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PepsiCo manufacture & produce Pepsi as a carbonated soft drink. Pepsi cola was started in the year of 1898. It was started from a small Drug store in the city of North Carolina. Caleb Bradham was the owner of that Drug store; he made a drink, which the customers entitled "the Bred Drink". Bred registered that drink with the name of Pepsi Cola in the year of 1903. Then Bred started his own production at Macro level and established his own company. The business expanded and this drink got distinction with time. In the year of 1909 Pepsi expanded to 24 states of America with more than 250 dealers. At that time packing of Pepsi was in 16 ounce.
In the year of 1932 Pepsi cola introduced its new packing in 12 ounce. In the year of 1950 Pepsi Cola started its fresh Advertising Campaign with the name of "Refresh without Filling". After that the chemical formula of Pepsi was changed & decreased amount of sweetness and calories.
With the hard work of the Sales & Marketing Department, Pepsi got so much reputation that it developed new plants at a rate of thirty per year. In the year of 1985 the design of the bottle as changed & a new & beautiful packaging has been offered with two new flavors Team & Miranda.
Now PepsiCo is a Fortune 500, American multinational company having headquarter in Purchase, New York. It is expanding its interests in manufacturing and marketing a wide variety of carbonated and non-carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods. The major product of PepsiCo is Pepsi Cola, sells over 100 billion cans a year. The company also owns the famous brands like Quaker Oats, Gatorade, Frito-Lay, SoBe, Naked, 7 Up, Tropicana, Copella, Mountain Dew, Mirinda.
Analysis & Issues of PepsiCo International Strategy
Reasons For Expanding To Foreign Markets:
Pepsi gets this advantage by implementing such large marketing projects like "Project Globe".In Saudi Arabia, Pepsi is the market leader and has been for nearly a generation. Part of this is due to the absence of its archrival, Coca-Cola. For nearly 25 years, Coke has been exiled from the desert kingdom. Coca-Cola's presence in Israel meant that it was subject to an Arab boycott. Because of this, Pepsi has an 80% share of the $1 billion Saudi soft-drink market. Saudi Arabia is Pepsi's third largest foreign market, after Mexico and Canada. In 1993, almost 7% of Pepsi-Cola International's sales came from Saudi Arabia alone. The environment in Saudi Arabia makes the country very conducive to soft-drink sales: alcohol is banned, the climate is hot and dry, the population is growing at 3.5% a year, and the Saudis' oil-based wealth "make it the most valuable market in the Middle East". Coca-Cola, long known as "red Pepsi", has finally started to fight back. The battle for Saudi Arabia actually began 6 years ago, when the Arab boycott collapsed and Coca-Cola began to make inroads into the Gulf, Egypt, Lebanon, and Jordan.
Mode of Expansion:
This former strength is the franchise system. The franchise system in Pepsi Corporate view has become a liability. Pepsi in today's market must be able to act as one instead of several separate units. The franchise system has become a hurdle to Pepsi because many of these franchises have become very strong and will not be dictated by PepsiCo on how to handle their operations. Some of these franchises are unwilling to support certain Pepsi products and at times produce their own private label products that are in direct competition with Pepsi products. Secondly the franchisees are not willing to make capital expenditures to keep up with Coca-Cola who is a firm believer in reinvesting into their infrastructure (Coca Cola at present time does not operate a franchise bottling system).
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 is the first price hike in the country in 20 years. Saudi Arabs' 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 even then, price rises should not be more than 10 percent. Pepsi responded to Government officials & explained that prices are constant, despite the escalating cost of overhead, labor and raw materials. If it had increased price at the same rate as official inflation in the GCC, the prices would be much higher.
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 in the countries where PepsiCo is trying get into markets like Saudi Arabia. Its businesses are also subject to different taxation policies in each country in which it is operating. PepsiCo also has to comply with federal, state, local and foreign environmental laws and regulations.
PepsiCo is subject to the harvest of the raw material that it uses in its snack foods, soft drink, corn, oranges, grapefruit, vegetables, potatoes, etc. Due to this it rely on trucks to move and distribute many of its products so fuel is an important subject & fuel prices matters for it. 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 and other factors. - PepsiCo is also subject to other economical factors like money supply, energy availability and cost, business cycles.
PepsiCo and moreover Pepsi is subject to the lifestyle changes, because of it bases her advertising campaigns in a real kind of people with an special lifestyle, it is for that PepsiCo has to pay a special attention on the lifestyle changes. Particularly it has to pay attention to the social mobility for not losing a possible market in Saudi Arabia. Taking into account that PepsiCo is trying to introduce itself in underdeveloped markets or developing countries, it has to be very careful with the possible problems with the governments of this countries, and with the problems could rise from PepsiCo act with the people of Saudi Arabia.
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 that Pepsi is associated with is small yet still substantial. This is because there are already four players in the market other then Pepsi itself, namely.
2. Threat of Substitute Products:
Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. The threat of substitutes, however, is a very real threat. The soft drink industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on Pepsi include tea, coffee, juices, milk, and hot chocolate.
3. Bargaining Power of Suppliers:
4. Bargaining Power of Buyers:
In a competitive environment, the concern is how to increase market share and to retain its current customer in highly competitive market because customer always try to optimize benefit from the product. Pepsi has a wide customer base which includes retail customers. The buying power of consumers also poses a key threat in the industry. The changing attitudes and demands of the consumers or face losing market share due to the competition. 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 holding 30.9% share & Cadbury Schweppes 8%. The local brands are also in the market to compete Pepsi with prevailing campaign against Pepsi that U.S and foreign brands not to be used. These brands are Mecca cola holding 0.5% market share and 0.6% Zamzam cola. Pepsi must keep tracking the changing taste of the customers & it must be capable to respond to that need immediately & avoid risk of losing market share. Pepsi must also need to be financially strong to keep up with a powerhouse like Coca-Cola and be able to strike back in the long running cola war.