This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
PepsiCo is one of the most successful beverage and snack food business in the world. PepsiCo started on 1965, during that time Pepsi-Colas CEO and President Donald M, Kendall approached Herman Lay, Frito-Lays Chairman and CEO with a proposition of merging the two company in providing food and beverage with complementary products that would give a lesser opportunity for cost sharing, joint merchandising and knowledge and skill transfer (MightyStudents, 2010). PepsiCo brands are available in nearly 200 countries and territories. Its expertise is to create different food and beverage products that would soothe the taste of its consumer. PepsiCo is a world leader in convenient foods and beverages, with revenues of about $57 billion and over 294,000 employees (JobsGlobal Online, 2011).
The reinvention of different products, the introduction of new product, expansion into international markets and clever advertising campaigns are the primary focus of PepsiCo Inc. PepsiCo's considerable marketing expertise could be leveraged in the marketing of fried chicken, pizza, and Mexican fast foods.
The company's current operating locations, headquarters and current initial public offering stock market.
Pepsi-Cola North America, headquartered in Purchase, New York, is the refreshment beverage unit of PepsiCo Beverages and Foods North America, a division of PepsiCo, Inc. PepsiCo Beverages and Foods North America also comprises PepsiCo's Tropicana, Gatorade and Quaker Foods businesses in the United States and Canada.
Brand Pepsi and other Pepsi-Cola products account for nearly one-third of total soft drink sales in the United States, a consumer market totaling about $57 billion. Outside the United States, Pepsi-Cola beverages are available in about 160 countries. Today Pepsi-Cola products account for about a quarter of all soft drinks sold internationally (Global Finance, 2011).. The company has also established operations in the emerging markets of the Czech Republic, Hungary, Poland, Slovakia, India and Russia, where Pepsi-Cola was the first U.S. consumer product to be marketed. Pepsi-Cola provides advertising, marketing, sales and promotional support to Pepsi-Cola bottlers and food service customers. This includes some of the world's best and most recognized advertising. New advertising and exciting promotions keep Pepsi-Cola brands young.
Performance and achievements
PepsiCo current performance and achievement is Conserved more than 12 billion liters of water through efficiency improvements within PepsiCo operations as compared to the 2009 baseline. Achieved a 16 percent reduction in per unit use of energy in beverage plants and a 7 percent reduction in snack plants in 2010 compared to a 2009 baseline. Introduced the first fully compostable Sun Chips bag, which is made with 100 percent renewable plant-based materials. Increased the percentage of executive positions held by women globally to 30 percent. Reduced saturated fat by more than 50 percent in U.S. Lays and Ruffles potato chips. PepsiCo's success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity.
The Macro-environment analysis of PepsiCo Company.
The production distribution and use of many of PepsiCo product are subject to various federal laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act ad the Americans with Disabilities. The government plays a role within the operation of manufacturing these products in terms of regulations. There are potential fines set by the government on companies if they do not meet a standard of laws. The businesses are also subject to state, local and foreign laws. The international businesses are subject to the Government stability in the countries where PepsiCo is trying get into underdeveloped markets. The businesses are also subject to de taxation policy in each country they are operating. They also have to comply with federal, state, local and foreign environmental laws and regulations.
In political stability, whenever the Government Is Considered to Be Stable, the business will grow. If there is political stability in the country the policies and strategies made by Pepsi can be consistent to be implemented. Foreign companies are also keen to invest in those countries which are politically stable where they have no fear of decline in their market share or shut down due to sudden change of government.
In mixed economy government and private sector both plays their role in developing the economy of the country. Investment by foreign companies like Pepsi is more likely to flourish in mixed economy.
The key elements taken into consideration are the principal market risks, which PepsiCo is exposed to inflation rate, interest rate, and foreign exchange rate. These are specified as:
The major economic issue facing PepsiCo and its subdivisions is the rising input costs of their businesses due to structural inflation. Agricultural, energy, and some metal industries are going through periods of steady inflation. Because PepsiCo relies on these industries, inflation costs must be factored into their cost equations. In inflation rate, if the country faces inflationary trend in the market, the price of the Pepsi will ultimately increase which will lower its demand.
Interest rate on PepsiCo's debt as well as it short-term investment portfolio: PepsiCo can manage its overall financing strategies in term of balancing investment opportunities and risks. The company is using interest rate and currency swaps to effectively modify the interest rate in order to reduce the overall borrowing costs
Foreign exchange rate and other international economic conditions, operating in international markets involve exposure to movements in currency exchange rates, which typically affect the economic growth, inflation, interest rate, government actions and other factors. Once these changes occur, they will cause PepsiCo to adjust its financing and operating strategies. Changes in currency exchange rates that would have the largest impact on translating PepsiCo's international operating profit include Mexican peso, British pound, Canadian dollar and Brazilian real.
Social cultural Factors:
Consumers today are not as much joyous to cola products as they were before. Age and ethnicity are two main characteristics that affect consumer preference for soft drinks and alternative beverages. With age, health concerns become more of a factor when choosing a beverage. To illustrate, some studies show that cola products or soft drink in general may cause kidney stones and other related diseases. In contrast to older consumers, younger consumers particularly teens and those in their twenties have less attention spans for products and are more likely to prefer products that seems to be fun and different .
Age and ethnicity are two main characteristics that affect consumer preference for soft drinks and alternative beverages. With age, health concerns become more of a factor when choosing a beverage (PepsiCo, 2006). The requirements of different age groups are different. PepsiCo should target that age group that consumes it the most and make promotional strategies according to their behavior. So their main target is the young generation.
The social environment within food services markets are changing significantly. A new demand for healthy food and beverages coupled with a push towards green operations and environmentally-friendly company management has changed the social playing field within most markets. With this in mind, PepsiCo have successfully adopted new goals and produced new products in order to meet this more health-conscious market.
PepsiCo and moreover Pepsi is subject to the lifestyle changes, because of it bases her advertising campaigns in a concrete kind of people with an special lifestyle, it is for that PepsiCo has to pay a special attention on the lifestyle changes. Particularly in the United States Pepsi drinkers are much defined, there is a kind of people who drinks Pepsi another kind who drinks Coca-Cola; it is for that they have to pay attention to the social mobility for not losing a possible market.
PepsiCo and its subdivisions utilize technology in order to sustain company growth, keep up with the demands of its sustained growth, and perform efficiently. PepsiCo's delivery systems provide a strong competitive advantage. In particular, their most powerful distribution system, Direct store-delivery (DSD) allows them to supply all of their retailers and customer-distributors with up-to-date stock. "Direct store-delivery allows us to create maximum appeal and visibility for our brands and support in-store promotions. DSD works well for popular products we restock often, because it allows us to distribute new products quickly. Our DSD system reaches hundreds of thousands of retail outlets this way, from neighborhood convenience stores to large-format supermarkets" (Annual Report, 11).
Through research and development quality of the product can be improved or better techniques or machinery can be developed which can increase the production. When technology is advance the supply of the product increase hence the company experiences growth in their business.
Some factors that cause company's actual results to differ materially from the expected results are as follows: The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media by make some products look attractive. This helps in selling of the products. This advertising makes the product attractive. This technology is being used in media to sell their products. Introduction of cans and plastic bottles have increased sales for PepsiCo as these are easier to carry and you can bin them once they are used. As the technology is getting advanced there has been introduction of new machineries all the time. Due to introduction of this machineries the production of the PepsiCo company has increased tremendously then it was few years ago.
In elements with changes to legislation, Waste Management and Public Concerns of growing environmental awareness are leading to increasing legislation. The company's operation is affected by federal legislative proposals that address the four objectives. First, minimize the quantity of packaging material entering the nation's solid waste system. Second, minimize the consumption of scarce natural resources. Third, maximize the recycling and reuse of packaging materials. Fourth, Protect human health and the natural environment from adverse effects associated with the disposal of packaging materials.
Laws Formulation in order Government has given copy rights to PepsiCo by Pepsi product, so that another company cannot sell their product by the name of Pepsi. The countries where laws are formulated, the strategies and activities of the company are different.
This is one of the most important factors that a company needs to consider while starting, establishing and expanding operations in any country. Legal Environment is important because a company needs to confirm to the laws of the land and carry out its operations accordingly. While political environment is important as it can play an important informing opinions regarding the company. This is the reason why PepsiCo operates in India in collaboration, initially it started its operations in India with Punjab Government and then it started its operations in the carbonated and non-carbonated beverage segment n collaboration with RKJ group in India.
This plays an important role in determining the acceptability of the product according to the environment norms of the market and the effect the company has on each of these. In the area of Environment, PepsiCo Foundation seeks programs that protect water sources and create better use for existing water, in order to help minimize the growing water crisis that is faced by millions of people around the globe.
In social responsibility, PepsiCo social responsibility is to provide its customers with clean and hygienic product so to do this they have increased the use of disposable bottles. Companies need to be very careful about this issue as people are very sensitive about their culture and may not tolerate any infringement. This determines the ingredients of the products and the type advertisement and promotions used by the company.
The international considerations
Where do they operate?
PepsiCo entered India in 1989 and has grown to become the country's largest selling food and Beverage Company. One of the largest multinational investors in the country, PepsiCo has established a business which aims to serve the long term dynamic needs of consumers in India (PepsiCo India, 2011).
The group has built an expansive beverage and foods business. To support its operations, PepsiCo has 36 bottling plants in India, of which 13 are company owned. In addition to this, PepsiCo's Frito Lay foods division has 3 state-of-the-art plants. PepsiCo's business is based on its sustainability vision of making tomorrow better than today. PepsiCo's commitment to living by this vision every day is visible in its contribution to the country, consumers and farmers (PepsiCo India, 2011).
What is/are their internationalisation method(s)?
In order to enter the market scene, PepsiCo has been able to use joint venture. Joint venture is the term used when a business company merged to other company for the purpose of entering the international market. This is an alternative mode of exploiting a particular asset such as retail and potential branch network to form an arrangement with an established supplier of the product.
PepsiCo gained entry to India in 1989 by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Pepsi until 1991, when the use of foreign brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994.
With the joint venture method used by the company to enter an international market, PepsiCo has been able to be known in the international market. Hence, it can be said that the method used by the company as a mode of foreign market entry is effective and appropriate to achieve the goal of the company of having a strong competitive position in the international market. The company has used suitable market entry mode to ensure that their products will be delivered to international market.
Discuss the problems faced by the company in international business and propose solution to overcome the issues.
Initially, the India market was highly fragmented, and the wholesale and distributional systems were outdated. This was further complicated because PepsiCo was the actually existing wholesaler of concentrate, and did not have access to the operation of the bottling plants. To add to this problem, the company's local market agents were fully responsible for production and distribution during the initial stages of market entry.
The India government exerted tight control over the development of the soft drink industry and was careful to nurture domestic brands. PepsiCo was not permitted to enter into a Joint Venture bottling business with its local partners until 1992, and even then it was restricted to a minority stake.
Pepsi is also facing the problem concerning environmental issues like the supply of raw materials to produce their products. If Pepsi fails to help in environmental issues, the situation it had been during World War might happen again when they almost went out of business because of the shortage of sugar.
To overcome the above problem, PepsiCo internalized market transactions through a strategy of long-term investment and, with the approval of the government was able to co-ordinate this with an increased control of production and domestic distribution. In the highly competitive market share driven business of carbonated soft drinks, to assume control of production and distribution is strategically essential. This meant that the acquisition of majority stakes in the bottling plants is almost a prerequisite for gaining the control over management.
Pepsi also has to deal with such environmental issues like the supply of raw materials to produce their products. If the environment will provide them a good raw material they might have a more profit. PepsiCo's dedication and commitment to the environment is stated in their "Worldwide Code of Conduct". The "Worldwide Code of Conduct" defines PepsiCo's commitment based on the following environmental principles.
Developing programs that promote clean air and water, energy conservation, and reduce land fill waste. By supporting programs that educate, train and motivate employees to help the environment. Business is conducted by complying with all applicable laws and regulations and provides a safe and healthy environment. Minimizing the impact of our businesses on the environment through methods that are socially responsible, scientifically based and economically sounds, such as recycling and conservation. By cooperating with different organizations and governments to find solutions to reduce pollution and by supporting environmental policies.
In order to make this foreign operational mode combination a success, PepsiCo should consider the most suitable and effective expansion strategy. It can be said that the spread of PepsiCo is truly global. The company has hundreds of brands, which can be found in almost 200 countries and territories around the world. Market concentration is the result of interaction between the market size and a few vital factors. It is said that the industry of Carbonated Soft Drinks (CSD) is highly concentrated. There are three major industries that compete in this business (PepsiCo and Coca-Cola).
This shows that PepsiCo have a high market concentration. In this manner, the international market entry of PepsiCo is a good expansion strategy so as to maintain its position in the global market. In order to ensure that the market entry combination strategy used by the company will succeed, the company must be avail to consider the aspects of control and monitoring. In this manner, the company must have a monitoring team that will ensure the profitability and growth of the company as the expansion strategy has been initiated. The monitoring team will be responsible for identifying the possible risks that the company will encounter upon the initiation of the expansion strategy through foreign market entry mode. In addition, this team will also be accountable for determining the cost that will be needed to implement that new strategy.
Product competitive analysis
SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the company's products.
One of PepsiCo's top brands is of course Pepsi, one of the most recognized brands of the world, ranked according to Interbrand. As of 2008 it ranked 26th amongst top 100 global brands. Pepsi generates more than $15,000 million of annual sales. Pepsi is joined in broad recognition by such PepsiCo brands as Diet Pepsi.
PepsiCo's diversification is obvious in that the fact that each of its top 18 brands generates annual sales of over $1,000 million. PepsiCo's arsenal also includes ready-to-drink teas, juice drinks, bottled water, as well as breakfast cereals, cakes and cake mixes. This broad product base plus a multi-channel distribution system serve to help insulate PepsiCo from shifting business climates.
The Company delivers its products directly from manufacturing plants and warehouses to customer warehouses and retail stores. This is part of a three pronged approach which also includes employees making direct store deliveries of snacks and beverages and the use of third party distribution services.
Second Mover Disadvantage
Diet Pepsi Cola does have the first mover advantage which Diet Coke has and this may prove to be a major shortcoming also in the US Market no Extensive efforts have been made to popularize it. By brand, on a comparative scale Diet Coke proves to have a better brand image in customers mind than. This compels to incur extra expenditure in Advertising, Promotions and Sponsorship.
The main competitor of the company is the Coca Cola. At the international level, Pepsi has a very strong competition with Coke. Coke has started its advertisements more effectively to increase their demand and it is a very strong threat for Pepsi.
Right from the very beginning Pepsi has hired the biggest and the most expensive stars in the country as its brand ambassadors and has spend heavily on advertising which has affected its balance sheet
Lowest Per Capita Consumption
Even after almost decades of presence in the market, there are growth opportunities for Pepsi in US as here the per capita consumption of carbonated beverages is one of the lowest in the world. Health Based apart from its Juice Based drinks portfolio Pepsi can use the Slim Diet can to the maximum by promoting it as a health drink at cheaper prices.
Healthy foods supportive
The increasing concern for healthy foods supportive of diet and wellness will open a new door of opportunity for PepsiCo. The acquisition of Aquafina, Tropicana and Quaker Oats is already a significant positive step towards the consideration of a healthier food and beverage alternative. The awareness does not limit itself to these products and in fact, as if in a synergistic dedication,. PepsiCo is also committed towards the healthy lifestyle of children through school programs. As PepsiCo caters to snack foods that are high in fat, PepsiCo must continue to challenge itself in the provision of healthy foods in the light of a deteriorating contemporary times. The spotlight on healthier foods would hopefully cut the costs of the ever-inflating cooking oil prices as focus is made on high protein snacks.
New markets expansion
New markets are similarly opening up in the world, open for further expansion. Most apparent is the opening of the Chinese market. Taking in mind the large population of this country, Pepsi must find measures to quickly penetrate, expand to China and beating the competition that will arise from there. They must appeal to the tastes, culture and locale of their new Asian markets using a local feel to their products which can be manageable in their strong advertising campaign. Pepsi continuing diversity will provide the much needed back-up for the company and allow it to rely on other companies and businesses than just a sole powerful brand.
Growing health awareness among people and some of ill effects of carbonated beverages have pursued many people to switch over to non-carbonated beverages that can seriously impede the long-term prospects of the entire Industry and Pepsi.
Environmental concerns are often raised because of the massive amount of water extracted by the bottling plants resulting in the drop in groundwater level which affects the local population adversely
The Coca-Cola Company is PepsiCo's primary competitors. But others include Nestlé, and Kraft Foods. Intense competition may influence pricing, advertising, sales promotion initiatives undertaken by PepsiCo. Recently Coca-Cola passed PepsiCo in Juice sales.
Suggest solutions to recover the position of the 'weaknesses' and 'threat' of the product line.
The solutions to recover the position of the 'weaknesses' and 'threat' of the product line is Pepsi should also introduce a version of Diet Pepsi Cola as a sports drink range this is a completely new and untapped market which will help in providing the impetus for Diet Pepsi. Pepsi should start more aggressive marketing of its Diet Pepsi range of products as they have very good growth and future prospects while there is not much growth in the carbonated beverages sector.
Next solution is the Pepsi is at its maturity stage and the sales of company are not growing very rapidly. Company is doing a lot of promotional activities to let the product remain in the market. It holds a large share of the market and whenever the sales state declining, the Pepsi can improve it by different promotional activities.
Marketers of Pepsi can try to improve sales by improving one or more marketing mix elements. They can cut prices to attract new users and competitor's customers. They can also launch a better advertising campaign or use aggressive sales promotion to improve the sales. Thus, Pepsi is at its maturity stage.
The next solutions to recover the position of the 'weaknesses' and 'threat' of the product line is for Pepsi is to move forward with commitment to provide industry leadership in the health and wellness arena. Pepsi should do a better job of staying in touch with shoppers and consumers and in the process of innovating and creating value. This is absolutely essential for value creation in the beverage industry. I think the most important driver behind the demand for beverage is population demographics.
The final solution for Pepsi is to develop strategies to win the cola war in this century. Winning the cola war in twenty-first century is critical for Pepsi to maintain its industry leadership position and to be a total beverage company.
Barriers to entry
New entrants Pepsi to the Norway industry were very high human development (VHHD) are not a strong competitive pressure in the soft drink industry. Coca-Cola and PepsiCo dominate with their strong brand name and superior distribution channels. In addition, the soft-drink industry is fully saturated. New growth is small. This makes it very difficult for new, unknown entrants to start competing against the existing established firms. Another barrier to entry is the high fixed costs for warehouses, trucks, and labor and economies of scale in Norway country. New entrants cannot compete on price without economies of scale. These high capital requirements and market saturation make it extremely difficult for companies to enter the soft drink industry; therefore new entrants are not a strong competitive force.
Pepsi's product differentiation caused by their marketing strategy has limited the threat of new entrants. Also the heavy start up costs of manufacturing and packaging plants would be a deterrent. But, the biggest deterrent is brand image and reputation; a new company would be very hard pressed to take market share away from established players like Pepsi, Coke etc. More importantly, the access to distribution channels is currently one of the biggest barriers to entry, and this barrier remains because both Coke and Pepsi maintain very strong relation with their channel partners.
6.2 Threat of Substitutes
Substitutes for Pepsi products in Norway with (VHHD) are bottled water, sports drinks, coffee, and tea. Bottled water and sports drinks are increasingly popular with the trend towards the health conscious consumer. There are a growing number and varieties of water and sports drinks that appeal to different consumers' tastes. These are advertised as healthier than soft drinks. In addition, coffee and tea are competitive substitutes because they provide caffeine. Soft drinks can be substituted with coffee. Specialty blend coffees are also becoming more popular with the increasing number of Starbucks stores that offer many different flavors to appeal to all consumer markets. Low switching costs for the consumer makes the threat of substitute products very strong (Datamonitor, 2006).
6.3 The bargaining power of supplier
Threats of Suppliers to in Norway (VHHD) are suppliers Pepsi are bottling equipment manufacturers and secondary packaging suppliers. Since Pepsi owns the majority of the bottler, it looks like that particular supplier does not hold much bargaining power. However, there has been increased concern about the simmering tensions between Pepsi and its increasing powerful independent bottlers such as PepsiCo. PepsiCo controls 80 percent of the US market as well as parts of Europe. Pepsi is introducing new product at a significant rate. The operational and distributional complexity due to new product introduction is affecting the bottom line of the bottlers. Some bottlers have even refused to carry new products.
In terms of equipment manufacturers, the suppliers are generally providing the same products. The number of equipment suppliers is not in short supply, so it is fairly easy for a company to switch suppliers. This takes away much of the suppliers' bargaining power. However, rising sugar and packaging material prices have a direct impact on the profitability of the Pepsi's products.
6.4 The Bargaining power of Buyers
The buyer's power in new venture of Norway with Very High Human Development County, Pepsi and other soft drinks are mainly large grocers, discount stores, and restaurants. The soft drink companies distribute the beverages to these stores for resale to the consumer. The bargaining power of the buyers is very evident and strong. Large grocers and discount stores buy large volumes of the soft drinks, allowing them to buy at lower prices. Restaurants have less bargaining power because they do not order in large volume. However, with the number of people drinking less soft drink, the bargaining power of buyers could start increasing due to decreasing buyer demand. The interesting shift in buyer demand because of increased demand for healthy choices has driven the market share of substitute drinks. Consumers are focusing more on healthy choices and buying healthy drinks from high end specialty stores.
This phenomenon is due to health and wellness trend sweeping across the global beverage market. Soft drink consumers are moving their consumption from regular cola carbonates to low-calorie carbonates, bottled water, sport drinks, juice and teas. Pepsi should adapt to this consumer behavior for future growth.
6.5 Competitive rivalry
The competitive pressure from rival sellers is the greatest competition that Pepsi faces in the soft drink industry to enter to Norway. PepsiCo, Coca-Cola, and Cadbury Schweppes are the largest competitors in this industry with global presence. Though Pepsi owns four of the top five soft drink brands (Pepsi, Diet Pepsi, Mirinda, and 7 up), it had lower sales in 2006 than did Coca-Cola. However, PepsiCo has higher sales in the global market than Coca-Cola. In 2006, PepsiCo dominated North America with sales of $22 billion, whereas Pepsi only had about $7 billion, with more of their sales coming from overseas. PepsiCo is the main competitor for Coca-Cola and these two brands have been in a power struggle for more than a century.