Professional Documents
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A. Case Abstract
To become the leading producer and marketer of food and beverage products in the
world.
D. External Audit
Opportunities
1. Increase in international market demand for colas, chips and breakfast foods
2. In 2013, the United States savory snacks market is forecast to have a value
of US$28 billion, an increase of 27.8 percent since 2008 and the compound
annual growth rate of the market in the period 2008–2013 is predicted to be
5 percent
3. Purchase smaller, successful developers of competing products
Threats
Opportunities
1. Increase in international market demand for 0.08 4 0.32
colas, chips and breakfast foods
2. In 2013, the United States savory snacks market 0.08 3 0.24
is forecast to have a value of US$28 billion, an
increase of 27.8 percent since 2008 and the
compound annual growth rate of the market in
the period 2008-2013 is predicted to be 5
percent
3. Purchase smaller, successful developers of 0.06 3 0.18
competing products
5. Teens are less conscious of health issues and still 0.08 3 0.24
like sweet drinks
Threats
1. Regulation - FDA. Clean Water Act, etc. 0.06 1 0.06
Positioning Map
Customer Loyalty
(High)
Pepsi
Coke
Weak Strong
Product Product
Variety Variety
Customer Loyalty
(Low)
E. Internal Audit
Weaknesses
Net Profit
Avg P/E Price/ Sales Price/ Book
Margin (%)
12/08 20.60 2.02 7.00 11.9
12/07 20.00 3.24 7.17 14.3
12/06 18.30 3.00 6.67 16.0
12/05 23.30 3.10 6.87 12.5
12/04 21.20 3.07 6.45 14.2
12/03 21.60 3.00 6.67 13.2
12/02 27.70 2.96 7.53 11.8
12/01 34.60 3.77 9.93 10.2
12/00 28.80 3.97 11.33 11.4
12/08 20.60 2.02 7.00 11.9
Strengths
1. Name recognition both domestically and 0.09 4 0.36
internationally
Weaknesses
1. Short term liability of US$369 due in 2009 0.07 1 0.07
F. SWOT Strategies
Strengths Weaknesses
G. SPACE Matrix
CS IS
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1
-2
-3
-4
-5
-6
-7
Defensive Competitive
ES
Financial Stability (FS) Environmental Stability (ES)
Return on Investment 5 Unemployment -4
Leverage 5 Technological Changes -3
Liquidity 5 Price Elasticity of Demand -4
Working Capital 5 Competitive Pressure -5
Cash Flow 4 Barriers to Entry -4
Strong
Weak
Competitive
Competitive
Position
Position
Quadrant IV
Quadrant III Slow Market Growth
1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification
PepsiCo Beverages
High
3.0 to
3.99
IV IV VI
VII VIII IX
Low
1.0 to
1.99
Purchase
smaller
companies
Continue offering
international healthy
expansion products
Key Factors Weight AS TAS AS TAS
Opportunities
1. Increase in international market demand 0.08 4 0.32 1 0.08
for colas, chips and breakfast foods
2. In 2013, the United States savory snacks 0.08 4 0.32 2 0.16
market is forecast to have a value of
US$28 billion, an increase of 27.8 percent
since 2008 and the compound annual
growth rate of the market in the period
2008-2013 is predicted to be 5 percent
3. Purchase smaller, successful developers 0.06 1 0.06 3 0.18
of competing products
4. Healthy food snack is on the rise as 0.08 1 0.08 4 0.32
consumers are shifting to healthy food
5. Teens are less conscious of health issues 0.08 1 0.08 3 0.24
and still like sweet drinks
Threats
1. Regulation – FDA, Clean Water Act, etc. 0.06 --- --- --- ---
2. Foreign exchange rates in current 0.05 3 0.15 1 0.05
economy
3. Raw materials supplies – clean water 0.07 1 0.07 3 0.21
4. Changes in consumer taste 0.09 1 0.09 3 0.27
5. Health issues – more consumers are 0.08 1 0.08 3 0.24
shifting to healthy food
6. Consumers switching to lower cost house 0.04 --- --- --- ---
brands for both snacks and beverages
7. Substitute products – other snacks, 0.07 1 0.07 4 0.28
water, tap water, ready-to-drink, sports
drinks, etc.
8. Decrease in U.S. cola market 0.06 4 0.24 2 0.12
9. Reduction in buying power of large 0.04 --- --- --- ---
retailers
10. Strong direct (Coke) and indirect (Kraft) 0.06 1 0.06 4 0.24
competition
TOTAL 1.00 1.62 2.39
Strengths
1. Name recognition both domestically and 0.09 4 0.36 1 0.09
internationally
2. Stronger than industry average in price to 0.06 --- --- --- ---
cash flow ratio
3. Strong marketing and promotion 0.08 --- --- --- ---
advertising campaigns
K. Recommendations
Purchase smaller companies that offer healthier drinks and snacks. Utilize the
existing distribution channel for promoting the new line and use penetration pricing
strategies to gain market share rapidly and against the competitors.
PepsiCo continues to make strong growth moves on both the national and
international stage, even in the struggling economy. First quarter results for Pepsi
Bottling show it has been very profitable due to price increases and stronger U.S.
sales of carbonated soft drinks. This helped offset the declining demand for pricier
beverages such as bottled water. In the United States, PepsiCo’s major move has
been a bid to buy the remaining shares of Pepsi Bottling. PepsiCo currently owns 33
percent of Pepsi Bottling. Pepsi Bottling has rejected this bid as being too low;
however, it is expected that PepsiCo will continue with its bid to buy the remaining
shares of the bottling company.
To further improve its international operations, PepsiCo has made a bid to buy
PepsiAmericas. Basically, this would consolidate control of the Americas operations.
Additionally PepsiCo has pledged to invest US$1 billion in Russia over the next three
years, bringing its total investment to US$4 billion over a ten year time span.
PepsiCo will also invest over US$1 billion in China over the next 4 years. This is in
addition to continued investments in Japan, India, Europe, Mexico and Latin America.
For the first quarter ending 3/21/09, PepsiCo’s net revenues of US$8,263 million are
down US$70 million from the same quarter in 2008. However, PepsiCo has also
controlled costs by decreasing cost of goods sold by US$90 million and decreasing
sales, general and administrative expenses by US$9 million (same quarter
comparison). This has resulted in a net profit of US$1,141 million, which is US$90
million less than last year’s first quarter. PepsiCo may need to further adjust costs to
reflect continuing economic troubles as consumers shift to less costly drinks and
snacks. Second quarter results continued the downward trend with beverage volume
down 6 percent, Frito-Lay down 3 percent, and Quaker down 4 percent. However
international volume was up 1 percent in snacks and 6 percent in beverages.
The first quarter balance sheet shows that cash is up slightly whereas current
liabilities are down slightly; long-term debt has climbed US$1,393 million to a total
of US$9,251 million. Part of this increase may well be due to aggressive expansion
activities throughout the world.
Second quarter for PepsiCo shows better than expected profits based on cost cutting
and growth in developing countries such as China and India. However, growth in the
U.S. market continues to remain weak with a 1 percent decrease in volume.