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PepsiCo.

PepsiCo.

Kyle Johnson

BAM 479-OB: Strategic Management

Professor Deborah Harvel-Jenkins

April 4th, 2018

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PepsiCo.

Introduction

Pepsi is one of the leaders in the food and beverage industry. Pepsi-Cola was created in

the late 1890’s by a man name Caleb Bradham. Mr. Bradham is from North Carolina where he

was a pharmacist. PepsiCo was created in 1965 upon the merger with Frito lay (PepsiCo. 2016).

Pepsi has expanded globally, recently, and they have a much diversified portfolio with their hand

in many different businesses. Pepsi “has a complementary food and beverage portfolio that

included 22 brands that in 2016 each generated more than One Billion in estimated annual retail

sales” (PepsiCo. 2016). That is an incredible feat being in so many different types of businesses

and all succeeding exponentially. A few types of brands that Pepsi is either in business with, or

owns out right are: Lays chips, Tropicana, Quakers oats, Gatorade, Kentucky Fried Chicken

(KFC), and Taco Bell. These are all globally sold and distributed brands which speak to the

amount of work and will to succeed that is in the DNA of Pepsi. In 2015 PepsiCo celebrated 50

years of business as a food and beverage service company.

Case Statement

Pepsi Co is in a broad type of business covering a lot of different aspects. Pepsi

specializes in food service, snack, and beverages. This business Pepsi finds themselves in is

highly competitive because there are so many companies specializing in certain aspects that

Pepsi Co immersed themselves in. This industry advances quickly and Pepsi must beat their

competitors to most, if not all innovations.

Mission Statement

As one of the largest food and beverage companies in the world, our mission is to provide

consumers around the world with delicious, affordable, convenient, and complementary foods
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and beverages from wholesome breakfasts to healthy and fun daytime snack and beverages to

evening treats.

We are committed to investing in our people, our company, and the communities where we

operate to help the company from long term, sustainable growth (PepsiCo).

Components

Organization Products Markets & Technology Survival, Philosophy Self- Public Employees
or Customers Growth, Concept Image
Services Profits

PepsiCo. Yes Yes Yes Yes Yes Yes Yes Yes

Products- The types of products offered by Pepsi is a critical part of the Mission Statement.

Customers need to have a clear understanding of what types of products are available for them

and how important the quality is to the corporation. This will help to make informed choices

with purchasing decisions. Without a clear understanding of what Gap Inc. offers, the consumer

may be dissatisfied.

Markets & Customers- It is important to define who customers are and where they come from

in the Mission Statement. The customer base should be clearly communicated to espouse how

important the customer is to Pepsi and how much Pepsi values the customer. This allows the

customer to know their importance to the corporation.

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Technology- Inputting technology into the created Mission Statement for Pepsi will show

consumers that Pepsi is doing everything it can to make it as easy as possible for anyone looking

to purchase the highest quality food and beverages. It also shows that Pepsi is not behind the

times and plans to be around for years to come.

Concern for Survival, Growth, and Profitability- Pepsi shareholders care about the growth

and profitability of the business. The Mission Statement addresses a commitment to financial

soundness, ethical financial dealings, and an overall desire for Pepsi to prosper. Branding, and

pricing are relevant in this area.

Philosophy- The business philosophy belongs in every Mission Statement. Nothing describes

your business better than your philosophy. Philosophy shares the basic beliefs, values,

aspirations, and ethics. This is the most important component to share with customers,

employees, markets, and competitors.

Self-Concept- In the Mission Statement, self-concept addresses what the competencies or

competitive edge the business employs. It’s a description of what makes Pepsi different from the

competition and why Pepsi and their products are superior to their competition.

Public Image- This component directly addresses how responsive business is to social,

environmental, and community concerns. Pepsi is dedicated to these concerns and strives to

promote a public image that is representative of their company culture of high standards,

integrity, and a concern for community impacts

Employees- Having the employee component within the Mission Statement will show Pepsi’s

consumers and shareholders that they hold their employees in high esteem and treat others with
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dignity. Relaying this message to shareholders is important because you want to treat the people

who help you reach new organizational levels in respectable and appreciative ways.

Vision Statement

At PepsiCo, we aim to deliver top-tier financial performance over the long term by integrating

sustainability into our business strategy, leaving a positive imprint on society and the

environment. We call this Performance with Purpose.

It Starts with what we make – a wide range of foods and beverages from the indulgent to the

more nutritious; extends to how we make our products – conserving precious natural resources

and fostering environmental responsibility in and beyond our operations; and considers those

who make them – striving to support communities where we work and the careers of generations

of talented PepsiCo Employees (PepsiCo).

Company Milestones

Pepsi Co.

1965 – PepsiCo. Inc. was established though the merger of Pepsi-Cola and Frito-Lay. Pepsi-Cola

was created in the 1890’s. While Frito-Lay Inc. was formed by the 1961 merger of the Frito

Company and the H.W. Lay Company.

1966- Doritos brand tortilla chips are introduced. They are destined to become the most popular

snack chip in the United States. Pepsi also Enter Japan and Eastern Europe.

1970- Pepsi moves from New York City to its own 144-acre campus in Purchase, New York.

Pepsi is the first company to respond to consumer preference with lightweight, recyclable, plastic

bottles, and introduces the industry’s first two-liter bottle.

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1974- Pepsi becomes the first American consumer product to be produces, marketed and sold in

the former Soviet Union.

1976- PepsiCo adopts its Code of Worldwide Business Conduct. Also, for the first time. Pepsi-

Cola become the number one Cola drink in supermarkets.

1977/1978 - PepsiCo acquires Pizza Hut, Inc. and Taco Bell.

1984- Pepsi-Cola makes advertising history as Michael Jackson and his brother usher in a new

generation of Pepsi advertising in two television commercials featuring music marketing.

1985- PepsiCo is now the largest company in the beverage industry and its products are available

in nearly 150 countries and territories.

1994- PepsiCo and Starbucks form the North American Coffee Partnership to jointly develop

ready-to-drink coffee beverages.

2000/2001- PepsiCo, Inc. reaches agreement to acquire South Beach Beverage (SoBe) and

Quaker Oats Company.

2014- Pepsi introduces Pepsi Spire, a portfolio of innovative fountain beverage dispensers.

Consumers can create more than 1,000 customized beverages with the touch of a button.

External Factor Assessment

EFE Matrix

Key External Factors Weight Rating Weighted Score

Opportunities

1. Become Environmentally Friendly 0.13 2 0.26

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2. Expand Globally 0.09 3 0.27

3. Invest more In Technology 0.10 3 0.30

4. Create Healthier Goods 0.11 2 0.22

5. Offer incentives for own recycled Product 0.06 1 0.06

Packaging
6. Growing need of consumers for new flavors 0.08 3 0.24
and tastes.
Threats

1. Increased Health Consciousness for 0.10 1 0.10

Citizens
2. Plastic and Glass Bottles being 0.08 1 0.08
manufactured

3. Competition creating more variety of goods 0.09 2 0.18

4. Increased wages watering down potential 0.10 2 0.18

profits
5. Water Scarcity (main ingredient) 0.06 1 0.06

TOTAL 1.00 20 1.95

Becoming more environmentally friendly is an important aspect to society and the

thought process of consumers in general. Customer all over the globe are willing to pay a few

dollars more for a product if they know the impact was minimal on the environment to create it.

“Among the 66% of global respondents willing to pay more, over 50% of them are

influenced by key sustainability factors, such as a product being made from fresh, natural

and/or organic ingredients (69%), a company being environmentally friendly (58%), and

company being known for its commitment to social value (56%)” (Nielson, 2015).

It has a higher weight than most because the facts behind show that this movement is important

to the consumer and management must cater to this movement in order to achieve and maintain
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the growth. An opportunity that could present itself that runs in line with becoming more

environmentally friendly would be to offer a credit or offer promotion for recycling the

aluminum and plastic products that are being sold in the beverage industry specially. Pepsi could

offer free cases to those at recycle so much during a time frame. This could get people to buy

more and in turn recycle more to get the free goods that are being offered. As states earlier, this

could build a loyalty with the people that agree with attempting to help this environment we are

helping destroy with unneeded waste. A threat that is in line with the destruction being done to

the environment is the constant manufacturing of the aluminum and plastic bottles that

companies in this industry are taking part in.

“Beverage containers typically comprise 40% to 60% of roadside litter in non-deposit

states. The energy used to replace the 134 billion beverage containers wasted in 2005 was

equivalent to 50 million barrels of crude oil. This is enough to supply the total residential

energy needs of about 2 million American households for a year (Container Recycling

Institute).

These have the weights they have because when discussing ethics and beliefs of a

company you want to align yourself with similar beliefs that your target market has in order to

build that familiarity and in turn that loyalty that is so incredibly important.

The increased awareness of healthier goods going on in society now a day’s runs hand in

hand in regards to the importance of becoming environmentally sustainable. “These healthy

foods and drinks are on track to hit $1 trillion in sales by 2017, predicts EuroMonitor

International, spurring innovative new products in nearly every industry sector” (Kennell, 2017).

The weight in the matrix is similar because it is an untapped market that Pepsi and others within

the same business could really exploit if they find a way to do so. It should be a high priority for
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upper management and the research and development departments to attempt to create these

goods because there are increases in profits and revenues waiting in the shadows. The threat of

competition beating you to this innovation is, and should be a main concern for the people within

the product development departments. If you are beaten to this niche market of affordable,

hearty, and healthy goods the competition will undoubtedly build a loyalty with the consumers

that you may have had loyalty with in the past.

“From start-ups to large-scale operations with established big-name brands, companies

are formulating new products, and reformulating existing ones, to get a slice of the

rapidly growing business. According to a 2015 Nielsen survey of 30,000 people, 90% of

shoppers are willing to pay more for the added quality and benefits” (Kennell, 2017).

Technological advancements are important for businesses of all forms. If a company is

becoming complacent and stationary it is inevitable that they will be left behind by others that

are accepting the changes awaiting them. “Companies looking to grow should not shy away from

adopting new, emerging technologies, even if they cannibalize their legacy operations”

(Choudhury, 2017). It may set a company back a little bit in the beginning but in the end it could

really advance where a business is headed in the future. Management of all businesses should

take advantage of all potential technological advances if they feel it would help build more

loyalty between Pepsi and the people they serve.

The opportunity of expanding more globally is aligned with the threat of the increased

wages beginning to cut into some of the profits that a company experiences. Expanding globally

and bring the goods you offer to a country that may not have that could benefit exponentially in

regards to profits and revenues. This could being to offset the decrease that is being experienced

with the wages being increased and costing the company more in salaries. These are both
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weighted at 0.10 and 0.09, respectively, because they are of nearly equal importance and

deserves attention from not only local management but from corporate or upper management. If

you are able to expand the business you in turn are able to afford the increased wages.

Consumers always want more and they want it more efficiently. In 2014 Pepsi introduced

a machine called the Pepsi Spire. This is a machines that has all of the syrups that are mixed with

the beverages and you can combine them under one nozzle to create any flavor you would like,

giving you over one thousand different combinations (PepsiCo, 2018). Coca Cola has one of

these as well, so the competition is fierce in giving the consumer what that they want and when

they want it. It is in the best interest of the company to stay ahead of your competition and in

order to do so you must listen to them and evolves to their wants and needs. (Brown, 2013)

Whenever you are talking about the needs of the consumer it should be important for

management to answer those demands. This goes a long with the threat of the competition

creating newer products that your company may have been a day late and a dollar short of. You

have to accept change, and if you chose not to the competition will inevitably surpass you.

It is easy to stay in the present when the present is as successful as many of the

companies in the beverage industry. But, in the future it may get difficult for people in the

beverage industry to simply create what they have been creating. Many of the created beverage

are started with the simple ingredient of water. ”Freshwater—the stuff we drink, is incredibly

rare. Only 3% of the world’s water is fresh water, and two-thirds of that is tucked away in frozen

glaciers or otherwise unavailable for our use” (World Wildlife). So, it is becoming increasingly

important for people in this industry to find ways to conserve, and save the earth by avoiding

pollution at all costs. It has a lower weight than most because it is not an immediate threat, but, it

is a threat nonetheless.
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Management should take the total weighted score in stride. Pepsi is doing many things in

line with industry leading methods and those are the things that Pepsi should not change at all.

As always though, there are things that could be improved upon. Pepsi does however need to

look into, with great depth, the things that could be improved upon such as becoming more

environmentally friendly and keeping up with technological advancements. These are the things

they should be focused on because staying up to par with those types of actions could build

growth, and maintain the growth that is achieved. Pepsi is in great standing because they tend to

get out in front of any threat or opportunity that is presented to them. This shows the will to do

better and be better which will in turn build customer loyalty that is so coveted in many

industries.

Internal Assessment

IFE Matrix

Key Internal Factors Weight Rating Weighted

Score

Strengths

1. Reputation for Quality Goods 0.10 3 .30

2. Great Brand Recognition 0.11 4 .48

3. Diversified Portfolio 0.12 3 .33

4. Loyal Customers 0.10 2 .20

5. Good Inventory Turnover 0.08 3 .24

6. Good Leadership 0.03 3 .09

Weaknesses

1. Unhealthy Goods 0.12 1 .12

2. Harm to Environment with packaging. 0.11 1 .11

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3. Most Market share coming from North and 0.09 3 .27

South America
4. Great amounts of Competition 0.09 2 .18

5. Lack of Innovation 0.05 2 .10

TOTAL 1.00 2.42

Having a strong reputation for quality goods is something that all companies in any

business venture strive for. Having that strong reputation will allow a company to save money in

other aspects such as advertising. This is simply because with a strong reputation for quality

goods people will move that information via word of mouth, the cheapest from of advertisement.

It has a high rating because Pepsi has not wavered or gotten complacent with their goods. Great

brand recognition goes hand and hand with a strong reputation for quality goods, and customer

loyalty. Without the quality good the consumer loyalty would be nonexistent. Consumers are not

going to purchase and tell people good things about a products that are inadequate or does not

live up to the standards that are set. It has a slightly higher rating than the reputation for quality

goods because once you get that loyalty it is all about what you do with it. You have to cater to

individual markets and it seems that Pepsi is doing so in an effective manner.

A diversified portfolio will pay dividends for a company. It allows you to market towards

different spectrums of the market without catering you whole business plan around them. This in

turn minimizes the risk that a company has. If one of the products fail, you can simply stop

producing it while the other thrive. The level of risk is important because it will not hurt the

overall structure of a company when one of the products metaphorically goes under or is not as

sought after as others that the company provides. Hence why it is rated the way that it is at 0.10

because it is one of the most beneficial things that company can experience.
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A good inventory turnover ratio is a great thing for a company to have. An inventory

turnover ratio shows how well a company handles their inventory and how effective they are. It

compares the cost of goods sold to the inventory for a period. It allows the company to see how

long they are hanging on to certain goods that they produce. For the fiscal year of 2016 Pepsi

hand an inventory turnover ratio of 10.37, while in the quarter ending in September 2016 it was

2.15 (GuruFocus 2018). These numbers mean that Pepsi spend less money on storage for goods

because they are being sold quickly.

Having good leadership at the stop of a company the size of Pepsi is a great asset. But, it

is rated the way it is because it may not be the end all be all. For a company the size of Pepsi, the

greater benefit is for the people on the ground actually making the sales and creating the

contracts with the companies that sell their products. The people before have created a great

foundation and it is up to the people that currently hold the higher positions to instill and build

upon the greatness that has been established. The leadership is important because you have to be

a visionary and try to grow from where you have been. Remaining comfortable and complacent

will likely do more harm than good.

Lack of innovation is lowest on the weaknesses because in the industry that Pepsi finds

itself in, there is only so much you can do in terms of creating more innovations around a food

and beverage company. As I brought up earlier, Pepsi has released a machine called the Pepsi

Spire that allows you to mix drinks in over one thousand different combinations. It is that type of

innovation and technology that will put you ahead of the competitors and keep you there.

Unhealthy goods can really hurt the way people view a company. It is rated the highest in

the weaknesses because health is a concern for many younger consumers now days. “A recent

Nielsen global online study found that they continue to be most willing to pay extra for
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sustainable offerings—almost three-out-of-four respondents in the latest findings, up from

approximately half in 2014” (Nielson, 2015). If Pepsi is able to offer healthier options, as talked

about earlier, people will pay for it, thus increasing profit margins if they are able to create them

a decent cost. There are other healthier option out there and consumer may being to choose them

over Pepsi, what they have known for a while.

Pepsi has their largest market share from North and South America for the snacks that

they produce. This is considered a weakness because if the competitors are tapping into markets

that Pepsi is not, the competitors could grow past what Pepsi is currently and increase their

profits through that growth. “The snacks division holds a massive market share in the U.S.

savory snacks market and continues to grow due to Americans’ age-old habit of snacking”

(Forbes, 2017). This brings up the weakness that is the large amount of competition that Pepsi

has in this market. There are many up and coming brands that are doing things differently,

especially in the beverage industry that could potentially reduce the loyalty that many of the

Pepsi customer have. Both the old and new incoming competitors, and the market share

weaknesses are rated the same because there are niche markets that Pepsi could be finding and

exploiting. But, there are other companies trying to expand in those same markets giving the

consumer more options to choose from.

A great way to build that loyalty that is so important is to align yourself with the morals

and ethics of the markets that you serve. With an ever-increasing sensitivity to environmental

impact, corporations must strive to be eco-friendly in any way possible, and for Pepsi, a great

way of doing so would be increase the recycling of the packages products you manufacture. It

has the second highest rating because it is becoming really important in the world we live in now

day. If Pepsi is able to be more environmentally friendly it will offer them good faith and
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essentially free advertising in return because people will undoubtedly talk about the efforts they

are making.

On the contrary to the external factors, I think management should take this total

weighted score more seriously. These tend to be things that could be controlled and improved

upon from within. Pepsi is doing many things above industry standards, hence why they have

had the success that they have had. There are always things to improve upon and doing so in an

efficient matter will help the company, and both their consumers, and shareholders.

SWOT Analysis

Strengths- The strengths that PepsiCo possesses are well known and out there for you to see and

experience daily. PepsiCo has a really strong and valuable brand recognition. Almost everywhere

you go you are bound to see either a product, or restaurant that is either owned, or in business

with PepsiCo. PepsiCo has their hands in so many different aspects of businesses. Having such a

highly diversified portfolio is an advantage because Pepsi is able to place their products with

other products complement, rather than intruding on other goods that are offered by Pepsi as the

company. PepsiCo also has a strong reputation for have quality goods. This goes a long way with

the competition that they experience because this allows the consumer to show loyalty and not

have buyer’s remorse, thinking they could have experienced or bought something of better

quality.

Weaknesses- A main weakness for a company like PepsiCo would be unhealthiness that many

of their products possess. In the newly health conscious society we are in today, many people

want to stay away from the fast food chains, pops and sugary, carb loaded juices that many of the

PepsiCo products entail. Although PepsiCo is in a way established and began to expand into
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other bigger countries they still have room to grow. “PepsiCo derives about 70% of its revenues

from markets in North America and South America” (Young, J. 2017). More people are

preferring other types of beverages over carbonated drinks. These carbonated drink are a

majority of what Pepsi offers. ”The market for coffee hit 88.8 gallons per capita in 2016, nearly

three times more than bottled water and miles ahead of the next most-consumed drinks,

carbonated products like cola, sparkling fruit juice and other non-cola fizzy drinks” (Paul, K

2017).

Opportunities- With such a high percentage of goods being sold and purchased in just North

America and South America alone, it would be well worth it for Pepsi to begin to expand into

smaller countries that may have the thirst and hunger for the products that are being offered by

Pepsi. An increase in overall revenues and a decrease in the percentage of revenues here in North

and South America would mean that more people in established and developing countries are

purchasing the high quality goods that Pepsi offers. As talked about prior, the increased health

consciousness of people all around the globe undoubtedly presents an opportunity for PepsiCo to

expand it products into a more health atmosphere. If Pepsi is able to create more healthy

products, then promote a healthier lifestyle, Pepsi will have great success not only with their

current consumer base that shows unwaveringly loyalty to them, but with a whole different, more

active and healthier consumer base.

Threats- PepsiCo, just like every other company, has some threats that it must attend to in order

to stay on the top where they presently are. The competition is stiffening Coca-Cola becoming an

established brand all over the globe. Other than the threat of competition with a company like

Coca-Cola that has its own set of loyal consumers, there are other threats that possess themselves

to PepsiCo. The ongoing environmentally sustainability phase comes into play as well. The
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constant sales of plastic and aluminum bottles possess and environmental problem because Pepsi

cannot be sure that these bottles are going to be recycled properly. Along with opportunities and

weaknesses the health issue is also a threat. People that want to begin a diet more times than not

will begin with cutting out unhealthy snacks and pops. If the consumer can find a good that is as

tasteful, in a similar price range, and healthier, they will undoubtedly choose that product over

what is being offered by the PepsiCo.

Porter Five Forces Model of Competition

Porter’s five forces model looks at competition a company has and takes then into

account and how they affect the industry. The five forces are:

- Rivalry among competing firms.

- Potential entry of new competitors.

- Potential development of substitute products.

- Bargaining power of supplier’s.

- Bargaining power of consumers.

The rivalry in the industry that Pepsi finds themselves in is second to none. There are

constantly new companies coming out with what they believe are more innovative and cost

effective snack, and beverages. The food and beverage industry is a multi-trillion dollar industry

with still untapped niche markets that everyone is trying to exploit. “In 2015, total U.S. retail and

food services sales amounted to about 5.35 trillion U.S. dollars, up from about 2.01 trillion U.S.

dollars in 1992” (Statista, 2015).

The possibility of potentially new competitors in this industry is only a minor threat for a

powerhouse like Pepsi. Pepsi Co owns whole fast food chains where there beverages are being
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sold. These fast food chains include Taco Bell, KFC, and Pizza Hut. They used to be a subsidiary

of Pepsi but Pepsi spun them off to Yum! For them to either succeed or fail on their own. To this

say these restaurant are selling solely Pepsi products (Collins, 1997). So, if a new beverage

company were to enter the market it would cost them a lot of man hours and dollars to get into

the market that Pepsi is already in, and exploiting very well. Hence, why the powerhouse

Starbucks sold their bottled beverage to be produce by Pepsi Co. “Starbucks and PepsiCo, Inc.

today announced they have entered into an agreement for the marketing, sale and distribution of

Starbucks ready-to-drink coffee and energy beverages” (Starbucks Newsroom, 2015). It would

take a very high quality product for consumers to leave the loyalty of Pepsi behind and move

onto something else.

The development of substitute products should be more of a concern than the concern of new

competitors entering the market. As stated earlier, the new health craze could be a cause for

concern. “This idea of using food to manage health may, in part, help explain growing consumer

interest in fresh, natural and organic products. Russo also suggests that consumers understand a

food’s nutritional value (in helping to lower blood pressure, for example), as well as overall

health risk” (Gagliardi, 2015). If a company is able to find a similar drink that is much healthier

for them, they could have enough of a motive to jump ship and be on to that product. It may be

of great cost to get into the stores that Pepsi is already in, but, that does not mean it cannot be

done.

The bargaining power of the suppliers differs for Pepsi from product to product. The main

ingredient of the beverages is water. There is not much power over water so Pepsi, in the

beverage would not have much push back in that regard. For their food products there could be

more bargaining power. With Pepsi being in the snack and food service industry, the farmer that
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Pepsi gets gets there meat and other products from could push back and refuse to supply. But,

that food industry may be one of the farmer biggest buyer so they would lose great amounts of

money in doing so.

“For PepsiCo, sustainable agriculture practices are critical to the continued growth of our

business, food safety, and crop resilience for continued and localized supply. From the

oranges used for our Tropicana orange juice to the oats for our Quaker products to the

potatoes for our Lay’s chips, our success depends on the success of the global network of

farms and farmers” (PepsiCo)

The bargaining power of consumer could be harmful to Pepsi. As talked about earlier, the

competition in the market is heavy. There are many other options out there for the consumer to

choose over the snacks, beverages and fast food restaurants that Pepsi either owns, or has a large

stake in. Pepsi must cater to the consumer first and foremost because that is who gives Pepsi the

success that is has.

Financial Analysis

Company Industry

Debt Equity Ratio 2.37 1.74

Current Ratio 1.35 1.37

Quick Ratio 1.17 1.03

Interest Coverage 7.60 7.77

Leverage Ratio 5.92 4.58

P/E Ratio 25.13 32.79

Plus P/E Five Year High 25.31 107.15

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P/E Five Year Low 14.67 55.29

Price/Sales Ratio 2.76 3.28

Price/Book Value 12.84 8.23

Equity 53.94 31.06

Return on Assets 9.14 6.84

Return on Capital 15.67 15.67

Income/Employee 26.39K 26.62K

Inventory Turnover 8.99 7.56

Debt/Equity Ratio

The Debt/Equity ratio for Pepsi Co is not as good as others within the same industry. The

higher debt ratio means that it has higher credits in comparisons to the assets they have. Being

2.37 is not an unusual thing for large and well established companies, though. It just means that

Pepsi is able to get more financing for certain projects and potential innovations if needed. If you

have too low of a debt ratio, it could be hard to get investors because you are not increasing

operations or productions passed what you would need financing for. Thus, decreasing possible

returns for investors.

Current Ratio

Pepsi Co has a good current ratio even though it is slightly below the industry standards.

This current ratio tells an individual how quickly or how well a company is as covering its short

term liabilities with their current assets. Anything over 1.0 mean a company is doing well and
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they can easily cover their liabilities with their assets. Essentially, for Pepsi Co Inc., for every

one dollar of liabilities, Pepsi has one dollar and nineteen cents of assets to cover those said

liabilities.

Quick Ratio

Similar to the current ratio, the quick ratios shows how well a company is able to cover

their liabilities. Expect, for the quick ratio, it is how well a company can cover their current

liabilities with their most liquid assets. Quick ratio, unlike the current ratio, excludes inventory

from assets because they are generally not as easily converted to cash. Pepsi Co is just above the

industry standards, so they are in a good spot. Pepsi has over one dollar of liquid assets to cover

one dollar in liabilities that they have on the books.

Interest Coverage

Although the interest coverage for Pepsi Co is slightly lower than the industry of 7.77,

they are still in good shaping sitting at 7.60. This means that Pepsi is able to easily pay off the

interest that build on certain outstanding debts with their earnings. Investopedia stated that any

company that is 1.5 or lower, it is questionable whether they are able to pay off these interests

(Investopedia 2017). This is important for investor’s because they are not going to invest in a

company that cannot pay its bills timely, show inadequacy.

Leverage Ratio

The leverage ratio is important in looking at the financial stability for a company,

especially one as big and as well established as Pepsi Co. Pepsi is well above the industry

standards. The leverage ratio shows how much of a profit a company is turning over and how

much debts they are using to do so. If a company has higher debts and is not turning over great
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PepsiCo.

profits then it may cost them in the long run. If they are turning over great profits then it shows

that they are using the debts that they incur wisely, and turning them into great investments and

potential innovations.

Price/Earnings Ratio: (P/E) Five-year High and Five-year Low

Price per earnings ratio is a widely used ratio to help the public and the investor realize if

it would be worth it for them to invest and earn a significant return. Pepsi could easily raise the

capital, both short and long term, which is needed for any investment they would like to take on.

Pepsi is below the industry standards in this category. But, they are still earning their investors a

safe return. They may fall below the industry standards because people are paying for an

established stock that Pepsi has, rather than the newer competitor’s lower stock prices. The five

year high is much lower than the industries five year high, and the five year low is much lower

that the industries five year low. This just shows the consistency that Pepsi has experienced,

though. Their differences are not as drastic as the industry, showing stability and consistency in

their earnings.

Price/Sales Ratio

Similar to the price per earnings ratio, the price per sales ratio is a ratio that helps

investors and the public evaluate the stock. The ratio informs a potential investor how many

times they are paying for each dollar of sales Pepsi experiences. Pepsi is strong in this category

even though they are below the industry standards.

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PepsiCo.

Return on Equity

Pepsi Co has an equity ratio that is well above the industry standard. Return on equity

presents itself as a really beneficial metric that shows the profitability of a company. It shows

investors how much equity profits are left for sale and how much equity profits are already

owned by shareholders. Essentially, it is important for shareholder and investors because it is

showing how much money is available for them to use and how much is currently being used

thus not actually available. For Pepsi, their number being 53.94 is saying they are producing 53

dollar and 94 cents of profit for every one dollar of shareholders equity, so over fifty percent.

Return on Assets

For Pepsi their return on assets are great. Pepsi is well above industry standards so they

are in impeccable shape. The return on assets numbers are important because it shows how

efficiently Pepsi is using their assets. Which is more efficiently and productively than many

other companies in the food and beverage industry. This shows strength in both management and

in numbers which will in turn attract investors because the return is a main reason for investing

in general.

Price/Book (P/B) Value

The price-to-book (P/B) value ratio compares stock purchase price to its book value.

Essentially, it compares market value to shareholder equity. Price to book is a method used for

investors to seek low-priced stocks that are within the market. It is also a method to determine if

a company’s stock is under or over valued in the market, for possible investors. Pepsi Co’s P/B

ratio of 12.84 is well above than the industry average ratio of 8.23. “Any value under 1.0 is

considered a good P/B value, indicating a potentially undervalued stock. However, value
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PepsiCo.

investors often consider stocks with a P/B value under 3.0” (Maverick, 2015). What P/B does not

do is give insight to a company’s debt levels or losses, so there are shortcomings but it remains a

tool for investor’s to make investing decisions. In the case of Pepsi, their ratio indicates their

stock may be slightly overvalued and investor’s will take a closer look at their financials when

deciding whether to invest in the company.

Return on Capital
The return on capital is an important ratio for companies, especially investors, to take

advantage of knowing. This give them a sense of how a company is using its money to generate

returns. The current number show that Pepsi is exactly even with the companies within their

industry. On the other hand they are well about the industry averages for the five year average.

This shows that they have good strength in the capital return department which is a great sign for

possible future, and current investors.

Inventory Turnover
Inventory turnover it extremely important for both the company to know, and for the

possible investors to know as well. Inventory turnover ratio shows how many times a company

sells its products and remanufactures them over a certain period of time. This is beneficial

because it allows the company to know how long their inventory is sitting in stock rooms and

how often they are having to manufacture more. Pepsi is slightly above the industry standards,

but are still in a strengthening position because their inventory is only sitting for almost nine

days before it is sold and more are manufactured. If it were much higher than it could potentially

mean that the only reason Pepsi is getting rid of their products is due to massive discounts. This

shows that sales are constant and in good shape. If it were below the industry standard it would

show that sales are not as good

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PepsiCo.

Income/Employees

Income per employee is a valuable tool for the company to know and also a valuable tool

for investors. This is simply because this ratio tells both how much income per employee it takes

to create the revenue that was made. Pepsi is in good shape, below the industry standards,

because it take them less employee income to generate the revenues that are generated. It is

good for investors because they are not pay employees too much money to manufacture the

goods so there could potentially be more overall profits. Pepsi would have no problem paying the

employees what they make, but more profits based of the employee work is a good sign.

Overall, Pepsi is doing many things at or above the industry standards which is a really

selling point when trying to gather more investor to take the next step for a company in trying to

produce newer and better things for the consumers.

SWOT Matrix

Strengths-S Weaknesses-W

- Customer loyalty - Unhealthiness of

- Brand recognition products offered.
- Diversified portfolio - People drinking less
- Strong reputation for carbonated drinks.
quality goods
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PepsiCo.

Opportunities-O SO-Strategies WO-Strategies

- Global Expansion. - Strong advertisement - Expand the product

- Create healthier would ease the
products. expansion process due
- Emerging to being known.
technologies - With a largely
diversified portfolio, it
could ease the costs of
expanding and create
more needs for the
products.
Threats-T ST-Strategies
line to include more
non-carbonated drinks
and healthier juices or
coffees.
- The benefit of brand
recognition would
ease the expense of
advertising because
people would be
talking
WT-Strategies

- Stiffer competition - Strong customer - Expand to healthier

- Increases Health
Consciousness
- Harm to the
environment with
waste.
loyalty and great products solving the
brand recognition health problem.
could cover up the
unhealthiness of the
products being
offered. People do not
like change

After identifying and matching the key strengths, weaknesses, opportunities, and threats,

some possible strategies and ways to approach those have been developed and are below:

SO Strategies

A strategy in which Pepsi could implement using their strengths to take advantage of the

opportunity of globally expanding would be to use the strong loyalty and brand recognition to

you advantage when expanding globally. Doing so could save great amount of money because

you are not have to spend marketing dollars informing people that you are expanding somewhere

overseas. This is simply because with the name of Pepsi come with word of mouth advertising. If

people hear about the expansion they will undoubted talk about it. Both on their social media

sites like Facebook and twitter, but also face to face with their friends and family. That is the
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PepsiCo.

cheapest form of advertising. Also, with the largely diversified portfolio you could ease the cost

in other ways, or not hurt as bad if things were to not take off immediately, sales wise. This

could allow some dollars to go toward investments in technology or innovations because other

aspects of the business could take the slight hit until the innovations pay for themselves.

WO Strategies

A strategy that Pepsi could explore while trying to take advantage of their opportunities,

despite their weaknesses would be to use some form of innovation to try to create healthier

carbonated drinks, and healthier non-carbonated drinks. Then, use their known quality and brand

recognition to advertise for them, again saving more advertising dollar. A Company as well

known, and with the customer base as Pepsi would not have to spend the money less well known

company would have to spend to release new products, the people would find out almost

immediately that Pepsi is releasing something new, let alone something new and healthier.

Panera has done a great job in making their food healthier and now are having many article

written about them which is a great form of advertisement and a positive form of publicity.

“From a nutritional standpoint, there's much to love about Panera Bread's offerings. In fact, when

it comes to healthy meals to grab on the go, we think that Panera trumps all other fast food fare”

(Drayer, 2017). If Pepsi is able to follow suit with something of this nature, they would

undoubtedly have similarly positive coverage.

ST Strategies

The only strategy that Pepsi could use to counter act the threats, using the strengths as

there defense shield would be take advantage of the strong and loyal customer base that they

presently have. By taking advantage of that and the great brand recognition, Pepsi could
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PepsiCo.

potentially mask the harm to the environment their packaging does, and the harm to the

individual’s health their products have. They essentially are present doing that do in that regard I

would keep up with doing what they are doing.

WT Strategies

There is really only on strategy despite the weaknesses and threats that Pepsi is facing. In

order to grow and maintain the growth that they want to experience, Pepsi must be innovative

and create healthier drinks that are also non-carbonated. ”After decades-long streak of strong

growth, bottled water surpassed carbonated soft drinks to become the largest beverage category

by volume in the United States in 2016, according to research and consulting firm Beverage

Marketing Corp” (Reuters, 2017). People are only drinking more water because there really is

not a beverage out there that has the benefits that water does and tastes as good as something like

a Mountain Dew or a Gatorade. If Pepsi created a drink that had the benefits of water and tasted

good, they would have a firm grasp of an essentially untapped market.

Strategic Alternatives – QSPM Matrix

Alternative 1 Alternative 2 Alternative 3

Expand Globally- First Purchase/Merge with Differentiation-

Mover Advantages Competitor Go more Organic
Key Factors
Weight AS TAS AS TAS AS TAS
Strengths 0.11 4 0.44 3 0.33 4 0.44
- Brand Recognition
- Customer Loyalty 0.10 4 0.40 3 0.30 4 0.40
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PepsiCo.

- High Product Quality 0.10 3 0.30 3 0.30 4 0.40

- Leadership
- Good Inventory 0.03 3 0.09 3 0.09 2 0.06
Turnover 0.08 3 0.24 4 0.36 3 0.24
- Diversified Portfolio
0.12 3 0.36 3 0.36 2 0.24
Weaknesses 0.12 - - - - 4 0.48
- Unhealthiness
- Increased 0.11 - - 2 0.22 - -
environmental
Consciousness 0.09 3 0.27 2 0.18 3 0.27
- Great amounts of
Competition 0.05 2 0.10 2 0.10 2 0.10
- Lack of Innovation 0.09 2 0.18 2 0.18 - -
- Most Market Share
coming from North
and South America
Total 1.00

Opportunities 0.08 1 0.08 3 0.24 4 0.32

- Flavor Innovations
- Expand globally. 0.10 4 0.40 3 0.30 - -
- Offer incentive for
own recycled
0.07 - - - - - -
products
- Become
Environmentally 0.13 1 0.13 - - - -
Friendly
- Invest in Technology 0.10 2 0.20 3 0.30 4 0.40
- Create healthier
goods
0.11 2 0.22 1 0.11 4 0.44

Threats 0.15 1 0.15 3 0.45 4 0.60

- New, healthier
alternatives. 0.09 1 0.09 2 0.18 3 0.27
- New, young
Competition
- Water Scarcity 0.07 - - - - 1 0.07
- Increased Wages
watering down 0.10 1 .10 1 0.10 - -
profits
Total 1.00 3.75 4.10 4.73
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PepsiCo.

The general strategies for Pepsi Co are three things that could really improve Pepsi both

financially and in the eyes of the consumer because they are going to align themselves with the

morals of the people they serve. Expanding globally and inserting themselves into places that

may not have the luxury of the many products that Pepsi offers will undoubtedly increase the

financials that Pepsi has. Pepsi would have to manufacture and build in developing countries and

make sure that these good are affordable by the people that live there. Having the strengths of

brand recognition, consumer loyalty, and a steady reputation for quality goods could make that

move of expanding nearly a seamless one. Another, but tougher strategy would be to purchase or

merge with an up and coming competitor. The industry that Pepsi finds itself in is a highly

competitive industry. If Pepsi is able to minimize the up and coming competition, all while

getting something from them that may not have the wherewithal to accomplish, it could pay

dividends in getting things done, that someone may already have copy written or patented for

their upstart business.

Strategy Recommendation

The strategic alternative that had the greatest totally attractiveness score, and would be

the direction the firm should go to would be to create things that are more healthy and organic.

Nielsen’s 2015 Global Health & Wellness Survey that polled over 30,000 individuals states that

”Some 88% of those polled are willing to pay more for healthier foods” (Gagliardi, 2015). “All

demographics—from Generation Z to Baby Boomers--say they would pay more for healthy

foods, including those that are GMO-free, have no artificial coloring/flavors and are deemed all

natural” (Gagliardi, 2015). Those numbers and others, are enough of a reason for Pepsi to use

some of the investment dollars they have in research and development to determine certain goods

that they have the ability to make healthier. By Pepsi Co seeing the niche in the health foods
 31
PepsiCo.

market and exploiting it they will be certainly getting a leg up on the many competitors that are

within their food and beverage industry. In order for a company like Pepsi to stay on top there

they have been, they cannot get complacent. Pepsi has to see where they can improve and where

the consumers want them to improve, and take advantage of that. I could be simpler than one

would think as well. Pepsi has such a strong and loyal customer base that the consumer will see

what Pepsi is attempting to do, and market it via word of mouth, the cheapest kind of marketing.

By innovating to healthier goods, Pepsi is minimizing many of their weaknesses of unhealthy

goods, and their threats of competitors doing the same things. All while maximizing many of

their strengths of brand recognition, loyalty, reputation and a making their portfolio more

diverse. According to Markkula Center for Applied Ethics based on the evaluation of this

proposed action of creating healthier goods, Pepsi is also doing the ethically and morally right

thing by attempting to offer good to the people that are more natural and overall healthier options

than what they have been known to do in the past.

Strategy Implementation

Pepsi Co will have a strong implementation plan, which will include positive and

successful communication between research and development, marketing teams, and distribution

networks. It would be in the best interest for Pepsi to get all top executives involved on a global

basis, headed up by the Chairmen and Chief Executive Officer, Indra K Nooyi. These meetings

will discuss what type of healthier goods should be produced, ways to market the new and

improved healthier products, how to distribute these effectively and efficiently, and the financial

burden that is going to be placed upon Pepsi in developing these healthier alternatives.

Pepsi will follow a functional organizational structure. Doing so will divide the tasks

according to business department, in order to accelerate progress made. The functional

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PepsiCo.

organizational structure will help the company to maximize results while also reducing overall

costs of the project as well as potentially minimize time spent on the project. Tasks will be

divided to the following departments, as shown below; Marketing, Finance, Operations, and

Human Resources:

Executives:

 Present clear guidelines and objectives to employees and partners, enable open lines of

communication making everyone feel included and responsible.

 Ensure all members are on board and fully comprehend the tasks, goals and outcomes

involved.

 Maintain accuracy and progression of timeline and budget as the project goes through its

different stages.

 Keep members up to date with any and all new updates that could potentially affect the

plan.

Finance:

 Obtain funding required to purchase or create, and implement new products specializing

in the healthier goods being offered

 Maintain financial progression measurements to stay in tune with the success throughout

the construction, launch and implementation of the goods being created, or simply made

healthier

Marketing:

 Conduct research to determine the best possible target markets to focus the newly

healthier goods on.

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PepsiCo.

 Develop marketing strategies and launch advertising campaign aimed at the target

markets desired, based on the research conducted. Utilize all marketing channels

including social media.

Research & Development:

 Study and draw conclusions concerning the needs and wants of the target market, the

demographics, incomes and abilities, average costs of similar goods being sold.

 Conduct research presently about the most purchased goods.

 See if there are ways to turn those existing products into healthier offerings.

Human Resources:

 Ensure that the work force employed is skilled and educated in the necessary tasks that

the development, launching, and selling of the new goods is going to call for.

 Maintain progression measurements to monitor status throughout the creation and

implementation stages, as well as post-creation and the actually selling of the goods

within the stores.

One of the most vital things when planning and implementing said plan is to make sure that

everyone is feeling involved and everyone has open lines of communication. These open lines of

communication will ease the process because questions can be easily answered. These open lines

of communication are also critical because this is not going to be a short process. It is estimated

that this may take upwards of three to five years to create, get approved by the United States

Department of Agriculture, and get to market.

The best way for Pepsi to finance this movement to healthier goods would be use common

stock. By doing so Pepsi may reduce the ownership percentage, but will get the specified amount

of money they are in need of. It would be a good opportunity for people to invest because the
 34
PepsiCo.

upside of creating and distributing newer healthier goods to the consumers would undoubtedly

have great upside. This will allow Pepsi to incur no more debt, which is undoubtedly a positive

situation for a large company that is planning to take over a niche market of healthier goods that

not many companies of this size, with the customer loyalty of Pepsi, and strong existing

reputations, have gotten involved in.

The marketing side of implement this plan and making successful in sales and revenues will

be extremely important. It is estimated that marketing these new good will insure a cost of

approximately 300 million dollars. Individuals that are interested in a healthier lifestyle must

know about the new products being offered, without successful marketing tactics, they may not

be aware or informed. In North America, this leader of marketing these new goods will be

headed up by Greg Lyons. Simon Lowden will need to be heavily involved due to his global

experience. Simon is the president, global snack groups, and recently held a position as the Chief

Marketing officer of global snacks. Having that insight of what is most coveted globally, rather

than only in North America, where the largest market share is, will pay dividends.

Research and development will be headed up by Dr. Mehmood Khan, who is the Vice

Chairmen and Chief scientific officer, Global Research and Development. This will be the most

critical part of the entire plan because Pepsi must research what is the most coveted good in each

of the many markets that Pepsi serves. Not only will Pepsi have to do that, but, then this team

must come up just what snack that are already existing that can be altered to a healthier option.

Or, come up with entirely new goods that are much healthier than the option Pepsi is already

selling. It is estimated that this Research and Development will have an approximate cost of 500

million dollars.
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PepsiCo.

Human resources will play a pivotal role in this plan getting off the ground and being

executed. Human resources is the department that is going to inform each individual of which

role they will play and just how important that rose being executed to the best of their ability, is

to the success of this implementation. Cynthia M. Trudell. The Executive Vice President, Human

resources and Chief Human Recourses officer, will be the one delegate and chose the best human

resources team member to meet with each individual that is going to be directly or indirectly be

involved with the creation and implementation of this plan. Meeting with a human resource team

member is important because knowing what you are going to be doing or the role you will play

will help expedite the process and get everyone comfortable with working with one another.

Cynthia M. Trudell will also be the individual in charge of assigning the skilled workers in her

department to create progression matrix. This way during the scheduled meetings, each member

can be informed of what to improve upon and what how they are progressing both in the bigger

realm and in their department individually. It is estimated that this part of the process, with

laying out ground work for positions, hiring any new individuals that may have expertise or be

needed in the process, and scheduling meetings, will have a cost of approximately 100 million

dollars.

Financing

There are three alternatives for Pepsi to raise capital: debt, equity or a combination of

both debt and equity. To consider the financing options of developing healthier food and

beverage option the following assumptions have been considered in the EPS/EBIT analysis:

 Amount Required - $1 Billion

 EBIT Range – $5-15 billion

 Interest Rate – 9%
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PepsiCo.

 Tax Rate – 48%

 Stock Price - $112.70 per share

 Shares Outstanding – 1,422,143,000

EPS/EBIT Analysis

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom

EBIT 5,000,000,000 10,000,000,000 15,000,000,000 5,000,000,000 10,000,000,000 15,000,000,000

Int - - - 90,000,000 90,000,000 90,000,000

EBT 5,000,000,000 10,000,000,000 15,000,000,000 4,910,000,000 9,910,000,000 14,910,000,000

Taxes 2,400,000,000 4,800,000,000 7,200,000,000 2,356,800,000 4,756,800,000 7,156,800,000

EAT 2,600,000,000 5,200,000,000 7,800,000,000 2,553,200,000 5,153,200,000 7,753,200,000

Shares 1,431,016,119 1,431,016,119 1,431,016,119 1,422,143,000 1,422,143,000 1,422,143,000

EPS 1.817 3.634 5.451 1.795 3.624 5.452

70% Stock - 30% Debt 70% Debt - 30% Stock

Recession Normal Boom Recession Normal Boom

EBIT 5,000,000,000 10,000,000,000 15,000,000,000 5,000,000,000 10,000,000,000 15,000,000,000

Int 27,000,000 27,000,000 27,000,000 63,000,000 63,000,000 63,000,000

EBT 4,973,000,000 9,973,000,000 14,973,000,000 4,937,000,000 9,937,000,000 14,937,000,000

Taxes 2,387,040,000 4,787,040,000 7,187,040,000 2,369,760,000 4,769,760,000 7,169,760,000

EAT 2,549,960,000 5,185,960,000 7,785,960,000 2,567,240,000 5,167,240,000 7,767,240,000

Shares 1,428,354,180 1,428,354,180 1,428,354,180 1,424,804,934 1,424,804,934 1,424,804,934

EPS 1.785 3.631 5.451 1.802 3.627 5.451

Although, as you can see, it is extremely close for Common Stock financing, Debt

financing, majority stock, and majority debt financing. The best option for Pepsi Co to finance

the development and creation of healthier food and beverage options would be to use all
 37
PepsiCo.

common stock financing. It is only down .001 in comparison with debt financing when it comes

to the boom market, but, by being superior in both a normal market and a recession market, the

best bet, as stated earlier, would be to finance with Common Stock.

Projected Income Statement

Income Statement 2018 (Pro Forma) Value in 000’s

Period Ending: 12/31/2018 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Total Revenue 69,242,250 $63,525,000 $62,799,000 $63,056,000 $66,683,000

Cost of Revenue 31,375,650 $28,785,000 $28,209,000 $28,731,000 $31,238,000

Gross Profit 37,866,600 $34,740,000 $34,590,000 $34,325,000 $35,445,000

Research and 500,000 $0 $0 $0 $0

Development

Sales, General and 26,411.790 $24,231,000 $24,805,000 $24,613,000 $25,772,000

Admin.

Operating Income 11,454810 $10,509,000 $9,785,000 $8,353,000 $9,581,000

Add'l income/expense 265,960 $244,000 $110,000 $59,000 $85,000

items

Earnings Before Interest 11,720.770 $10,753,000 $9,895,000 $8,412,000 $9,666,000

and Tax

Interest Expense 1,254,590 $1,151,000 $1,342,000 $970,000 $909,000

Earnings Before Tax 10,466,180 $9,602,000 $8,553,000 $7,442,000 $8,757,000

Income Tax 5,116,460 $4,694,000 $2,174,000 $1,941,000 $2,199,000

Minority Interest (55,590) ($51,000) ($50,000) ($49,000) ($45,000)

Net Income-Cont. 5,194,130 $4,857,000 $6,329,000 $5,452,000 $6,513,000

Operations

Net Income 5,194,130 $4,857,000 $6,329,000 $5,452,000 $6,513,000

Net Income Applicable to 5,194,130 $4,857,000 $6,329,000 $5,452,000 $6,513,000

Common Shareholders
 38
PepsiCo.

The Pro forma statement was based off the impact that selling healthier food and drink

options is going to have on Pepsi and their income statement. A nine percent increase is expected

the first year in net income before the 100-million-dollar of the 500-million-dollar research and

development is deducted over 5 years of the strategy being fully implemented. Due to the time

being required in getting the new products and updated changed products off the ground. The

products are going to be released as they are approved, not all at once It is going to take time to

get the consumers to realize that they have better, healthier options for both every day and on the

go snacks. Pepsi should expect an even larger increase, upwards of 15 percent, on the income

statement in the years following 2018.

Conclusion

In conclusion, the recommended strategy for Pepsi Co., to research and develop making

newer healthier offerings, or simply adjusting some of the already existing offerings to healthier

offerings is going to undoubtedly take some hard work and dedication to this strategy. Getting all

departments such as the upper management, the research and development team, human

resources, and of course the marketing department working together and on the same page is

going to play a pivotal role in whether or not this implementation is going to be success or a

failure. There is not a doubt about the research done behind the successes that healthier offerings

has for a company. The strong marketing campaigns will get the word out and increase consumer

sentiments for Pepsi because they are giving people options for a healthier, on the go lifestyle.

With a successful implantation of this strategy, Pepsi will increase total revenues and also market

shares all over the globe, a win-win.

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PepsiCo.

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PepsiCo.

Appendix A

Pepsi Co. Balance Sheet

Period Ending: Trend 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Current Assets

Cash and Cash $10,610,000 $9,158,000 $9,096,000 $6,134,000

Equivalents

Short-Term Investments $8,900,000 $6,967,000 $2,913,000 $2,592,000

Net Receivables $7,024,000 $6,694,000 $6,437,000 $6,651,000

Inventory $2,947,000 $2,723,000 $2,720,000 $3,143,000

Other Current Assets $1,546,000 $908,000 $1,865,000 $2,143,000

Total Current Assets $31,027,000 $26,450,000 $23,031,000 $20,663,000

Long-Term Assets

Long-Term Investments $2,042,000 $1,950,000 $2,311,000 $2,689,000

Fixed Assets $17,240,000 $16,591,000 $16,317,000 $17,244,000

Goodwill $14,744,000 $14,430,000 $14,177,000 $14,965,000

Intangible Assets $13,838,000 $13,433,000 $13,081,000 $14,088,000

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PepsiCo.

Period Ending: Trend 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Other Assets $913,000 $636,000 $750,000 $860,000

Deferred Asset Charges $0 $0 $0 $0

Total Assets $79,804,000 $73,490,000 $69,667,000 $70,509,000

Current Liabilities

Accounts Payable $15,017,000 $14,243,000 $13,507,000 $13,016,000

Short-Term Debt / $5,485,000 $6,892,000 $4,071,000 $5,076,000

Current Portion of Long-
Term Debt

Other Current Liabilities $0 $0 $0 $0

Total Current Liabilities $20,502,000 $21,135,000 $17,578,000 $18,092,000

Long-Term Debt $33,796,000 $30,053,000 $29,213,000 $23,821,000

Other Liabilities $11,283,000 $6,669,000 $5,887,000 $5,744,000

Deferred Liability $3,242,000 $4,434,000 $4,959,000 $5,304,000

Charges

Misc. Stocks ($156,000) ($151,000) ($145,000) ($140,000)

Minority Interest $92,000 $104,000 $107,000 $110,000

Total Liabilities $68,759,000 $62,244,000 $57,599,000 $52,931,000

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PepsiCo.

Period Ending: Trend 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Stock Holders’ Equity

Common Stocks $24,000 $24,000 $24,000 $25,000

Capital Surplus $3,996,000 $4,091,000 $4,076,000 $4,115,000

Retained Earnings $52,839,000 $52,518,000 $50,472,000 $49,092,000

Treasury Stock ($32,757,000) ($31,468,000) ($29,185,000) ($24,985,000)

Other Equity ($13,057,000) ($13,919,000) ($13,319,000) ($10,669,000)

Total Equity $11,045,000 $11,246,000 $12,068,000 $17,578,000

Total Liabilities & Equity $79,804,000 $73,490,000 $69,667,000 $70,509,000

Appendix B
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PepsiCo.

Pepsi Co. Income Statement (Values in 000’s)

Period Ending: Trend 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Total Revenue $63,525,000 $62,799,000 $63,056,000 $66,683,000

Cost of Revenue $28,785,000 $28,209,000 $28,731,000 $31,238,000

Gross Profit $34,740,000 $34,590,000 $34,325,000 $35,445,000

Operating Expenses

Research and Development $0 $0 $0 $0

Sales, General and Admin. $24,231,000 $24,805,000 $24,613,000 $25,772,000

Non-Recurring Items $0 $0 $1,359,000 $0

Other Operating Items $0 $0 $0 $92,000

Operating Income $10,509,000 $9,785,000 $8,353,000 $9,581,000

Add'l income/expense items $244,000 $110,000 $59,000 $85,000

Earnings Before Interest and $10,753,000 $9,895,000 $8,412,000 $9,666,000

Tax

Interest Expense $1,151,000 $1,342,000 $970,000 $909,000

Earnings Before Tax $9,602,000 $8,553,000 $7,442,000 $8,757,000

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PepsiCo.

Period Ending: Trend 12/30/2017 12/31/2016 12/26/2015 12/27/2014

Income Tax $4,694,000 $2,174,000 $1,941,000 $2,199,000

Minority Interest ($51,000) ($50,000) ($49,000) ($45,000)

Equity Earnings/Loss $0 $0 $0 $0
Unconsolidated Subsidiary

Net Income-Cont. Operations $4,857,000 $6,329,000 $5,452,000 $6,513,000

Net Income $4,857,000 $6,329,000 $5,452,000 $6,513,000

Net Income Applicable to $4,857,000 $6,329,000 $5,452,000 $6,513,000

Common Shareholders

Appendix C

Pepsi Co. Stock Report

Stock Report Details

Issue Sub Type Common Exchange "Exchange" is a marketplace in NASDAQ-GS

Stock which shares, options and futures on stocks,
bonds, commodities, and indexes are traded.
Principal U.S. stock exchanges are: New York
Stock Exchange (NYSE), American Stock
Exchange (AMEX), and National Association
of Securities Dealers Automatic Quotation
System (Nasdaq).

52 Week High "52 Week 122.51 52 Week Low "52 Week Low" is the lowest 106.19
High" is the highest sales sales price the stock has fallen to during the
price the stock has regular trading hours during the most recent
achieved during the 52 week period.
regular trading hours
during the most recent
52 week period.
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PepsiCo.

Dividend Yield "Dividend 2.86 % Annual Dividend $ 3.22

Yield" is the indicated
yield represents annual
dividends divided by
current stock price.

P/E Ratio "P/E Ratio" is 33.45 Shares Outstanding 1,422,143,000

the current stock price
divided by trailing
annual earnings per
share or expected
annual earnings per
share.

Appendix D

Pepsi Co. Inc. Annual Effective Tax Rate

(Dec 30 (Dec 31 (Dec 26 (Dec 28

(FY 2014)
PEP Annual Effective Tax Rate 2017) 2016) 2015) 2013)

Y / Y Annual Pre-Tax Income Growth 12.26 % 14.93 % -15.02 % -1.51 % 7.07 %

Y / Y Annual Income taxes expenses / -

115.92 % 12 % -11.73 % 4.52 % 0.67 %
benefit Growth

Annual Effective Tax Rate 48.89 % 25.42 % 26.08 % 25.11 % 23.66 %