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PespiCo is facing price hike issue in Saudi Arabia; it is hurting its further expansion in soft drink industry. PepsiCo requested ministry of economy of UAE to approve a price hike for their products in the country. But ministry said Government will send it to the higher committee of consumer protection association for approval.
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Reasons For Expanding To Foreign Markets:
Coca-Cola, the major competitor of Pepsi has been exiled from the desert kingdom. Because of this, Pepsi expanded into Arab Countries & has an 80% share of the $1 billion Saudi soft-drink market. Saudi Arabia is the third largest foreign market of Pepsi, after Mexico and Canada. In 1993, about 7% of Pepsi-Cola International’s sales came from Saudi Arabia. The environment in Saudi Arabia makes the country very favorable to soft-drink sales because alcohol is banned & climate is very hot and dry.
Mode of Expansion:
Pepsi uses franchise system for international expansion.
Sources of Competitive Advantage:
PepsiCo has competitive advantage in terms of worldwide distribution & the company is able to produce all its products in the country where they are consumed. Pepsi has a competitive advantage over Coke because of its brand image & good word of mouth. Pepsi promotes itself as the number one choice of the “Next Generation”.
Currently a 50 percent rise in Pepsi prices in Saudi has angered customers and provoked the kingdom’s government to call on more than 30 soft drink companies to hold off on further price hikes. Pepsi increased the price of a can to 1.50 riyals $0.40 from 1 riyal.it. Saudi Consumer Protection Association investigated the sudden “unjustified” price hike, the Saudi Gazette reported that official permission should be granted to soft drink firms before they are allowed to increase prices and price rise should not be more than 10 percent.
Many PepsiCo products are subject to different federal laws due to their manufacturing, distribution & use, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act ad the Americans with Disabilities. The international ventures are subject to the Government stability and businesses are subjected to different taxation policies in each consumer country.
PepsiCo relies on trucks to move products so fuel is an important subject & fuel prices matters. The economic impact of foreign exchange rates movements on them is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions, etc. PepsiCo is also subjected to other economical factors like money supply, energy availability, cost and business cycles.
Pepsi is subject to the lifestyle changes, so it bases her advertising campaigns in people with special lifestyle. For that PepsiCo has to pay special attention on lifestyle changes. It has to be very careful with the possible problems with the governments and those which could rise from PepsiCo act with the people of KSA.
PepsiCo is exposed to new manufacturing techniques, for its three business units, snack food, juices and soft drinks. It has to pay attention while adopting flexible & advanced distribution techniques.
PORTER 5 FORCES Analysis
1. Threat of New Entrants: The threat of new entrants in the industry is small yet substantial. This is because there are already four players in the market other then Pepsi itself.
2. Threat of Substitute Products:
Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. Possible substitutes that continuously put pressure on Pepsi include tea, coffee, juices, milk, and hot chocolate.
3. Bargaining Power of Suppliers:
The bargaining power of the suppliers tends to be low according to the recent analysis. PepsiCo needs to manage its relationships carefully with the bottling units in order to make changes in its way to market the local retailers.
4. Bargaining Power of Buyers:
Here the concern is how to increase market share and retain its current customer because customer always try to optimize benefit. The buying power of consumers also poses a key threat in the industry. Moreover consumers can simply switch to other beverages with little cost or importance.
5. Rivalry Among Competitors:
Pepsi has 48.9% share of market & it is situated in an environment that is ever changing and dynamic because coca cola is holding 30.9% share & Cadbury Schweppes 8%. The local brands are also in the market to compete Pepsi. These brands are Mecca cola holding 0.5% market share and 0.6% Zamzam cola.
1.Internal Attributes(Strengths & Weaknesses)
Pepsi has strong worldwide distribution system. But it is poorer in its fountain drink division. The ownership in fast food restaurants has always been challenging for Pepsi. The Coca Cola has been in the top position for fountain beverages because of their ownership in famous fast-food restaurants.
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2.External Attributes(Opportunities & Threats)
External influences that are affect planning include the actions of competitors, and a series of social, legal, economic, and technological factors. An effective plan therefore needs to be designed to take account of the external environment threats. In addition to its large consumer base, Saudi Arabia has some of the region’s biggest athletic clubs, most passionate sports fans, and has a growing population of athletes and active people. When PepsiCo started its own Pepsi Bottling Company, it allowed them to cut costs, reduce overhead, and coordinate their distribution to create a better synergy.
Critical Issues or Barriers:
Pepsi can serve the 90% market but problem is the bottling of the drink.
War crisis between Palestine and Israel is bringing hate against Pepsi that why USA is not interest in resolving the issue
As Pepsi is US product and these days US and foreign products are campaigned not to be used to show rage against non-Muslim acts.
Due to recent oil prices increase, there is international factor of inflation and on the other hand Pepsi is cheaper in KSA compared to other countries, so Pepsi is facing problem to maintain the profits.
Since employers in KSA are required to give their employees time to pray toward Mecca five times per day, as set forth in the Koran, break times caused additional operating cost.
Health and stomach diseases due to over use.
Obesity problem which is becoming common in Saudis.
Rumors of Haram ingredients.
The tough competition is carried out through packaging as well as price.
Pepsi is being forced to re-examine their strategic models, based on carbonated soft drinks and move to new beverage categories. Heavy investmentment in risky innovations may be suggested in order to transfer resources from other brands. Pepsi spends 15% of overall budget on advertising and marketing to be no.1 in the consumer sight. Pepsi should use all media vehicles to attract consumers.
Consumers want to buy soft drinks delivered at convenient locations with the right package. Pepsi have to make sure that the market keeps growing annually, and that company products are available everywhere. Pepsi has won the International Quality Award and Bottlers of the year Award, so the company feels quite optimistic. Although difficult challenges lay ahead, yet to exploit opportunities through the implementation of an effective and comprehensive marketing plan 2009.
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