This paper analysis how current action by PepsiCo in differentiation, pricing, cooperation, have affected their profitability in the CSD industry. Futher more this paper will give recommendations and complement about PepsiCo current actions. Of course the purpose of this paper, however, we will focus on the business analysis of Pepsi.This Paper includes the following was by which I analysis the business of this company such as
Porter five forces of analysis
Financial statement Analysis
PepsiCo, Incorporated is a Fortune 500, American multinational corporation headquartered in Purchase, New York, with interests in manufacturing and marketing a wide variety of carbonated and non-carbonated beverages, as well as salty, sweet and cereal-based snacks, and other foods. The Pepsi Cola Company began in 1898.Pepsi main competitor is coca cola and Dr.Peppers , the market share of these company are represented in the graph given below
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U.S. non-alcoholic beverage market share, by volume
3) Porter Five forces of analysis
To shape every industry and market five competitive forces has been identified by porter. Profitability, attractiveness and the intensity of competition can be determined by these five forces. The main objectives of this five forces is to improve cooperate strategy of the organization. In order to achieve these Pepsi has to look upon the following:
3.1) Threats of new entrant: Currently the major threat to PepsiCo and coke is the private label manufactures and they occupy 8 % of the soft drink industry .These private labels are relatively cheaper and the margins are higher , so the retailers will try to push these products to the consumers rather than the majors. This is a great barrier to entry. PepsiCo should maintain good relation with the retailers to break this barrier.
Differentiations: Pepsi tried to differentiate its product from coke but were not that successful. Pepsi tried to focus on the teen age market in the early 90's but coke focused on the baby boomers .Pepsi had good contacts with the American schools and college , they provided new slogan to attract he younger crowd such as" joy of Pepsi" and "the next generation". For new entrant the company had to spend a large amount on advertising and marketing. This makes both Pepsi and coke an advantage in their current make share.
Distribution: This forms the highest barrier to entry as this plays a major success factor within the soft drink industry , as without a proper distribution the product would not reach the end consumer . Pepsi and coke together fight to acquire a major shelf space in the retailers, which is a barrier to entry.
Government policies: Since Pepsi and coke are the public ingest products; government regulates the soft drink industry to a great extent. The regulation insist that the products have to be clean and safe, the government had approves only two type of sweeteners that can be used by this industry such as Crouch and Steve. The government of every nation in which these industry exist; see that they obey the environment protection norms. When it comes to advertising and commercials these companies should obey the laws accordingly of that country of operation.
Capital requirements: for Pepsi and coke the capital requirements are high to get a larger share in the markets both these companies spend massive amounts on campaigning and marketing. This a is a high barrier to entry
Absolute cost advantage: Pepsi and any other company in this industry have their secret formulas which make them unique in their own way. New products are differentiated because of these patent Zones. This is a low barrier to entry.
3.2) Bargaining powers of buyers: Promotion, displays, volume based rebates, incentives these are the basic tactics through which walnut and many other major retailers to get large profits. The retailers have higher power in changing the decision of the consumers by having in store display; the retailers like these might loose customers if they do not have the required stock with them. On the overall the bargaining power of the buyer is considered to be low.
Buyer Information: Pepsi frequently sends information about the latest products information to the distributors, so that they will be encourage and motivated about new profits and margin they would get, Pepsi does this because these are the ways in which the product would reach the end consumers on time and maintain good relationship with the distributors.
Always on Time
Marked to Standard
Threats of backward integration: Retailers like Tesco and Asda have their own set of cola products been distributed and promoted by them , this make company's like Pepsi and coke face a threat of backward integration . But since they have a unique way by which they promote their product the company still remains successful
Buyers switching cost: To avoid these problems Pepsi have agreements with retailers in creating area of operation such that hey would not switch the products for certain amount of time these would increase the profit and avoid any loose in the future. Switching cost is have a new relationship with new companies So the agreements would help companies like Pepsi.
3.3) Bargaining powers of suppliers: This is considered to be low as because the raw materials required for the manufacture of soft drinks are available in large amounts. The containers (aluminum cans, bottlers etc) make up 31 % of the inputs; other suppliers like sugar syrups and extracts make up 23% of the inputs
Access to labor: firstly no technical labors are required in this industry therefore which means that skilled labor will not be required as a reason of this labor hunting is not a problem in this type of industry.
Access to capital: The soft drink industry refer the Appendix we see that the profits of both the company has been growing constantly, the stock price also has been raising and also the sales, which make investors turn their head to invest in them.
Differentiation of inputs: only sugar is the basic input, nutra sweet may be other input so it makes difference to who supplies them. So the suppliers have little power in the soft drink industry.
3.4) Threat of substitute products: There are many substitute products available for Pepsi in the market , since people are now shifting to a healthier lifestyle product such as juice, ice tea , cold coffee, water have been a substitute for the products from Pepsi and coke . The company can only maintains its hare in the market through its brand loyalt
Relative pricing of the substitutes: Pepsi should change its price based on the location and climatic condition. When this is done profits could increase, climatic condition include the changes in the prices by charging higher during the summer and lower in the winter which could generate huge prfits for these company's. When doing road shows and venue sales charging the customers accordingly will gain an advantage over the other companies in that CSD industries.
Relative quantity of substitutes: The service comes into the picture here ,company relay on the distributors for this reasons , since these are the people who get the product to the final consumers , the service these people do increase the brand image of the company like pepsi .
3.5) Rivalry: There exist an intense rivalry between Pepsi and Coke, this rivalry would lead to significant investment in the advertising to build up brand loyalty and bring about pressure in the prices of their products. In an article in the year 2000 shows an insight that CSD industry spends about 648.8 Billion dollars on just advertising. In maturing market the only way to maintain the market share is to steal from the rivals. Thus companies like these would fight over the retailer's space ,suppliers and most importantly over the taste buds of consumers.
Degree of concentration and balance among competitors: There are three main competitors in the soft drink industry which includes Pepsi coke and Dr. Peppers. Taking these three companies together they occupy 90% of the entire domestic market as a reason of this their exist a competitive and dynamic business environment where coca cola is a market leader with 42%vmarket share, pepsi with 31% of the market share the smallest among this is Dr. Peppers which is 16 % Despite of all these share in the market.
Diversity among the competitors: Although coca cola dominates in the sales and revenue , it does not dominate in the terms of innovative marketing and in business strategy efforts . For instance pepsi generate 71% of its revenue from US alone were in which coca cola get 71% of its revenue from the international markets .Here also pepsi get 41% of its revenue from soft drink , while remaining 59% comes from the snaks and food business. Coke on the other hand gets all its revenue from soft drink industry clearly both these companies have their own nack of marketing their products and stratgeis of generating incomes.
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Industry growth rate: As we can see the appendix that the growth is always been there for these industries.
4) PEST ANALYSIS
This identifies the political economical social and technological influence on every organization . This PEST analysis is for Pepsi
4.1) Political analysis: since Pepsi is into production and distribution ,pepsi products are subjected to various laws such as the food , drug and cosmetic act. The business is also subjected to state local and foreign laws . The business is subjected to various taxation policy in each country of operation. These includes with the environment of competitive products and pricing pressure and their ability to gain or maintain their market share . This would be challenging for Pepsi because Pepsi would like to penetrate into developing and emerging markets , which also depends on the economic and political conditions ; the company with these political issues should make necessary in fracture enhancements' to take care of its distribution , sales and the use of the technology. The government plays an important role in these industry since these products are consumed by the people the government regulates these product consciously. The governments of different countries impose fines if Pepsi as a company does not follow the required laws.
4.2) Economic Analysis: Pepsi as a company is subjected to the use of raw materials, which they used in their snacks and food industry which include corns, vegetables grape fruit, and potatoes. To the company to get these raw materials they relay a lot on the truck to move and distribute these products, as a reason of this fuel process matters to the company which are subjected to fluctuation in the prices. Since this company operates in the international markets the company faces volatile movements in the foreign exchange prices. Since the foreign exchange rate keep fluctuating the company faces several other issues in their industry growth rate, changing interest rates and various other facts. Pepsi is also subjects to other economical factors like money supply, business cycles energy availability and cost etc.
4.3) Social factors: Culture is the way that we do things around here. Culture could relate to a country (national culture), a distinct section of the community (sub-culture), or an organization (corporate culture). It is widely accepted that you are not born with a culture, and that it is learned. So, culture includes all that we have learned in relation to
values and norms,
4.4) Technological factors: Pepsi in their bushiness sector they are into 3 different kinds of industry such as snack foods, juices and soft drink industry. Pepsi as a company is subjects to new techniques to manufacturing in order to reduce the cost of production. In order of the products to reach the end consumer on time Pepsi tries to improve its distribution system. For Pepsi to achieve all the above mentioned facts natural resources , climate location, and most of all skills , in fracture and technology are the most important things to be achieved by the company so that it would have a competitive advantage with its rival coca cola .
5) Financial Analysis
PepsiCo has made a revenue of $43.232 Billion during the fiscal year 2009. The FLNA division has made a revenue that constitute of 30 percent of the revenue asset in 2009.The PI division has made a revenue that is approximately of 41% of the total revenue of PepsiCo in 2009 .The PBNA division records a revenue that contributes to about 24% of the revenue in 2009. The QFNA has a revenue of about 5% of the revenue in 2009.
Coca cola revenue has been outpaced by PepsiCo revenue .The financial times in 2009 revels that Coca-Cola had made minimal gains in that year ,which may be attributed to the slow growth in the soft drink sector. Coca cola would derive its income by 80 % from its soft drink sector and Pepsi co has a wide range of sectors from which its income could be derived from which , from the of drink industry its just 20%.Clealy PepsiCo has a wide range of snack products that serves as a cushion of the company from changing consumers preference. Consumers are becoming health concuss as these soft drinks are highly fructose syrup beverages and leads to obesity and they are gradually shying away from them.
All the ratio will be compared with the year 2007 to 2009 (Appendix B).
Price/earning ratio: Price /earning (P/E) ratio are higher for those firms which have a strong growth prospect, other things are held constant, but they are lower for riskier firms. PepsiCo in 2009 has a P/E ratio of 16.13 times, which is lower than the industry (21.1) and the (S&P 500)(19.8).Coca cola has a higher P/E ratio which is about 19.45 times which is also lower than that of industry (21.1) and the S&P 500 (19.8).Both these companies are in the soft drink industry , which is apparently a tough industry for the past 10 years. As previously mentioned earlier that the consumer are shifting their focus on to healthier drinks. PepsiCo is on a safe side which is an advantage , even if coca cola has more favourable ratio, 
Net profit : would tell us how much the company would generate in $1 it generates in revenue. Industry the profit margin's vary, a higher the better for the company and also for its competitors. For PepsiCo the net profit margin is10.78% verse the industry average of about 10.3% and the S&P 500 average of 11.6%. Coca-Cola's net profit margin was 22.1% versus the industry average of 15.5% and the S&P 500 average of 11.6%.
While PepsiCo has seen continued growth throughout its tenure in a nice steady growth pattern. The company is in its prime of its career and this should be able to carry the stock to high numbers for at least a decade. By investing now in Pepsi, the investors have an opportunity to see Pepsi rise by end of 2010.
In the 2007 the Coca cola stock was trading at $61.37 , but as of in 2008 the stock price fell down rapidly to about $45.27 which is a significant drop from the previous year. A contributing factors could be various reasons such as the consumers tastes is that they could be preferring bottled flavoured drinking water, healthier beverages or the big one the economic crisis in the 2008 -2009 which all could be the factors for the drop in the prices of the stock during the year 2008
Please refer to Appendix B here we examine that the stock price of PepsiCo in the past three years have been its valuation is rapidly approaching to $75.90 in the 2007 a generous appreciation in the value .This is because of the product diversification strategy implemented by PepsiCo. PepsiCo has been benefited greatly from its mergers with Frito lays and Quaker oats. This acquisition is the main reason for the high revenues and strong overall financial numbers PepsiCo stock is expected to move even more higher and therefore this stock would be highly recommended. Please refer the Appendix B for the three years comparison of Pepsi and coke 2007 to 2009.
Evaluation of financial markets
Global Economic Recession
Pepsi is selling its product all over the world and it would be a safe investment for the investors if they are buying the stocks of this company , buts due to the ecomonic crisis people should think twice before investing in this company since there was a decrease in the prices of the shares in the 2008
In fact I think it is the best time during the recession to buy the stocks of Pepsibecause any investor would like to buy stock at a low price as they will know that the price would rise soon in the coming years. Also as we say buy low sell high, this same concept can be implied here.
During the recession Pepsi sees lift in the foreign sales, despite the economic quagmire the company sees an increase in the sales in United states by 2 % and world wide by 3%. In India the sale were up by 31 % by the march 2009. Keeping a positive outlook
Commodity Cost Fluctuations
The variations in the prices of the raw materials would directly and indirectly affect the production cost which in turn would affect the profitability of Pepsi. Here Pepsi itself would be directly purchasing the raw materials which are used to make the concretes and syrupsvaration in the prices of these would affect the cost of production of as well as the profit margins
Here also the change in the production cost of the bottler's can also impact the Pepsi profitability in and indirect way though. If the raw material becomes more that is necessary for bottling then, the bottler's would be forced to increase the prices to compensate.
Dollar Affects International Performance
The factor for the decrease in the profit and revenue was the affect in the dollar performance. Although the company was based in north America more that 76% of its revenues was derived from outside north America. Because of this the company is very sensitive to the strength in Dollar price. As the prices of the other currencies weaken relative to dollar, goods that are sold outside the US are worth back in the US, lowering earning. Thus, if the dollar strengthens (as it did in the second half of 2008 and 2009), it has a negative effect on Pepsi earnings.
Marketing analysis :
Ansoff's Matrix - Planning for Growth
This industry growth is driven the growth in population as well as the amount of advertising done and the innovation taken in this industry, pepsi used the price discrimination strategies to maximize the value of consumer demand. Here Pepsi had different pricing done in different location based on the customer's location and purchasing power. Restaurants have different pricing for fountain drinks, super markets have different price obviously such segmentation helps situational-based pricing differences: the most price insensitive consumers seem to be restaurant customers who need a drink to go with their meal. Also, single-drink buyers at gas stations are more likely to be impulse buyers and therefore have less price sensitivity than weekend family shoppers at supermarkets who purchase 12-packs for home consumption
Pepsi is enhancing its penetration in the market by targeting the restaurant and the convinces stores If Pepsi bundles snacks with soft drinks as part of its pricing strategy aimed at fast food restaurants and stores it may be able to increase sales and obtain better shelf space from retailers. This may prove a very important tactic in trying to re-claim share in the fountain drink segment.
Market Development: Good marketing strategy and competitive positioning is vital for any business to become successful. Creating a new market development strategy is even more important for a business to remain successful Market development is one of the crucial stages that company has to go through as because outcome of this process can actually bring huge success or failure to a company. Pepsi has to be careful on this stage of development, if not the company will face increased cost, lose on sales, and finally lose of market share. The main objectives of Pepsi product development process should be:
To provide a good competition
To consciously satisfy the customers
To expand in the new markets
In the overseas market Pepsi has done ruthless advertising for the sole purpose of market development,
However, Pepsi's rival coca cola have engaged in a slew of television advertisements, which publicly ridicule the other's product and image. For the market development the venue where the products are sold also places an important role Pepsi now splits its location into small venues like fast food chains, dine-in restaurants and special stores, larger venues include (movie theaters, amusement parks, festivals, and sporting arenas. Pepsi now has joint venture ownership into fast food chains with its purchase of Taco Bell, Pizza Hut and Kentucky Fried Chicken. The final area for the market development included in the area of manufacturing and distribution opportunities include bottling plants and trucking lines, which seems to be great.
Materials: Materials required for the production , Pepsi has good set of distributors and the proper set of equipments used for production. Materils used by the company are of high quality and standards . This would provide an add advantage to the product in case of development.
Quality assurance: Pepsi has to understood that if its product is not performing up to the standards it would be rejected. Obviously there would be alternative products like coca cola or any other colas with better quantity and performances, as a result Pepsi has good assurance over quality so that they would not lose its market share .
Key Components: It is on the product platform that product variation can be added or deleted to satisfy local differences in the overseas markets , these platforms contains essential technology - and all its design and functional features . This may require additional capital investment, but this is made to adapt the product to its cultural variation. This is spoken in terms of physical product. By product alternation in design, functional features, flavors colors and other aspects can be adapting the product cultural variations.
Packaging Component: The packaging component includes feature, packaging, labeling trade marks brand names and all other aspects of the product packaging. For pepsi care must be taken to taken to assure that cooperate trade marks and other parts of packing components do not have unacceptable symbolic meanings.
Internal knowledge of market
Awareness of possible counter trade deals
A cheaper way to develop products is to improve the current ones so that they can stand out among your competitors.
Diversification: Pepsi focused on varietal differentiation since 1999 by introducing a string of niche products, although product innovation has been quickly copied by Coke. To increase volume in order to counter flat cola sales, Pepsi introduced Sierra Mist in 2002-2003 to take the place of 7-Up and go head-to-head with Sprite. Pepsi has also tried to boost volume by introducing products that appeal to specific target market segments that it currently is not reaching. Pepsi has introduced Code Red and Live Wire, extensions of Mountain Dew, Pepsi One, and Pepsi Blue. Finally, Pepsi is countering declining sales of carbonated drinks through the marketing and distribution of Starbucks ready to drink products, and the acquisition of SOBE and Gatorade. Coke has followed with the introductions of Vanilla Coke, Sprite Remix, and the
acquisition of Planet Java, Odwalla, and Mad River Traders. Although these niche products
might successfully keep out a third competitor through spatial preemption, most of these
product introductions are not expected to generate over 1% of the total soda sales.
In terms of investment I find that investing into the stocks of PepsiCo is a wise one. The company as we see is into food product industry , which they have acquired . This would
Serve as a backbone just in case of any economic Crisis. The profits, EPS , revenue, ROE,ROI P/E ratio dividend yield when taken both the companies into consideration we can figure out that PepsiCo is outfacing coca cola in many of these aspects.
While is conducted a research I found out that there is a wide market for non carbonated beverages' such as coffee and tea, I Suggest that Pepsi should make a move into these products which would serve as a medium for an increase in their revenue and investments.
The company must use more advanced technology in their production process as this will improve the production through out the nation and will be able to meet the demands
Pepsi should have a close relationship with the consumer, they must promote advertisement conduct marketing events and many other CRM policy as this would indirectly improve the revenue and profits.
Depending upon the economic situation the company should price its products if not this would have a major impacts on the profits
Pepsi should try to make its products healthier like little bit sweet cola drinks and reduce the amount of calories in that drink ,they should be able to produce the product according to the local demands
The company should produce 150 ml cola drinks as because some people would like to consume this in a little amount.