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Copy of Case 19: PepsiCo's Diversification Strategy in 2008

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Sarah Bm

on 9 April 2013

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Transcript of Copy of Case 19: PepsiCo's Diversification Strategy in 2008

Introduction Analysis of Macroenvironment Recommendation “Case 19: PepsiCo’s Diversification Strategy in 2008” The Federal Trade Commission (FTC) stipulated that Gatorade can only be jointly distributed with PepsiCo’s softdrinks in 10 years Political-Legal 1965 2007 2008 1997 they started to engange in acquiring fast food chains such as Pizza Hut, Taco Bell, and Kentucky Fried Chicken which the company believe to be a good combination of snack food, softdrinks and fast-food which offered considerable cost-sharing, and skills transfer opportunity. established when Pepsi-Cola and Frito Lay shareholders agreed to a merger between the salty snack icon and soft drink giant. 1968 It began to pursue growth through acquisition of outside snacks and beverages. 1996 PepsiCo realized that the potential strategic benefit between restaurants and PepsiCo’s snacks and beverages were difficult to capture. After the spin-off of PepsiCo’s Restaurant was completed, the company began again to acquire food and beverages manufacturers such as Topicana, SoBe teas and alternative beverages as well as Tasali snack food and Quaker Oats Company. PepsiCo’s corporate strategy had diversified the company into salty and sweet snacks, softdrinks, orange juice, bottled water, hot and ready-to-drink teas and coffees, isotonic beverages hot and ready-to-drink breakfast cereals, grained base products and breakfast condiments. Most PepsiCo brands had achieved number one or number two position in its respective food and beverages category. A relatively new element of the company’s corporate strategy is to develop food snacks and beverages that are less unhealthy. These “better-for-you” products would create greater opportunities from the intersection of business and public interest. During this year, PepsiCo. Was the largest snack and beverage company The company was organized into four business divisions, which all followed the corporation’s general strategic approach. These divisions manufactured, marketed and distributed its own product lines such as Frito-Lay North America which is focused on snack food items; PepsiCo’s beverage North America which focused on soft drinks and other beverages offered by the company; Quaker Oat North America which is focused on breakfast and cereal meals; and PepsiCo International which focused on selling snacks, soft drinks and other food items outside North America. Vision "PepsiCo envisions itself 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. " Mission "PepsiCo is a company which continually improve all aspects of the world in which the company operates - environment, social, economic - creating a better tomorrow than today." These are put into action through programs that focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company." Distribution strategy of the company is diversified since both products can’t be sold on same stores. implication Diverse distribution strategy could be costly and inefficient effect on the economy 1. A protective tariff, usually applied to imported goods. Economic 1. Artificially inflate prices of imports and "protect" domestic industries from foreign competition. implication 1. Consumer prefers lower price products for substitute. effect on the economy 2. Excessive Production of Biofuel, Tobacco, Urbanization 3. Global Warming 2. Land vital for food crops in developing countries is being turned over to grow excessive production for export – Food Shortage 3. Interfere with agricultural productivity in terms of quantity and quality of produced food. Increase of Food Prices – Raw materials 1. Consumers nowadays tend to stick to the most popular brand unless the competitor can come up with new improvements. Socio-cultural 1. Improvements for product/ services are needed in order to gain competitive advantage over the competitors. implication 1.An opportunity in developing products that will gain public interest. effect on the economy 2.Consumers are now into healthy snacks and drinks. 2. A demand for more varieties of healthy beverages in food establishments 2. It may incur new product development expenses that will be used on the R&D on how to make the product offerings less unhealthy. Analysis of Task Threat of new entrants (low) Rivalry among existing competitors (high) Bargaining power of the consumers (low) Bargaining power of the suppliers (low) Threat of Substitutes (high) high capital requirement for machineries and equipment PepsiCo is a large corporation, they have already introduced a lot of products in the industry and is one of the top leaders. Global name brand recognition of PepsiCo helped introduced its snacks business around the world. high exit barriers due to the money invested for machineries and equipment There are numbers of large competitors in the industry such as Kraft foods, Hershey, Kellogg, P&G etc. Products are differentiated like Tropicana Orange juice drink, Quaker Oatmeal, Gatorade, etc. PepsiCo, being an industry giant, obviously places large orders to their suppliers. They are often considered as a top client by most suppliers. Products substitute are widely available such as Juice drinks for Softdrinks, and Rice and Potato for cereal breakfast. Threat of new entrants (low) Rivalry among existing competitors (high) (cc) photo by medhead on Flickr Opportunities Threats high capital requirement for machineries and equipment
PepsiCo is a large corporation, they have already introduced a lot of products in the industry and is one of the top leaders.
Global name brand recognition of PepsiCo helped introduced its snacks business around the world.
high exit barriers due to the money invested for machineries and equipment
Bargaining power of the consumers (low) Products are differentiated Bargaining power of the suppliers (low) PepsiCo, being an industry giant, obviously places large orders to their suppliers. They are often considered as a top client by most suppliers. There are numbers of large competitors in the industry Threat of Substitutes (low) Products substitute are widely available. Problem PepsiCo's international sales had grown by 2 percent during 2007, but the company had many additional opportunities to increase sales outside North America. The company held a large market shares in many international markets for beverages and salty snacks but the international operations were much less profitable than its business operating in North America. Objectives To create new corporate strategy that will improve company's profitability internationally through making functional areas more effective and effecient and to improve its performance *Note: The group cannot have a good “measurable” objective because of insufficient data (e.g.: market share). The proponents recommend product innovation that will fit the different countries in the international market.Since the objective is to create new corporate strategy that will improve company's profitability internationally through making functional areas more effective and efficient that’ll eventually result in performance boost, the proponents think that it is time for the R&D department to do their job extensively in each and every country that the PepsiCo operates. For instance, in the Philippines where the market is dominated by the “masa” PepsiCo must adjust their strategies to the local market such as having a “Pepsi Sakto”, a possible counterpart-to-be of “Coke’s Sakto.” Yes, this strategy is costly and requires sufficient knowledge and time of the employees to have a unique strategy for each country, but as the proponent mentioned in the ACA’s, the culture of every country affects the purchasing preferences of consumers, thus innovation of products will be a tool to fit those preferences in terms of label, packaging, taste, price, etc.

Aside from that, the proponents also recommend PepsiCo to divest business with low growth potential and poor strategi fit. After R&D carefully do their job well regarding the state of the products with low growth potential, PepsiCo must determine (based on R&D Department’s research) what products to terminate or stop producing. The resources used for divested product/s may be used to other products that have more profitability thatn the divested ones.

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