Strategic Management Audit of Pepsi &Co

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Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is one of the strongest beverage and convenient food companies in the world.

Originally start edin 1898, Pepsi Cola became the first branded soft drink in the world. Its brand is available in over 200 countries around the world and generated sales in excess of $92 billion last year. Headquartered in Purchase, New York, PepsiCo is the number two beverage company in the world behind the Coca-Cola Company. Financially, 2006 was a year of progress with an overall growth of 5.

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5%, revenue of nearly 36 billion USD and a return on investment of 26%. These numbers are all well above the industry average, with their main competitor still being the Coca-Cola Company. PepsiCo has continued their brand image by appealing to Generation Y and becoming synonymous with music, entertainment and sports. In addition to their financial success, PepsiCo is also dedicated to ethics and social responsibility in the community.

They have invested heavily in recycling programs and in developing nations in Africa.

PepsiCo even has a sustainability mission that states “PepsiCo’s responsibility’s to continually improve all aspects of the world in which we operate- environmental, social, economic- creating a better tomorrow than today.”They believe that they have the competitive, sustainable advantage in the industry because of three things: big brands, proven innovation and differentiated products, and powerful go-to markets. With their strong brand, socially responsible employees and corporate beliefs and focus on the younger generation, PepsiCo will continue its stance alone of the most powerful companies in the world.

Current Situation Current Performance

Pepsi Co is a worldwide corporation that has been in existence since the late 19th Century when Caleb Bradham, a pharmacist from New Bern, North Carolina first started experimenting with different soft drink concoctions. It was in 1898 that Pepsi Cola first became a branded soft drink and from that point forward their product and the company have grown to be the most recognized brand in the world.

1: This past financial year, PepsiCo continued it three-year positive growth strategy by maintaining an aggressive presence in the United States and worldwide, boasting healthy profits and market share. The company is broken into four major branches: Frito-lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North America. Pepsi Co has one of the largest footholds in each of these markets compared to relative competition, holding the following rankings worldwide: #2 in Carbonated Soft Drinks. #1 in Sports Drink #1 in PET Water Brand (non-jug) #1 in chilled Juices and Juice Drinks #1 Enhanced Water Brand #1 In ready to-Drink Coffee #1 in Ready-to-Drink Teas #1 in Potato Chips #1 in Tortilla Chips #1 in Corn Chips

#1 in Extruded Snack #1 Multigrain Snacks #2 in Pretzels #1 in Hot Cereal #1 In Grits #1 Rice Side Dish#1 Brand Pancake Syrup #2 Pancake Mix.

2:Financially “PepsiCo delivered a very strong 2006: Volume grew 5.5%; net revenue grew 8% to 35,137 in millions; total operating profit increased 9% to 6,439 (in millions); return on investment was 26%; total return to shareholders was 8%; cash flow from operations was 6.1 billion USD, and earnings per share increased 13%.”

3: Much of the strong financial performance can be attributed to the intense marketing, product diversification, and strong market presence in the United States. In addition, Pepsi Co “Has a solid share of snacks in major markets such as Mexico, the United Kingdom, Brazil, Australia, India and Russia, and are developing markets such as China,” of which offers additional revenue from emerging markets. As will be discussed later, Pepsi Co still remains second in the international beverage industry, with Coca-Cola maintaining

Brief Annual Review

PepsiCo Launches Pepsi Limon in Peru-PepsiCo Completes Acquisition of Stacy's Pita Chip Company-Pepsi Celebrates 20th Consecutive Super Bowl With New Diet Pepsi Campaign-North American Coffee Partnership Launches New Starbucks Beverages,Starbucks Iced Coffee, Starbucks Iced Coffee Light as well as Strawberries and Creme Frappuccino and Starbucks Doubles hot Light-Sober Launches New SoBe Life Water -Frito-Lay announces the launch of a new line of snack chips called Lay’s Sensations and Tostitos Sensations-Frito-Lay cuts saturated fat in Lay's, Ruffles by more than 50% with move to NuSun™ Sunflower Oil-Starbucks and PepsiCo sign a distribution agreement for Ethos Water -PepsiCo, National Hockey League and National Hockey League Players Association sign multi-year deal, giving PepsiCo exclusive rights in the beverage, sports beverage, bottled water and snack categories.

With this deal, Gatorade becomes the official sports drink of NHL-Frito-Lay kicks of its nationwide rollout of Lay’s with 100% Pure Sunflower Oil-Pepsi acquires IZZE beverage company-Cold Stone Creamery announces a multi-year agreement making Pepsi its exclusive beverage supplier -Pepsi signs 5-year sponsorship renewal with Major League Baseball Properties making Pepsi the “Official Soft Drink of Major League Baseball”-PBSG Park wood and Frito-Lay headquarters associates raise more than $1.8million dollars in the American Heart Association Walk -PepsiCo announced intent to acquire Naked Juice Company

Strategic Posture:

Pepsi Cola has a very concise mission statement which offers its employees, shareholders and consumers a clear offering of what Pepsi Co embodies. “We have absolute clarity around what we do: We Sell Soda. We commit ourselves to these Operating Principles: Rules of the Road 1. Drive local market success

2. Act Now. Do it today. Get Results. 3. Set Targets. Keep Score. Win. 4 Respect Each other. Our success will ensure: Customer build their business, Employees build their futures, Shareholders Build their wealth.”

5: Each of the operating principles of Pepsi Co deliver the actions that all employees are expected to perform and the quality that shareholders and consumers alike should come to expect. In the paragraphs below, their operating principles will be detailed to clarify their current strategic posture in the market and in the industry. Drive local market success. Pepsi Co, an American company since its inception, continues to expand into developing markets while maintaining its major stronghold of the United States. To drive domestic market success, Pepsi Co has three main sub-objectives: 1. to compete locally 2. To be a “small” company within a big company, insuring that the company remains maneuverable, and not a stagnant giant and, 3. to have visible community leadership.

Pepsi Co continues to be a client centric company, focusing on this objective now more than ever. Due to the recent trend of “healthy living,” PepsiCo has been forced to expand into other markets to meet the health conscious demand of its consumers. “Carbonated beverages remain the most popular beverage category, with some 85% of U.S. households purchasing them. However, non-carbonated beverages represent a fast-growing category- a place where consumers are migrating…We recognized the need to broaden our portfolio early on and moved to extend our presence in non-carbonated beverages in 1992…Providing consumers with choices has long been a part of our mindset”

Diet Pepsi in 1964 and it’s Reduced Fat Ruffles in the mid 1980s. In 2006 Pepsi Co stated, “It’s about growing a business profitably for the long term….We believe we cando this in ways directly related to our business, beginning with our products…Human sustainability, and we’re continuously transforming our portfolio of products to meet consumer needs. We’ve improved the nutritional profiles our global and flagship brands by changing to healthier oils, reducing sugar and sodium content, and by expanding the range of products we offer. This includes products ranging from indulgences – or treats-to good for you products that offer functional benefits like hydration or heart health…What we call “Smart Spot” eligible products represented over two-thirds of our growth in North America in 2006…And we’ve set a goal of deriving 50% of all our U.S. revenues with Smart spot eligible products by 2010.”

Secondly, Pepsi Co focuses on its strategy for result: “Act Now. Do it today. Get Results.” This objective is designed to accomplish tasks with a sense of urgency, to fix problems before they become major issues, and to build upon passion. Third, Pepsi Co accomplishes goals by setting targets, keeping score, and winning. They created five simple rules to promote this idea throughout the company: Every front-line job has tarots, reinforce goals, plan performance, protesting, focusing, and simplifying, clear accountability for result and no excuses. These objectives are goal oriented with emphasize on how individual actions can affect the entire corporation, positively or negatively.

Their fourth objective focuses on the employee’s relationships within the company and throughout their daily lives: “Respect each other by treating everyone fairly, and with dignity, operating with integrity and justice, and keeping in mind that everyone is important.”It is crucial to note that the current mission, objectives, strategies and policies of Pepsi Co reflect the corporation’s attempt to progress in international operations. PepsiCo follows a relatively simple strategy with the four objectives that can be applied to almost any corporation around the world, offering a base concept to all of its employees and consumers. The mission statement “We sell Soda” is only three words.

PepsiCo Strategies and Objectives. PepsiCo Corporate:

It projects the idea that this company has developed a business that they are exceptional at and will not pretend to be anything more than what their core competencies can offer.

Corporate Governance Board of Directors:

The members that make up the directors are much diversified in their skills, experience, and knowledge. Members are from various places of the world and have held contrasting positions from CFO’s to Medical Professors. Although the ages of the members are similar, the experience and knowledge of the diversified group is a great asset for PepsiCo. One interesting fact is the CEO is a woman that has been involved in many facets of the business from Strategic Planning President to Corporate Strategy. Committees within the group are the Nominating and Corporate Governance Committee, an Audit Committee, and Compensation Committee which are all comprised of individuals from the Board of Directors. The directors have performed very well in the past and have received many awards for their performance and leadership.

7: Successful performance by the board members may be attributed to the fact that some are financially involved in PepsiCo and others are not associated with the firm.

8: The combination of the two groups serves as an excellent medium between serving the companies interests while maintaining ethical and responsible decisions.

External Environment:

As a beverage and food producer and distributor developed in the late 19Th century, Pepsi Co is in a dominant market position that has little qualms about emerging competitors in the market. Its current concerns remain its top competitor, Coca-Cola who maintains a similar stance in the beverage market as well as Cadbury-Schweppes who controls the international market share of beverages and confectionary goods. In addition, acquisitions and mergers of current mid-size beverage companies could prove to be an external threat to Pepsi Co, while not in the near future. In the following section of the strategic management audit, Coca-Cola and Cadbury Schweppes will be detailed according to their financial statements, management schemes, marketing campaigns and recent acquisitions.

Financial:

As a company that employs over 71,000 individuals around the world andengages in the manufacturing, distribution, and marketing of non-alcoholic beveragesworldwide, Coca-Cola remains Pepsi Co’s most aggressive and threatening competitor inexistence. In 2006, Coca-Cola maintained revenues of nearly 25 billion USD and a gross profit of nearly 16 billion USD. 9

Their return on equity remains one of the strongest in the industry and in the market, at a staggering 31.15% (compared to the industry average of 14.3%) in 2006. Pepsi Co has managed to maintain nearly 97,000 more employees and 10 billion USD more in revenue in 2006, yet their net incomes remain comparable at5.5 billion USD. This statistic shows that while Coca-Cola may employ fewer individuals and therefore generates smaller revenue, they are still able to remain competitive with Pepsi Co in regards to their net income. Coca-Cola is the number one soft drink company in the world and owns four of the five top selling brands. Although Coca-Cola does not do its own bottling; it does own 35% of Coca-Cola Enterprises, 32%of Coca-Cola FEMSA, and 23% of Coca-Cola Hellenic Bottler (the largest European bottler).

Management:

Coca-Cola’s current CEO and chairman is E. Neville Is dell, a 63 year old who has remained at this position since 2004. Prior to his current position, is dell was an international consultant to the company and has held a variety of positions within the company since 1966. Is dell has proven to understand the company values and the industry in which it deals, and provides the glimpse of an opportunity for others in the company to work their way through the ranks. He has also offered an international viewpoint which has increased awareness and sales overseas.

In 2007, Coca-Cola re-structured their business units for a more strategic approach, organizing them into the sparkling beverages, still beverages, and emerging brands.

This will allow their functional areas to focus on what kind of marketing to do and other issues based on the type of product it is.

Marketing:

As the classic cola brand in America, Coca-Cola tends to focus its marketing efforts on the baby boomer generation and the loyal Coca-Cola consumers. Unlike Pepsi, Coca-Cola does not feel the need to expand into industries that are not of its core competencies and continues its marketing scheme to that of what they’re good at: making soda. Coca-Cola does not attempt to recreate its image as something new and hip that the entertainment industry can play off of, they simply portray themselves as the best beverage maker in the world. They have also recently began a campaign called “Every Drop Counts,” and have announced that they are retooling their Atlanta headquarters to conserve natural resources and combat global climate change. Recently, Coca-Cola has also initiated a clean water program in Africa by creating a chlorine purifying substance and gave jobs to people in the community to create these products.

Review of Mission and Objectives:

According to the company’s official website, PepsiCo Incorporated’s mission is to make this company: “the world’s premier consumer products company, focused inconvenient foods and beverages. PepsiCo strives to produce healthy financial rewards to investors as it provides opportunities for growth and enrichment to its employees, “So the overall mission of PepsiCo is to increase the value of shareholder's investments. This is achieved through sales growth, cost controls and wise investment of resources. PepsiCo believes that their commercial success depends upon offering quality and value to their consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhering to the highest standards of integrity.

Objectives:

Concentration of resources on growth of businesses through internal growth and carefully selected acquisitions PepsiCo has adopted a plan for growth by continually addressing the opportunities and risks associated with the global marketplace. The corporation’s success reflects their continuing commitment to growth and focus onthose businesses where they can drive their own growth and create opportunities. Contribute to the quality of life in communities. PepsiCo believes that as a corporate citizen, it is responsible to contribute to the quality of life in the communities it serves. This policy is implemented through support of social agencies, projects, and programs. The company also supports employee volunteer activities through contributions of time, talent, and funds. Each PepsiCo division is responsible for its own giving program with corporate giving focused on supporting employee volunteer activities.

The strategic objectives seem to address most of the strategic problems facing PepsiCoInc. For example, the risk that demand for PepsiCo’s products may be adversely affected by changes in consumer preferences is addressed by the strategic objective of caring for Customers and their changing needs and wants. The issue of damage to PepsiCo’s reputation that could have an adverse effect on its business is addressed by the company’s objective of respecting employees, vendors, customers, and by its commitment to diversity, and by its commitment to candor and openness. PepsiCo is among the world’s largest consumer products companies. In fact, it is one of the largest companies in the world.

PepsiCo is focused on various strategic initiatives that it believes will drive growth and ensure the company’s success. When considering whether to change the mission and objectives, it is important consider the impact of such a change on the company’s long-term strategies. It is also important to note that PepsiCo reported a sales revenue increase of 8 percent for fiscal year 2006compared to 2005. In 2006 PepsiCo also reported net income of more than $5.6 billion representing a 4 percent increase relative to fiscal year 2005. Whatever PepsiCo is doing, it seems to be doing well. The biggest risk associated with a change in mission and objectives would be a loss of focus and a loss of momentum (PepsiCo Vision and Strategy).

Strategic Alternatives and Recommended Strategy:

Pepsi Co is currently a strong worldwide leader in the food and beverage industry. Throughout its growth, it has stayed true to its mission and objectives, while becoming a dominant force within the United States as well as abroad. Known throughout the world for quality products and customer care, Pepsi Co should make no major strategic changes to its plan. However, like in any business situation there are areas that Pepsi Co can improve upon. Some of the recommendations are as follows:-Continue to expand with their “Human Sustainability”. The healthy eating market is a demographic that will continue to grow in the future, and will provide generous profits if Pepsi Co is able to obtain a large market share.-Expand more into social benefits, especially for those in developing nations.

Pepsi’s main competitor Coca Cola has implemented a water purification program for African Villages, which provides a valuable need and at the same time introducing their brand name where it was before unknown. If Pepsi followed this same ideology with food products and water purification it too would significantly increase brand recognition-Capture more of the aging population’s market share. Pepsi is a company focused on a younger market hoping to repeat the worldwide success of Coca-Cola in regards to brand loyalty with the generations born after 1980; however, there is still a large market with the Baby boomer demographic that they could break into.-A minor yet still important change that needs to be made is to their website. After comparing it to competitors we feel that it needs to be simplified.

Implementation:

Overall PepsiCo is a successful company with substantial revenue, and a large footprint in the marketplace. PepsiCo should continue to expand their growth and take advantage of potential opportunities by continuing to improve on areas at the corporate top level, in the markets that they currently are in, and in new markets and market segments that they wish to expand into. PepsiCo should expand into markets and market segments that they are currently not in, such as Asia, India, and South America, in order to expand their market share at the global level and to increase their overall revenue.

PepsiCo should improve their employee relations in order to create employees all over the world that will promote the product both during their work day and in their personal life in order to create “word of mouth marketing”.

PepsiCo should look to cut some of their expenses as they currently have $10 billion more in revenue than the competition, but they have a similar Net Income of $5.5 billion.

PepsiCo needs to continue to expand their market share in the markets where they currently have a strong presence in order to maintain their market share and their footprint in the marketplace.

PepsiCo should become more proactive in the health food/product marketplace rather than being reactive to the market trends. They need to improve their responsiveness and future projections to market trends and changes that can therefore allude to different product segments and target markets.

Evaluation and Control

PepsiCo should expand into markets and market segments that they are currently not in, such as Asia, India, and South America, in order to expand their market share at the global level and to increase their overall revenue. In doing so, they should increase the revenue percentage above the current below 20%. They should evaluate the situation and growth again in one calendar year, and analyze the total effect.

PepsiCo should do market surveys of their target market segments in order to analyze the existing brand awareness in the marketplace every two quarters and then analyze the overall change and trend on the calendar year.

PepsiCo should position them on the cutting edge of the health trend in the marketplace by increasing funds for R&D in order to research potential new entrants.

Evaluation and Control:

PepsiCo should cut their expenses by a set percentage every quarter in order to increase their Net Income each quarter and year. This would increase the bottom-line and benefit the stockholders. It would be advised to reduce costs by 10% as an original amount, and then potentially increase the percentage after a few trial quarters. PepsiCo should position them on the cutting edge of the health trend in the marketplace by increasing funds for R&D in order to research potential new Product ideas. Funding should be increased significantly and then the ROI on the positioning should be analyzed after multiple quarters of study.