending. In the last year, the American economy was strong and, for the most part, it was fine. However, things turned around with the recession, which economists loosely define as 2 consecutive quarters characterized by contraction or negative growth of GDP (Singla, 2012: p12). The United States government had to declare an official recession in 2008, although the Federal Reserve’s aggressive action ensured that it was mild and short. The economy was forecasted to return to positive and sustained growth in the latter half of 2012. The Federal Reserve has done all that is, in its power, to help in the recovery of the economy. The interest rates have been cut at least ten times and now lie at forty-year low of two percent. Lowering of these rates is expected to stimulate consumer spending and demand in the US economy (Singla, 2012: p64). Corporations are set to expand and improve the use of debt resulting from the low rates. PepsiCo can now borrow funds in order to invest in more products or even technology. As research into new products would be at a lower cost, PepsiCo would sell products for less money and the consumers would get cheaper products from PepsiCo. Social Environment This involves the changing lifestyles and attitudes of the consumers. The increasing number of female employees entering the job market, for instance, has led to the need for products that save time in the home (Jain & Ohri, 2011: p31). Many American citizens are now practicing healthier ways of living, which has affected the non-alcoholic drink industry with many now preferring diet colas and bottled water to beer and other alcoholic and non-alcoholic beverages. Time management has also improved with forty three percent of all US households now practicing it. There is increased need for bottled water and other healthy and convenient products that are important in day-to-day life. Consumers who are aged between thirty-seven and fifty-five are also now increasingly concerned with their nutrition (Jain & Ohri, 2011: p38). A large population of the generation referred to as the generation of baby boomer make up a significant portion of the market. Since most of them are getting to their latter stages of life, they are now thinking of increasing their longevity. It is expected that this will continue to have an effect on the non-alcoholic drink industry via the demand for healthier beverages over time. Technological Environment This has to do with the creation of opportunities for new services and products and their improvement, as well as new techniques for marketing such as e-commerce and the internet. Some factors that could cause the actual results of PepsiCo to differ materially from the results expected include the effectiveness of the corporation’s promotional programs, marketing, and advertising (Tucker, 2011: p54). The new technology that involves television and the internet that use special effects for promotion through the media are also of importance. They make products and services look attractive, which, in turn, help to sell products. This promotion and advertising ensure that the consumer is more attracted to the products and is used, in the media, to sell services and products. The introduction of plastic bottles and cans has increased sales of PepsiCo as the new products are easier to carry around and can be placed in a bin once their use is over (Tucker, 2011: p55). As technology continues to advance, machinery is also being introduced all the time. Because of this introduction, the production at PepsiCo has seen a tremendous improvement in the past few years. PepsiCo has four factories in the UK that use state-of-the-art technology with the objective of ensuring that their product is of high quality and is delivered promptly. The largest factory for soft drinks was opened in Yorkshire and has the ability to produce more cans of PepsiCo than a machine gum does bullets. This was built as direct competition to a similar machine from Coca Cola. References Aswathappa, Anil. International business. New Delhi : Tata McGraw-Hill , 2012. Bharat-Ram, Vinay. The interdependence of macro and micro economics in the global environment. New Delhi : Centre for Policy Research, 2012. Blythe, Jim. Principles and practice of marketing. London : Thomson Learning , 2009. Cherunilam, Francis. International business: text and cases. New Delhi: PHI Learning Private Limited , 2010. Daft, Richard. & Richard, Steers. Organizations: a micro/macro approach. Glenview : Foresman , 2011. Williamson, David. Cooke, Peter. Jenkins, Wyn. Michael, Keith. & Moreton, Michael. Strategic Management and Business Analysis. London: Routledge, 2012. Deepashree. Microeconomics and Macroeconomic Environment. New Delhi: Tata McGraw-Hill Education , 2012. Dibb, Sally. Lyndon, Simkin. & John, Bradley. The marketing planning workbook: effective marketing for marketing managers. London : International Thomson Business Press, 2007. Dutta, Subhendu. Introductory Economics (Micro And Macro) . New Delhi: New Age International, 2010. Dwivedi, Dinesh. Macroeconomics: Theory and Policy. New Delhi: Tata McGraw-Hill Education, 2008. Frank, Robert H. & Bernanke, Ben. Principles of microeconomics. Beijing: McGraw-Hill Education, 2011. Ghosh, Piyali. & Purba, Choudhury. Managerial economics. New Delhi : Tata McGraw-Hill Pub , 2008. Jain, Rao. Macroeconomics Management. New delhi: FK Publications, 2010. Jeffs, Chris. Strategic management. Los Angeles : SAGE , 2008. Keillor, David. & Timothy, Wilkinson. International business in the 21st century. Santa Barbara : Praege, 2011. Masterson, Rosalind. & Pickton, David. Marketing: an introduction. London : SAGE , 2010. McDonald, Malcolm. Marketing plans : how to prepare them, how to use them. Oxford : Butterworth-Heinemann , 2008. Mishra, Rajan. Industrial Economics and Management Principles. New Delhi: Firewall Media , 2012. Mowen, John. Consumer behavior. New York : Macmillan, 2010. Pirayoff, Ron. CliffsAP economics micro & macro. Hoboken : Wiley , 2009. Simon-Yomba, Jean-Paul. Micro Economics to MacRo Economics. Bloomington: Authorhouse , 2009. Singla, Rao. Business Organisation and Management. New Delhi: FK Publications, 2012. Jain, Rao. & Ohri, Vinesh. Introductory Microeconomics and Macroeconomics. New Delhi: FK Publications, 2011. Tucker, Irvin. Survey of economics. Mason : South-Western Cengage Learning, 2011. Appendix Products and Geographical markets PepsiCo has a product mix consisting of 37% beverages and 675 foods as by 2012. Twenty-one of the brands run by PepsiCo fulfil the standard for identi9fying main brands with sales of over $1 billion annually. Some of these brands include Pepsi-Cola, Lay’s, Mountain Dew, Lipton teas, Doritos, 7Up, Tropicana, and Gatorade among others. The company is divided into four divisions: PepsiCo Africa, Middle East, and Asia, PepsiCo Europe, PepsiCo Americas Beverages, PepsiCo Americas Foods. SWOT Analysis Strengths: PepsiCo has reached revenues of over one billion dollars for twenty one brands with net revenue of over $43 billion. PepsiCo is the largest food and beverage company in North America and the second in the world by net revenue. PepsiCo owns its own manufacturing, production, and distribution facilities for its products. PepsiCo owns twenty five percent of the global food and beverage market with seventy percent in North America. Weaknesses: Various doomed acquisition attempts in the 70s and 90s which led to major losses. Lack of market research for new product introduction such as diet colas has led to poor sales. Failure of providing a clear road map for global domination and instead relying on Coca Cola’s strategy. PepsiCo heavily lags behind Coca Cola in the global market. Opportunities: The snack industry shows a promising opportunity for growth with the trend seemingly long-term. Changing trends in developing markets as women, who are a major market segment for snacks, entering the workforce. Snack prices can be adjusted upwards if value is added allowing PepsiCo to introduce premium snacks to retail together with lower priced products. PepsiCo has significant opportunities to develop sustainable industry practices along its global supply chain. Threats: The biggest threat facing PepsiCo is its main rival and competitor Coca Cola, which is the largest beverage company in the world. Smaller snack retailers like Con Agra General mills with their ambitious attempts to gain a larger market share. Local competition in the global market, especially in South and Central America, as well as substitute products in the market. PEST Analysis Political Environment: The government plays a major role in the regulation of their products under the FDA’s regulations and laws. Government changes, civil unrest, and restrictions on capital transfers in foreign markets. Ability to form or acquire strategic business alliances with local market players. Economic Environment: Economic changes like recessions could cause interest rates to rise coupled with decreased consumer confidence and spending. Loans from the Federal Reserve Bank used to combat the recession could act to stimulate consumer spending and provide funds for expansion of brands. Terrorist attacks could dissuade consumers from going out to the mall and visiting eat-out restaurants. Major improvements in international markets like Germany, Brazil, and Japan, which are expected to play a crucial role in the expansion of this industry. Social Environment: Involves changes in the consumer’s lifestyle and attitudes. Many Americans are now practicing healthier ways of living. Increased need for bottle water. Increased concern on diet by people aged 37-55. Technological Environment: This concerns the creation of opportunities for new services and products. Social media now provides more avenues for promotion and advertisement. Introduction of plastic bottles and cans, which makes the products easily cartable. Read More