Case PepsiCo Inc
Scope The scope of the report (1) traces the stages of PepsiCo’s corporate strategies (2) provides a rationale for diversifying in 1960s (3) pursue PepsiCo’s corporate strategy elements and strategic fit (4) present a strategic analysis of PepsiCo’s business units and (5) provide some strategic recommendations. 1 Stages of Corporate Strategy: Pepsi-Colaŕ PepsiCo Pepsi-Cola was started in 1903, as a single business enterprise serving the U. ... In 1965, PepsiCo was formed when Pepsi-Cola acquired Frito-Lays. During 1970s, PepsiCo continued to pursue their growth strategy by diversifying into related businesses of snack-food, beverages, fast food and restaurant (Pizza Hut, KFC and Taco Bell). ... Diagram B: Growth Turnabout Diversify Exit 3 PepsiCo’s Corporate Strategy Elements PepsiCo’s beverage business unit was strong on Product Development Corporate strategy by continuously introducing new products that would suit the changing lifestyle and preference of the consumers. ... In terms of international strategies, the PepsiCo’s beverage unit had little international brands that were locally adapted to suit the international consumers. Hence, PepsiCo had a small pie in the international markets. Due to the changing social factors as consumers had a hurried lifestyle and want to avoid food preparation, PepsiCo’s restaurant unit reacted to the demographic change by acquiring competency in the fast-food business by acquiring market leaders like Taco Bell, KFC and Pizza Hut. ... PepsiCo’s Frito-Lay was the global leader in the snack food industry. ... 1 Related Diversification Strategy and Strategic Fit PepsiCo’s Related Diversification Strategy into the snack food business and restaurant ought to have strategic fit. ... Hence, PepsiCo was able to gain market-related fit, as the business units could leverage on each other’s strong brand name. ... PepsiCo was able to attain operation fit by sharing the wide distribution, warehousing and storage networks between beverage, snack food and restaurant businesses. As such, PepsiCo was able to reach wider to their retailers. ... Besides, PepsiCo’s had a centralized purchasing and procurement center that created value to the overall value chain. The ability to continuously introduce new products was another key success factor for the restaurant, snack-food and beverage industry and PepsiCo was able to constantly introduce new products by transferring it’s best managers from one business unit to another; promoting transfer of skills, best practices, innovative ideas. ... In the BCG approach, we plotted each of PepsiCo’s business units on a two dimensional grid. ... Frito-Lay and KFC were the cash cows that generate cash flow for PepsiCo. ... PepsiCo can consider companies that operate in the fruit-juice, breakfast cereal, oatmeal and baby food industries. ... 3 Vertical Integration of Bottlers PepsiCo should aggressively consolidate the bottling and can-filling companies. ... Besides, PepsiCo would gain better control over their distribution and retailing. ... 4 International Strategy: Focus on Local Adaptation PepsiCo should always introduce new products that are locally adapted to the diverse geographical markets. When engaging geographic markets (like Asia-Pacific and South Asia) that need high level of local adaptation, PepsiCo should find local strategic partners for collaborative efforts to innovate new products that would suit the local taste and preference. ... 5 Strategic Alliance for Product Development PepsiCo should look for strategic partners to jointly innovate new products. Coffee-based companies like Starbucks and Coffee Bean could be good strategic partners that PepsiCo could work with to launch ready-to drink coffee and tea. ... The beverage industry for PepsiCo scored 125, which implied that the industry is ranked “medium” in terms of attractiveness on the GE matrix. Weights Allocation The beverage industry is a mature industry, with two prominent players – mainly Coca-Cola and PepsiCo. ... 5% of the market share, it would be even more critical for PepsiCo to maintain or enlarge her share of the pie. ... In contrast, barriers to entry or exit are of lesser importance because the industry is saturated and mature, it is highly impossible that any large players, including PepsiCo would intend to leave the industry. ... Profit Margin – 7 International operating profits for PepsiCo’s beverage business had been in the region of US$ 100 million for the period of 1993 to 1995, but showed a negative US$ 846 million in 1996. ... PepsiCo’s growth rate was low, as indicated by factors such as decrease in sales in both U. ... Barriers to Exit or Entry - 4 PepsiCo, being a big player in the industry, faced high barrier to exit mainly due to the huge amount of capital invested in this business. However, as mentioned, this factor is of low importance, as there seems to be no intention of PepsiCo exiting this industry. ... The snack foods industry for PepsiCo scored 173, which implied that the industry is rank “high” in terms of attractiveness on the GE matrix. ... PepsiCo’s Frito-Lay is currently the biggest player in the industry. ... PepsiCo’s restaurant segment comprised of three worldwide fast-food franchise systems – Pizza Hut, Taco Bell and KFC and a group of five lesser restaurant chains. The restaurant industry for PepsiCo scored 118, which implied that the industry is rank on the lower end of “medium” attractiveness on the GE matrix. ... Profit Margin – 6 According to the financial statistics for PepsiCo’s restaurant chains (1993 – 1995), it was indicated that operating profits have shown a decline for all three businesses, Taco Bell, KFC and Pizza Hut have shown a 59%, 58% and 9% decline in operating profits respectively. ... In order to cope with the intense competition on building customer traffic by offering bundled value meals, PepsiCo seems to have taken a follower position, offering value meals for KFC and Taco Bell, but relied more on coupons for Pizza Hut. Opportunities and Threats – 4 A major threat PepsiCo faces for her restaurant businesses would be that her investors hope that PepsiCo would divest or spin off its restaurant businesses, because for some businesses such as Hot-n-Now and Chevys, operating losses have been experienced in 1995 and a significant number of franchised units have been returned to PepsiCo, who then chose to close down the units.