Business case analysis: PepsiCo
Main question (write here the main question assigned by the instructor to your team)
Indra Nooyi has employed you as a consultant to assess PepsiCo’s diversified business portfolio in
2014 and to make recommendations as to what actions PepsiCo’s top management team should
now take to increase shareholder value to new highs. Your report should contain a 2 –3 page
executive summary of your recommendations, which are fully supported by the use the concepts and
analytical tools presented in Chapter 8. Supplement your executive summary with additional charts
and tables as needed to support your analysis and recommendations. It is strongly suggested that
you follow the analytical steps covered in Chapter 8 in developing your paper. Your supporting
exhibits and executive summary of recommendations will be given equal weighting in your grade
for the written assignment.
Specific questions assigned (single analyst)
Question 1
What is PepsiCo’s corporate strategy? Briefly identify the business strategies that PepsiCo is using
in each of its consumer business segments in 2014
ND
1
QUESTION N.1
(write the question or the problem)
What is PepsiCo’s corporate strategy? Briefly identify the business strategies that PepsiCo is using in each of its
consumer business segments in 2014
________________________________________________________________________________
Textbook, articles and additional sources
Textbook
N. Topic
Chapter
Strategies for competing in
7,
International Markets,
1.
8
Corporate Strategy
PepsiCo’s Diversification
Case 21
2.
Strategy in 2014
Page
174-204,
210-246
C-306 – C-318
Scientific articles/books
N. Title
1.
2.
Author
Journal
Year, number
Link
https://ac.elsUpholding Competitive
cdn.com/S187704281304
Advantage through
994X/1-s2.0Dr. Randa
Endorsing Corporate ElBedawy Procedia - Social and
S187704281304994X10 December 2013,
Behavioral Sciences
main.pdf?_tid=a424924e
Social Responsibility:
&
Volume 106
-9f34-4731-9decDr. Zeinab
Case Study Pepsico
b98fa0e6d17b&acdnat=1
Shawky
Egypt
527627086_87db66f2ceb
c792c94e756ccb397c5bd
Analysis of stakeholder
Andrée
value derivation through Marie
International Journal
corporate social
https://www.inderscience
Lópezof Business
2016,
online.com/doi/pdf/10.15
responsibility for
Fernández
Performance
Volume 17, No. 4,
04/IJBPM.2016.079274
&
business growth and
Management
R.
society's collateral
Rajagopal
benefits
Additional sources (company disclosures, web pages, video etc)
N. Title
Author
1.
PepsiCo's profit rises on
snack sales, price hikes
Candice
Choi
2.
PepsiCo-2014 annual
report final
PepsiCo
3.
Journal
Usa Today
PepsiCo Barclays Back-toSchool Consumer
PepsiCo
Conference
2
Year, number
Link
https://eu.usatoday.com/s
tory/money/business/201
Apr 17,2014
4/04/17/pepsicos-profitrises-on-snack-salesprice-hikes/7844807/
https://www.pepsico.co
m/docs/album/defaultdocumentlibrary/pepsico-2014annual-report_final.pdf
https://www.pepsico.co
m/docs/album/Investor/p
September 9, 2015
ep-barclays2015_final.pdf?sfvrsn=7
172c441_0
ANSWER AND RECOMMENDATIONS N.1
Write your answer and be critical not descriptive
PepsiCo is one of the world’s largest snack and beverage company.
PepsiCo has several different strategies that have helped them become one of the leaders in their
industry.
The strategy that PepsiCo uses best is the broad differentiation strategy: since it is a snack and
beverage company, it appeals to everyone because it offers a wide variety of snacks and
beverages that can range from healthy to unhealthy, such as Sun Chips and Tropicana to Lay's
potato chips and Mountain Dew depending on what you crave at the time.
The other strategy that PepsiCo implements well is the low cost provider strategy: all of the
snacks and beverages that PepsiCo produces have low costs; these low costs appeal to all kinds
of customers since the prices are so reasonable and affordable.
On top of these main two strategies PepsiCo also focuses on product innovation, close
relationships with distribution allies and international expansion, which helps out their market
greatly.
Another important point in PepsiCo strategy is the integration of sustainability into every aspect
of the enterprise. At this regard PepsiCo uses a Performance with Purpose plan that utilizes
investments in manufacturing automation, a rationalized global manufacturing plan,
reengineered distribution systems, and simplified organization structures to drive efficiency. In
addition, the company’s Performance with Purpose plan is focused on minimizing the
company’s impact on the environment by lowering energy and water consumption and reducing
its use of packaging material, providing a safe and inclusive workplace for employees, and
supporting and investing in the local communities in which it operated. PepsiCo’s businesses
have demonstrated that a clear, focused sustainability agenda can create shareholder value. So
the Performance with Purpose plan is the strategy of its corporate Social Responsibility (CSR).
In 2014, PepsiCo’s corporate strategy, in order also to offset ongoing declines in their flagship
soda businesses, had diversified the company into salty and sweet snacks, soft drinks, orange
juice, bottled water, ready-to-drink teas and coffees, purified and functional waters, isotonic
beverages, hot and ready-to-eat breakfast cereals, grain-based products, and breakfast
condiments. In addition PepsiCo managed to push up revenue by raising prices as well as
introducing more expensive drinks such as Mountain Dew Kickstart. Finding ways to charge
customers more has been critical for PepsiCo, which are trying to make up for declines in soda
volume. The company, for instance, have rolled out "mini-cans" of soda that they say fit with
people's desire to control portion sizes: the smaller sizes are more profitable for the company.
"Taking down pricing is not going to drive up demand all that much," PepsiCo CEO Indra Nooyi
said (C. Choi, “PepsiCo's profit rises on snack sales, price hikes”, Usa Today, Apr 17,2014).
About picking new 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 position.
PepsiCo is organized into six business divisions - divided geographically - which all followed
the corporation’s general strategic approach. PepsiCo’s Performance with Purpose goals are
applied to all of its business units. For the international strategy PepsiCo uses a transnational
strategy, so a think-global, act-local approach.
The six business divisions are:
1. Frito-Lay North America (FLNA);
2. Quaker Foods North America (QFNA);
3. Latin American Foods (LAF);
4. PepsiCo Americas Beverages (PAB) which includes all of North American and Latin
American beverage businesses;
5. PepsiCo Europe (Europe), which includes all beverage, food and snack businesses in
Europe and South Africa;
6. PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and
snack businesses in AMEA, excluding South Africa
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Frito-Lay North America (FLNA)
Either independently or in conjunction with third parties, FLNA makes, markets, distributes and
sells branded snack foods.. FLNA’s branded products are sold to independent distributors and
retailers.
In this division it is need to consider 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.
Going abreast with the more conscious about nutritional and healthy content, FLNA provides
better-for-you and good-for-you snacks: for example they develop health and wellness
products and offer fruit and vegetable snacks which is deficiently in most diets.
Quaker Foods North America (QFNA)
Either independently or in conjunction with third parties, QFNA makes, markets, distributes and
sells cereals, rice, pasta, dairy and other branded products.
PepsiCo tried to increase market share enhancing the quality of product (applying the good-foryou and better-for-you strategy) while diversifying the product’s categories with hot and ready
to eat cereals, pancake mixes and syrup, and rice and pasta side dishes in the United States and
Canada.
Latin American Foods (LAF)
Developing an understanding of consumer taste preferences was a key to expanding into
international markets. Taste preferences for salty snacks were more similar from country to
country than were preferences for many other food items, and this allowed PepsiCo to make
only modest modifications to its snacks in most countries.
PepsiCo is the second-largest seller of snacks and beverages in Mexico, and its Doritos, Marias
Gamesa, Cheetos, Ruffles, Emperador, Saladitas, Sabritas, and Tostitos brands were popular
throughout most of Latin America.
PepsiCo Americas Beverages (PAB)
Either independently or in conjunction with third parties, PAB makes, markets, distributes and
sells beverage concentrates, fountain syrups and finished goods under various beverage brands.
PAB also, either independently or in conjunction with third parties, makes, markets and sells
ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton
brand name) and Starbucks, respectively. Further, PAB manufactures and distributes certain
brands licensed from Dr Pepper Snapple Group, Inc. (DPSG), and certain juice brands licensed
from Dole Food Company, Inc. (Dole) and Ocean Spray Cranberries, Inc. (Ocean Spray). PAB
operates its own bottling plants and distribution facilities and sells branded finished goods
directly to independent distributors and retailers. PAB also sells concentrate and finished goods
for our brands to authorized and independent bottlers, who in turn sell our branded finished
goods to independent distributors and retailers in certain market
For carbonated soft drinks business, PepsiCo use “Power of One strategy” which is a
strategy for supermarkets to place Pepsi and Frito-Lay products on shelves.
The company was also focused on soft-drink innovation to sustain sales and market share,
including new formulations to lower the calorie content of non-diet drinks.
Although carbonated beverages made up the largest percentage of PAB’s total beverage volume,
much of the division’s growth was attributable to the success of its noncarbonated beverages:
Aquafina was the number-one brand of bottled water in the United States.
PepsiCo Europe (Europe)
Either independently or in conjunction with third parties, PepsiCo Europe makes, markets,
distributes and sells a number of leading snack food brands. PepsiCo Europe also, either
independently or in conjunction with third parties, makes, markets, distributes and sells beverage
concentrates, fountain syrups and finished goods under various beverage brands. These branded
products are sold to authorized bottlers, independent distributors and retailers.
4
In certain markets, however, Europe operates its own bottling plants and distribution facilities.
PepsiCo Europe also, either independently or in conjunction with third parties, makes, markets
and sells ready-to-drink tea products through an international joint venture with Unilever (under
the Lipton brand name). In addition, PepsiCo Europe makes, markets, sells and distributes a
number of leading dairy products.
East Europe and West Europe businesses are structurally different.
WEST EUROPE
 Mature markets  Lower growth;
 High mix of Snacks;
 Asset light GTM systems;
 Franchised bottler model;
 Margin higher than total PEP
EAST EUROPE
 D&E markets  Higher growth;
 Company owned bottlers;
 Direct to store delivery;
 Near-term macro trends;
 Margin lower than total PEP
The company’s acquisition of Wimm-Bill-DannFoods, along with sales of its long-time brands,
made it the number-one food and beverage company in Russia, with a 2-to-1 advantage over its
nearest competitor. It was also the leading seller of snacks and beverages in the United
Kingdom.
Asia, Middle East, and Africa division (AMEA)
Either independently or in conjunction with third parties, AMEA makes, markets, distributes and
sells a number of leading snack food brands. AMEA also makes, markets, distributes and sells
beverage concentrates, fountain syrups and finished goods under various beverage brands.
These branded products are sold to authorized bottlers, independent distributors and retailers.
However, in certain markets, AMEA operates its own bottling plants and distribution facilities.
AMEA also, either independently or in conjunction with third parties, makes, markets,
distributes and sells ready-to-drink tea products through an international joint venture with
Unilever (under the Lipton brand name). Further, PepsiCo licenses the Tropicana brand for use
in China on co-branded juice products in connection with a strategic alliance with Tingyi
(Cayman Islands) Holding Corp. (Tingyi).
PepsiCo operated 45 plants, 490 distribution centers, warehouses, and offices located in Egypt,
Jordan, and China and was the number-one brand of beverages and snacks in India, Egypt, Saudi
Arabia, United Arab Emirates, and China.
The PepsiCo Egypt case
In the AMEA segment PepsiCo Egypt stands for one of the best application of Performance with
Purpose plan aimed at the corporate social responsibility (CSR).
According to Jonathan and Ortman1, Egypt is one of the first countries that come to mind when
one thinks of CSR: it is a country where entrepreneurial economy plays a vital role. The road
map for the enhancement of CSR projects in Egypt was enhanced by some of the multinational
companies (like PepsiCo) in the country to yield better results and boost competitive advantage.
The commitment of PepsiCo Egypt under the notion of ‘Performance with Purpose’ is to human,
environmental and talent sustainability:
1. Ortman, Jonathan (2010). “The State of Entrepreneurship in Egypt”, Policy Dialogue on Entrepreneurship,
March 29.
5



Human Sustainability (Nourish consumers with a range of products, from treats to
healthy eats);
Environmental Sustainability (Be responsible towards the planet resources);
Talent Sustainability (Attract, retain and develop world class talent)
PepsiCo Egypt CSR Vision: Human Sustainability
The goal of human sustainability is to make a great progress towards the PepsiCo Egypt’s goal
to improve the overall nutritional profile of their portfolio as follows:
• Offering a variety of great tasting food and beverage;
• Reformulate to improve nutritional profile;
• Launch healthier, nutritious food and beverages;
• Act as a responsible company to address global nutrition concerns and encourage healthy life
styles through activity;
• The reformulation to improve nutritional profile include removing trans fats, moving to
healthier oils, develops and use sugar substitutes, adding whole grains and reduce added sugars.
PepsiCo Egypt CSR Vision: Environmental Sustainability
The three major areas of interest of environmental sustainability for PepsiCo Egypt are as
follows:
1) Reducing water usage through conservation, reuse and replenishment as PepsiCo Egypt uses
inventive techniques, including water recycling for plant maintenance, waste water irrigation and
air rising of beverage bottles. The objective is to use proactive working plans to improve water
supplies in water scarce communities.
2) Reducing greenhouse gas emissions through energy conservation and use of clean energy
sources as PepsiCo Egypt continually improves processes to reduce energy use, through actively
engaging in renewable energy projects.
3) Reducing, recycling and reusing packaging and solid waste as PepsiCo Egypt is trying to
sustain the Global packaging policy by saving plastic consumption of more than 60 million
pounds through manufacturing light weight beverage containers.
PepsiCo Egypt CSR Vision: Human Talent Sustainability
PepsiCo Egypt‘s strength is in its people who continue to deliver exceptional results. PepsiCo is
committed to hiring, training and retaining the best people. The accumulation of human capital
knowledge in PepsiCo Egypt is the base of increasing and sustaining the talent for work.
PEPSICO EGYPT: CSR VISION AND COMPETITIVE STRATEGY
CSR strategy in PepsiCo Egypt is a 4 years strategy for developing any project. It focuses on
celebrity association and it is a fragmented one encompassing many venues. The strategy
focuses on the engagement of employees in CSR community projects and is very responsive to
the expectations of both stakeholders and customers’ requests and concerns. Another venue is
the communication of their goals, initiative and image building as a company. This
communication pattern allows PepsiCo Egypt to tap the markets leader in them and not just the
follower. The global initiative report GIR is a tool in this matter whereby stakeholders and
customers know about all aspects of the company’s performance. The monitoring and evaluation
of the strategy is developed through the standards of result based methodology to improve
management effectiveness and accountability. It is based on defining outcomes to ensure the
success of the strategy ongoing performance monitoring, assessment and integrating lessons
learned into future planning and improving accountability based on benchmarking and
continuous feedback to improve performance.
In conclusion, I want to indicate a scientific article, Analysis of stakeholder value derivation
through corporate social responsibility for business growth and society's collateral benefits2,
2. Lopez, A.M., Rajagopal (2016). “Analysis of stakeholder value derivation through corporate social
responsibility for business growth and society’s collateral benefits”, International Journal of Business Performance
Management, 17 (4).
6
that mentions the scientific article of R. El Bedawy and Z. Shawky, 2013, “Upholding
Competitive Advantage through Endorsing Corporate Social Responsibility: Case Study Pepsico
Egypt”, Procedia - Social and Behavioral Sciences, vol 106, pp. 3216-3234, that I used for
describe the previous PepsiCo Egypt case.
This article analyses stakeholders' perspectives on stakeholder added value provided the firm's
engagement in CSR. The study findings suggest that stakeholders consider CSR (an important
mean for the achievement of sustained business and societal growth and development) to be an
important trait, prefer to purchase from socially responsible firms, and are willing to pay more if
a firm is properly engaging in CSR. However, the latter is conditioned to stakeholder
perspectives of added value and therefore, the firm's proactive engagement in CSR.
7