Essay on PepsiCo

Published: 2021/11/17
Number of words: 3198

Vision and Mission Statement

PepsiCo has clear and correct vision and mission statements. The company ensures that its business condition is aligned to its vision and mission statements. PepsiCo’s business condition highlights diversification in its product mix and its global market segments (Conaway & Laasch, 2014). The company’s mission leads the company to develop products that suit its market demand, and it identifies different steps to achieve its vision. The vision articulates its role in the global market and the direction of its desired development. Generally, the vision and mission statements complement each other to push the entity towards its desired global market position.

The company’s mission statement gives specific details about its product and target market. However, the company could make its mission more concise by adding more information about its approaches and strategies to achieve its vision (Conaway & Laasch, 2014). The vision statement is adequate in showing what the company intends to achieve in terms of sustainability, finances, and social responsibility performance.

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Internal Assessment

The company is in a strong position characterized by its dominant positioning in the industry in which it operates. It has experienced rapid growth rates supported by the strategic acquisitions that have allowed it to continue operating in the market. The company’s strong position is characterized by its ability to take advantage of its supply and distribution networks internationally to enhance further growth and prevent itself from the risks associated with operating on a global market (Lackner et al., 2014). Also, its stock prices’ consistent performance shows the company’s strong performance more than the S&P 500. The consistent performance of its stock prices is an indication that the stockholders are happy. The underlying strength of the company’s portfolios offers compelling value to its shareholders.

The company’s close collaboration between the retailers and the marketing team has helped it understand its consumers’ needs and reinforced its sales. The management is proactive and responsive and is willing to restructure the company to achieve more profitability. The company also derives its strength from innovation in its products to respond to the concerns of the consumers and the governments. PepsiCo has a broad product portfolio, and its leadership is across different product categories.

The company can integrate acquired entities, thereby turning them into profitable units quickly. PepsiCo’s management has the vision to integrate its business units to realize major efficiencies throughout its operation levels. Its operating environment is risky, but its management has managed to minimize the risks by making an adequate investment in research and development and distribute its interests across different market areas.

The company has presented excellent results in terms of free cash flow. The free cash flow approach allows the entity to continue with the acquisitions, capital spending, short –run investments, and share repurchases. Frito-Lay North America has yielded the largest percentage of the free cash flow (Honig et al., 2016). Compared to its competitors, the company has an outstanding operating profit margin of 18 percent in its market. In the period between 2004 and 2007, the company showed stability in all its business segments. Quaker, its smallest business division, recorded the best profit margin of 31 percent between 2004 and 2007 (Nazario et al., 2011). Pepsi international’s worst results brought the need for the company to concentrate its efforts in the segment to boost its performance.

On the contrary, the company has weaknesses ranging from lack of success of its Quaker brands, low profitability of international operations, and dependence on the U.S market for revenues and profitability. The changes currently experienced in its organizational structure is an indicator of possible internal instability and weakness. Despite the increase in its share of the U.S market, its share of the carbonated soft drink market is still low compared to that of its competitors. The entity’s international operations had low profitability compared to its operations in the United States. The company held large market shares outside the U.S. but has not successfully become a global brand. The company’s dependence on critical customers, such as its bottling partners, is detrimental to its operations.

Over the years, the company has sustained the momentum that began after its restructuring in 1997. The intention of maintaining the momentum was to sustain its impressive performance. It derives a lot of value from implementing innovative approaches and continuously introducing new products. After establishing a key growth possibility abroad, it focused on increasing its market share and profitability in emerging markets outside North America. Its retailer strategy was intended at exercising greater control in the way the products are displayed in stores. The strategy helped in boosting sales.

The company’s focus was to maintain Frito-Lay’s strong market superiority by keeping pace with the latest trends and preferences of its consumers. These included enhanced need for convenience, increased awareness of nutritional value, and increasing demand for snacking. The products by Frito-Lay experienced reconceptualization to promote their health credentials, and the company changed the sizes to allow smaller packaging (Garcia et al., 2017). The strategic acquisitions by the company continued its quest to conquer the health-conscious segment of the market.

The company’s broad product line, including Tropicana, Lipton tea, and Gatorade, strengthens its revenue growth. The change in consumer tastes towards healthier options placed the company in a better position, leading to bolstered sales. The company’s strong relationship with its retailers made it easy for the company to market its new acquisitions. PepsiCo’s overall international growth was enhanced by high growth rates in its new markets, such as Russia and Turkey. Multiple acquisitions across different markets increased the entity’s market share. The acquisitions have benefited the company because they provide access to attractive geographic markets, competencies, and technology. The company also has a strong commitment to sustainable growth through which it focuses on generating healthy financial returns.

External Assessment

The food and beverage industry has a higher profit margin. The high-profit margins imply that the stock prices are also high. The companies in the industry, such as PepsiCo, have significant economic moats. For example, the gross profit margin for the nonalcoholic beverage industry was 54.87 percent in 2019. The company had a neck-to-neck rivalry with Coca-Cola with market shares of 19 and 22 percent, respectively, in North America in 2017 (Nazario et al., 2011). Dr. Pepper Snapple Group is another competitor of PepsiCo with a less than 10 percent market share. PepsiCo’s beverage business contributed to its overall profitability and fresh cash flows, and it was a result of a shift in consumer preferences for healthy beverages and foods.

The competition in the food and beverage industry is very stiff and perceived as legendary between Coca-Cola and PepsiCo. At times, the competition extends beyond product development and becomes personal. The stiff competition between PepsiCo and Coca-Cola is because of the existence of ideal consumers in the industry and similarity in their flagship products (López, 2016). Also, the entities offer consumers almost similar beverage brands and ancillary products. Major players in the industry face market saturation, making them committed to efficient operations.

The major issues trending for food and beverage companies are changing consumer preferences and plant and cell-based disruption. Consumers are increasingly becoming conscious about their health when making food and beverage choices (Rada, 2014). As a result, the consumers continue to demand to know more about what they consume; food safety expenses continue to increase. PepsiCo and its competitors in the food and beverage industry are facing uncertainty in the market. The uncertainties are in the form of high labor costs and workforce challenges. The retailers and consumers will not absorb much of the costs, bringing the need for the companies to look for new and innovative solutions.

There are different products available for purchase by consumers. Therefore, this encourages middle-market companies to be creative and to implement differentiation strategies (Bresciani, 2017). Established companies are taking advantage of emerging technologies to deal with this trend. There are expectations of new ways of sustaining consumer preference. Innovative approaches will give the firms in the industry the opportunity to improve their operational processes.

Some companies in the industries are still attractive to large brands and private equity firms. The valuations are still high, and debt-heavy strategic companies may be reluctant to make acquisitions. Instead, most companies in the industry are expected to spread their investments by acquiring smaller brands. Based on industry trends, it is profitable for companies to undertake acquisitions in segments with better prospects, even if they are not within their traditional business.

PepsiCo is operating in fast-growing international markets. For example, in 2007, its global snack sales grew by 9 percent, and there were expectations of stronger rates of growth in developing markets such as the Middle East (Nazario et al., 2011). The fast growth of the international markets presents an opportunity for the company to grow in the noncarbonated beverage market. The increasing need for healthy food options by consumers is an indication that the company’s strategy to concentrate on functional beverages and water products was properly timed (Travasso, 2014). The market for healthy beverages is expected to continue growing thereby, presenting a huge opportunity for its growth, especially its Quaker Foods brands.

The company intends to use existing distribution channels for Gatorade in distributing its other commodities. This provides a chance for the company to increase Gatorade sales by taking advantage of its existing distribution and retail networks and achieve efficiencies of scale in its marketing efforts. PepsiCo uses its established brands to introduce new products within its product range (Lackner et al., 2014). For example, in a market where Pepsi Cola sells well but Lays chips do not, the entity achieves cross-promotion through its Power of one strategy in retail outlets.

The economic crisis can also be an opportunity for the company to make small indulgences affordable to most clients. Also, PepsiCo can be cost-effective by capturing strategic benefits within its businesses, thereby achieving economies of scale through globally coordinated marketing, procurement, and distribution. The company’s operating environment serves as an opportunity making the entity well positioned to benefit from the sorrounding. Besides, the company needs to continue engaging in aggressive diversification to take advantage of all its opportunities.

Other than the opportunities that the company can exploit, there are threats facing the company. Even though PepsiCo is reformulating its products, there are concerns about health and this makes it a target for government regulation (Barnoya & Nestle, 2016). Growing consumer interests may make consumers reject some of its products, such as bottled water and canned drinks. The global economic crisis may adversely affect the budgets of different consumers leading to reduced sales and revenues.

The industry in which PepsiCo operates experiences volatility in prices, making it difficult for the business to control its margins. As a result, the entity might hike its prices to cover for the reduced margins. An increase in prices might make the products less desirable, and the consumers might move to cheaper products offered by the competition. Also, given that there are low entry barriers in the food and beverage industry, new entrants pose a threat to the company’s share of the market.

Possible Options

PepsiCo’s portfolio shows a good fit of its strategic approaches. The company has pursued a strategy involving acquiring other businesses with common elements of production, distribution, and marketing. The company has shown specific success in tapping into strategic fits in its value chain (Lackner et al., 2014). In nearly all its acquisitions, PepsiCo has enjoyed cost-sharing benefits and the transfer of sales and marketing skills. In this regard, the company should continue exploring new opportunities for skills transfer, brand sharing, and cost-sharing benefits across its business units. Through this, the company maximizes the advantages derived from diversification. For example, diversification minimizes potential loses in the company’s investment portfolio.

PepsiCo can enhance its investments in research and development to improve its business competency. It can also exploit the benefits of management systems to support its business processes, for example, strategic decision-making. The company can automate its processes to improve its operations and include other forms of new technology to improve its competitive advantage.

Increasing health concerns about sugar, salt, and fat in its products by consumers is a threat to its sales. However, the company can still take advantage of the consumers’ busy lifestyles in urban markets around the globe (Gornall, 2015). Individuals with such lifestyles are likely to continue purchasing ready to eat products like the ones offered by PepsiCo. Also, the entity can enhance the quality of its products to maximize revenues.

The company’s mutually exclusive strategies are broad differentiation and cost leadership. The company uses cost leadership as its generic strategy to improve performance and general willingness to compete. For example, to compete against Coca-Cola, the company charges low prices and has promotional offers at discounted prices. The company uses broad differentiation as its secondary competitive strategy. It gives the company a competitive edge by attracting consumers to the unique features of its products. Also, the company employs creativity in manufacturing its products with the main intention of addressing the growing concerns about healthy eating.

The possible strategies from now on would be to continue with its market penetration efforts and development of products from which consumers derive value. Market penetration will continue supporting business growth through enhanced sales. For example, in the future, the company will continue its aggressive marketing to attract new customers and to retain existing ones. In the industry in which PepsiCo operates, it is vital to continue offering new products to capture more consumers. In this regard, the company needs to continue developing new products or variants of the existing ones. Also, the company needs to continue investing in research and development of its products.

Recommendations

The company has managed to implement several strategies and should continue doing the same in the future. On the contrary, there are aspects of its operation that it needs to work on. The entity needs to make wise decisions about mergers and acquisitions of bottling, beverage, and snack companies. The company’s existing brands are earning more than $1 billion every year, and this is a strong indicator that the company does not have to rely on other brands to generate revenue. Given that the company’s marketing efforts have been successful; the company needs to continue with its marketing efforts to grow its market share. The company could implement a strategy of acquiring important companies in its supply chain, such as those specializing in biotechnology.

The major and long term strategy that the company needs to implement is creating more products that are considered healthy alternatives to the clients. This will address the growing concerns of clients looking for better foods to stay healthy. The company can achieve this by creating new healthy beverages and snacks and reformulating their existing products. This focus will give PepsiCo an edge in a market where unhealthy snacks and beverages are increasingly becoming less profitable.

Another major strategy that the company can implement is expanding outside the U.S. and into markets abroad. The company is already present in the international market, but they still focus so much on the U.S market. Consumers in foreign markets are looking for ways to improve their lives and the expansion of PepsiCo into such markets will make the company less vulnerable to market fluctuations in the U.S. Implementation of the expansion strategy will make PepsiCo stronger and give it an overall edge in the global market. In its market in North America, PepsiCo needs to increase its profit margins through vertical and horizontal integration to grow into a dominant player in the industry.

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Update Section

The company’s beverage market share is weaker than that of Coca-Cola, and the bottled water segment of its business might come under pressure because of environmental concerns. The company’s financial analysis indicates that the acquisitions are good for its business portfolio, and it needs to pay higher dividends to its shareholders. The entity needs to reduce expenditure on share buybacks.

Since the case appeared in the text, the company’s strong innovation has contributed to its improved performance. It has also increased its spending on marketing and advertising to keep up with its competitors. The innovative approaches implemented by PepsiCo have led to steady improvements in its operations. The company incurred some expenses in pandemic related spending and witnessed a decline in its profits. The reduction in sales was occasioned by the decline in profits due to a stay at home orders by the different governments across the world in an effort to curb the spread of COVID-19. Therefore, to minimize costs, the company has reduced non-essential marketing and advertising.

References

Barnoya, J., & Nestle, M. (2016). The food industry and conflicts of interest in nutrition research: A Latin American perspective. Journal Of Public Health Policy37(4), 552- 559 Retrieved 30 October 2020, from https://www.jstor.org/stable/44203406.

Bresciani, S. (2017). Open, networked and dynamic innovation in the food and beverage industry. British Food Journal119(11), 2290-2293. Retrieved 30 October 2020, from https://doi.org/10.1108/BFJ-08-2017-0458.

Conaway, R., & Laasch, O. (2014). Principles of Responsible Management: Global  Sustainability, Responsibility, and Ethics. Cengage Learning.

Garcia, M., Crus-Cazares, C., Garcia-Marco, T., & Bayona-Saez, C. (2017). Open innovation in the food and beverage industry. Management Decision55(3), 526-546. Retrieved 30 October 2020, from https://doi.org/10.1108/MD-04-2016-0213.

Gornall, J. (2015). Sugar Spinning a web of influence. British Medical Journal350. Retrieved 30 October 2020, from https://www.jstor.org/stable/26518285.

Honig, B., George, J., Jones, G., & Barrett, M. (2016). Contemporary Management. McGraw- Hill Education Australia.

Lackner, K., Meinrenken, C., Garvan, A., & Sauerhaft, B. (2014). Combining Life Cycle Assessment with Data Science to Inform Portfolio‐Level Value‐Chain Engineering. Journal Of Industrial Ecology18(5), 641-651. Retrieved 30 October 2020, from https://doi.org/10.1111/jiec.12182.

López, A. (2016). Mexico’s Sugar Crusade: Looking Forward. Harvard International  Review37(3), 48-51. Retrieved 30 October 2020, from https://www.jstor.org/stable/26445839.

Nazario, P., Saka, O., & Clark, J. (2011). CASE 11: PepsiCo’s Diversification Strategy in International Business Policies And Strategies, 1-15. Retrieved 30 October 2020,  from https://www.academia.edu/5185500/Case_Analysis_Pepsi_Co?auto=download.

Rada, A. (2014). Links between food manufacturers and Spanish health institutions are highlighted in report. British Medical Journal351. Retrieved 30 October 2020, from https://www.jstor.org/stable/26522587.

Travasso, C. (2014). Indian government asks PepsiCo to develop healthy products for schoolchildren. British Medical Journal349(14), 1. Retrieved 30 October 2020, from https://www.jstor.org/stable/26517092.

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