PepsiCo
Paul Garcia
Katie Girmus
Ben Taylor
Mark Vinluan
Accounting 1020
Eric Sims
23 October 2012
Pepsi Co.
History
PepsiCo was founded in 1965 by Donald Kendall who was also the companies
first President and Chief Executive Officer. Caleb Bradham, a pharmacist from New Bern,
North Carolina, formulated the original drink, Pepsi-Cola in 1898. PepsiCo, Inc. was
founded when it merged with Frito-Lay in 1965. In its first year PepsiCo reported having
19,000 employees and sales of $510 million. PepsiCo has now been in business for 47
years now (PepsiCo Our History).
When you go to a restaurant and the waitress or waiter tells you they serve
Pepsi products. You generally think about Pepsi, Diet Pepsi and Mountain Dew.
Although Pepsi is well known for these products they have a very wide variety of brand
beverages that they own. Many of the beverages we reach for on many different
occasions each day are PepsiCo brands. PepsiCo is the owner of both Brisk and Lipton
tea. PepsiCo also owns Frappuccino and Seattle’s Best Coffee. Amp energy drinks,
Double Shot Energy and Propel Zero are Pepsi brands that you might drink to give you
an extra boost or while you are working out. Pepsi does not stop there however. Pepsi
owns the brands Aquafina, Tropicana, SoBe, Tazo, Ocean Spray and IZZE drinks (PepsiCo
Our Product). Beverage wise Pepsi has expanded far beyond what comes to mind when
you think of Pepsi products.
Almost as famous as Pepsi its self is Gatorade, which is also owned by PepsiCo.
Gatorade is one of the premier sports drinks in athletics today. Gatorade is the official
sports drink of the NFL, NBA, WNBA, Major League Baseball, Major League Soccer and
over 70 Division I colleges. Gatorade is available for purchase in over 80 countries. Most
of PepsiCo products are produced for enjoyment but Gatorade is completely produced
to help boost performance (PepsiCo Our Product).
Since the merger with Frito-Lay in 1965 PepsiCo has not only sold beverages but
has also been selling many tasty snacks. Pepsi’s continuing expansion is a huge factor to
the success they have had. PepsiCo produces such a wide variety of snacks that it is
likely you could throw a party or a barbeque serving almost entirely PepsiCo products.
Sodas, Chips, Lays brand chip dip, Smartfood popcorn and Grandma’s Cookies.
Producing all these different products helps PepsiCo to tap into not only the market of
soda drinkers but a much larger market of snack food consumers (PepsiCo Our Product).
PepsiCo has also become very interested in recent years in developing more
healthy alternatives. Propel Zero and Gatorade are some healthier alternatives for
beverages, but PepsiCo also owns the Quaker brand. Quaker produces a variety of
whole grain cereals, low fat snacks and oatmeal. PepsiCo gets a very bad reputation for
being unhealthy but has made some very big strides in recent history producing some
very healthy snacks through some of the brands they own. This is one of PepsiCo’s
decisions that has helped them reach a wider base of people. People who are not willing
to eat the unhealthy pleasure foods and drinks that PepsiCo provides are willing to eat
foods produced by Quaker or drink Gatorade. Which are two companies who have a
better reputation for offering healthy products (PepsiCo Our History).
PepsiCo has helped themselves out very much by making smart business
decisions and not being too prideful. Using other brands such as Quaker, Rice-a-roni,
and Gatorade to reach other markets of consumers that would be unreachable for
PepsiCo due to its bad reputation as being unhealthy is a very intelligent way to reach
customers. Not to mention you want to retain the customer loyalty that some
consumers feel towards certain brands by not changing anything about the brand.
PepsiCo has become so large around the world that they have broken
themselves into four sectors: PepsiCo Americas Beverages, PepsiCo Americas Foods,
PepsiCo Europe, and PepsiCo Asia, Middle East, and Africa. Breaking into these four
sectors was another brilliant move by PepsiCo. By allowing each sector to shift their
focus to a specific region of the world that they will cover and specialize in will allow
each sector to have better success. Specialization gives these sectors a chance to sell
and market their products in the way they find most effective based on what region of
the world they are trying to sell to. What is most important to people in the United
States is not nearly as important to the people of China. How you market products is
largely based upon the culture of the people you are marketing to. Breaking PepsiCo
into sectors allows that freedom that is needed to specialize (PepsiCo Our History).
PepsiCo was named top food, beverage and company by Dow Jones
Sustainability Index in 2011 (PepsiCo Our History). It is not hard to imagine why PepsiCo
received this award, because PepsiCo is so diverse and reaches into so many different
markets in the world it is hard to imagine PepsiCo to have anything but success. If at any
time one of PepsiCo’s markets fails them or the world begins to lose interest in a specific
product PepsiCo has many more markets and products to fall back on. This allows
PepsiCo to keep bringing in revenue without feeling much of a setback (PepsiCo Our
History).
Competitive Advantage
PepsiCo has a strong market position because of the company’s ability to predict
consumer trends and act on those trends in a timely manner. When the “Cola wars”
were taking place, PepsiCo was trailing behind Coca-Cola; its profits were 47% behind its
rivals in 1996 (Brooker, K., Burke D., 2006). Coke had all but dismissed Pepsi because
they were no longer a contender in the carbonated beverage industry. This loss,
however, was a blessing in disguise for PepsiCo. Their focus was taken from the Cola
wars and shifted to the snack food industry and healthier drinks. When they started to
falter in the carbonated beverage industry, they shifted to become a leader in other
bottled beverages, such as sports drinks, water, and New Age drinks (like SoBe).
PepsiCo’s strongest business is not in drinks at all; the company dominates the snackfood industry as the owner of Frito-Lay, which controls 60% of the snack-food market.
PepsiCo’s ability to pursue joint ventures with companies like Starbucks gives it the
advantage of participating in a wide variety of markets-an advantage that leaves CocaCola in the dust.
Strategy
A central idea in PepsiCo’s business today is “The Power of One”. This strategy is
the merger of the company’s two largest anchor bottlers: The Pepsi Bottling Group
(PBG) and The PepsiAmericas. PBG is a New York-based company and The
PepsiAmericas is located in Minneapolis; they’re are thousands of miles apart, yet the
merger has brought the two companies together to launch PepsiCo into new
innovations. The merger unlocks synergies for combined operation and tears down the
walls between the three publicly traded companies. After the merger, it will be easier
for the company to introduce new products and communicate those products’
success/failure. It will also give the company a chance to combine its different beverage
and snack divisions. Ultimately, PepsiCo’s beverage industry will become more
successful; it will be a more innovative part of the company instead of a back-burner to
the snack business. “The Power of One” now gives PepsiCo the ability to align faster,
have one face for its beverage business, less waste, and more money to invest in
innovation. Analyst Bill Pecoriello forecasts as much as $623 million in savings to
PepsiCo from the merger (Kaplan, A., 2010).
Strengths and Weaknesses
PepsiCo has many strengths and relatively few weaknesses. The corporation has
a strong market position. It is the world’s third largest food and beverage company
(Company Spotlight: PepsiCo, 2009). This strong position allows the company to be
innovative on a large scale. Another strength that goes hand-in-hand with this
advantage is PepsiCo’s strong product development abilities. An example of these
development skills is the company’s ability to meet market needs by producing Smart
Spot products, which are nutritious snack foods. PepsiCo also ensures competitive
advantage by having a recognizable brand that is known to many different age groups.
In contrast, PepsiCo has low employee efficiency. This is measured by revenues
per employee and it does not compete with Coca-Cola and other competitors. Another
weakness of PepsiCo is the decline of Pepsi-Cola sales; the soft drink division of their
company does not compete, especially in comparison to the snack food divisions of
PepsiCo.
Creation of Customer Value
It is extremely important to PepsiCo to ensure its customers’ loyalty; more
specifically, its retail customers such as Wal-Mart, Sam’s Club, Safeway, etc. PepsiCo
does this by providing action learning for sales leaders to develop business acumen and
innovation skills. With executive involvement, PepsiCo’s Strategic Customer Leadership
Forum focused on actual retail customer’s issues and goals. By focusing on improving
the relationship the company has with retail customers, PepsiCo increases the sales of
these customers by understanding how they run their business and what their needs
are. Former CEO Steve Reinemund, believed that this Leadership Forum would increase
“the ability of PepsiCo sales teams to demonstrate their understanding of the retailer’s
business and to add value through innovation-new approaches to merchandising,
displays, advertising, promotions, and other retailer activities that would produce
increased sales, profits, and customer loyalty for the retailer and, subsequently, for
PepsiCo.”(Cone & Woodard, 2007, p. 27)
This demonstrates the way PepsiCo works to improve the benefit their customers
receive by partnering with them. It also reflects the company’s belief that “one size
would not fit all” of its customers; there is a need for specialization. A specialization that
came from this Leadership Forum is the targeting of specific audiences to increase sales.
An example of this is Wal-Mart’s test-marketed displays of PepsiCo products to Hispanic
consumers. This test run increased the store’s net profits over the same period the prior
year by 42% (Cone & Woodard, 2007).
Balanced Scorecard
Customer Perspective
The PepsiCo Foundation is PepsiCo’s philanthropic center for helping those who
are less fortunate in the United States and around the world. The Foundation was
started in 1962 and since then has become a leader in supporting fitness research. In
the 1980s, the Foundation began to support research for preventive medicine at Duke,
Harvard, and Stanford. PepsiCo and PepsiCo Foundation have funded many campaigns
promoting active lifestyles and educating consumers about making good dietary
choices. Now, the Foundation has begun to focus their resources on underserved
populations; safe water, nutrition education, and empowerment are areas of interest
for this initiative.
Internal Process Perspective
PepsiCo is a clear leader in the healthy snack food industry. The company excels
at identifying the needs of consumers; this makes them an extremely innovative
company in the market. While some products are the classic “junk food”, many are new,
fitness-minded products, such as the Gatorade “G series”. Having many strong brand
names is also an advantage of PepsiCo. They generate revenue from customer loyalty
and brand recognition.
Learning Growth Perspective
Identifying the needs of consumers has been the key to success for PepsiCo over
the past fifteen years. Their ability to predict the shift of the market from sugary soft
drinks to healthier drinks such as Gatorade and SoBe has made the corporation into an
industry leader today. PepsiCo is a diverse company that offers products to a wide
variety of consumers. The recent purchase of its two main bottling companies will
enable PepsiCo to fully take advantage of having products in two markets.
External
Coca Cola Company is Pepsi Company’s main and largest competitor. The battle
over Coke and Pepsi has been an iconic piece of American history that will never be
forgotten. Coca Cola Co. was founded in 1886 and is now the world’s largest
nonalcoholic beverage distributor owning or licensing and marketing more than 500
beverage brands worldwide (email). The age old question is simple, Coke? Or Pepsi?
John Sicher, editor and publisher of Beverage Digest said, "Coke has about 70% of the
U.S. fountain soft-drink business, and it adds significantly to their all-channel share
compared to retail only,"(Zmuda, N., 2012) Looking at financial records, coke has the
upper hand, and looking even further you will find that Coke’s 500 beverage brands and
70% of the U.S. market make Coca Cola the super power nonalcoholic beverage
distributor in the world. Although Coke came in at number one on the Beverage Digest's
top liquid-refreshment brands list, Pepsi is right behind them coming in at number two
Coca-Cola had three brands on the list, while PepsiCo counted four (Zmuda, N., 2012).
The nonalcoholic beverage market as it is now being called is a very fast growing
and challenging market in the modern world. During the 1980’s and into the 1990’s soft
drinks were booming, every place in America you could grab an ice cold Coke or Pepsi
around the corner. But now, soft drinks are experiencing their seventh straight year of
decline in 2011, which took them back to 1996 growth levels (Zmuda, N., 2012). It was a
very iconic piece of our history and to this day remains so. This market has become
saturated with products that now, are more geared towards a healthier lifestyle. The
CEO for Coca Cola said in an interview, “We've reduced the calories in our beverages
significantly over the past 20 years. Yet U. S. obesity rates have risen sharply.” Sugar soft
drinks are slowly losing their grasp on consumers now that our media has driven them
to live a healthier lifestyle. Coke and Pepsi have a product line called coke zero and
Pepsi max, which contains no sugar and with that, no carbohydrates and they even
claim it tastes the same as the original!
This industry is a very friendly environment for new entrants into the market,
with Coca Cola and Pepsi co wanting to market, brand and just get their name on just
about everything these days, if your product will make there is a chance Coca Cola will
buy it. As stated above, with over 500 beverage brands, they have done their fair share
of shopping the market and buying our new entrants and or competitors. In an industry
that is so driven off of what the consumer wants and what the media is driving towards
it is no question that this industry, at least in the U.S., has potential to grow. The CEO of
Coca Cola during an interview said, “But we believe the U.S. is a great growth market,
and we're investing roughly $3 billion a year in it. Here's why: It's the only Western
nation with a young demographic that is growing. By 2040 only a quarter of the U. S.
population will be over the age of 60” (Ignatius, A., 2012). Soon the consumer will
dictate what beverages Coca Cola and Pepsi make and bottle. Coca Cola also makes
different tasting versions of their soda for different parts of the world. Most people
don’t know that Coca Cola does this but they have many different versions of their soda
all over different parts of the world that already show how they have led the industry in
customer satisfaction.
With so many people in the world today, Coca Cola is in no way shape or form in
danger. The only little problem that may creep over the horizon is the loss of market
share for their soft drink lines. With sales declining across the board and market share
being lost every day to healthier alternatives to soft drinks, in 2008 CEO of Coca Cola
Mr. Kent vowed to rebuild sales of brand Coca-Cola in the world's biggest market for
soft drinks and, in the second quarter of this year, he succeeded, as the company sold
more brand Coca-Cola in its home market for the quarter than it had during the
comparable period a year earlier (Pepsi, 2010). And on the horizon the Mr. Kent also
says, “In the next 10 years some 800 million to 1 billion people around the world will
move into the middle class--the biggest urbanization the world has known. That
translates into on-the-go lifestyles, which means significant demand for nonalcoholic,
ready-to-drink beverages“(Ignatius, A., 2012). This middle class transition will be the
biggest history has ever seen with the growth and success this company has had in the
past, it will have no problem accomplishing further endeavors in the future.
Being the industry’s leader in nonalcoholic beverages everybody is constantly
watching over the Coca Cola Company. The Government has become custom to having
Coca Cola around in our lives, like stated earlier, coca cola is an icon symbol of our
generation without it America would not be what it is today. Finished beverage products
bearing Co.'s trademarks are sold in the U.S. and in more than 200 other countries. The
Coca Cola Company generates millions of dollars in revenue for the United States
Government each and every year. For the year ended Dec 31 2010, net income
increased 71.7% to US$11.86 billion from US$6.91 billion in the prior year(Ignatius, A.,
2012), the pure tax gain that the government is making off of Coca Cola’s gain is
staggering.
With being the nonalcoholic beverage distributor in the world, The Coca Cola,
company does experience some negative feedback from countries and different places
around the world from time to time. People often see big corporations such as Coke and
Pepsi as evil entities coming into their country to exploit and take advantage of it.
Recently reports claim that The Coca Cola Co. took too much from India, and did not
give enough back in return. People were hostile to having something this big come into
their country but in places where The Coca Cola Co bought out local beverage
producers, the introduction was much more empathic.
The Coca Cola Company is the world’s leading nonalcoholic beverage distributor
in the world, followed closely behind by Pepsi Company. The Coke brand has its name
on more pieces of American history than you can count and it will be here for
generations to come if this company keeps a level head on its shoulders. With over 8572
million in revenue in 2011, this company is a power house in the beverage world.