Question 1: What is PepsiCo’s corporate strategy?

PepsiCo was the world’s largest snack and beverage company. More exactly the company’s

corporate strategy had diversified the company into salty and sweet snacks, soft drink, orange

juice, bottled water, ready to drink tea and coffee... About picking new industries to enter and

deciding on the mean of entry, PepsiCo used related diversification through acquisition and

merger to quicker launch a brand-new operation, hurdle entry barrier as acquiring technology

knowhow, establish supplier relationships, match rival’s efficiency… and to move directly to the

task of building a strong market position. As early as 1968, the company began to pursue growth

through acquisition outside snacks and beverages. A list of acquisition is 1977 acquisition of

Pizza Hut, 1978-tacobell. 1986-Kentucky Fried Chicken, Mug root beer, &UP international,

Smartfood ready to eat popcorn, Walker’s Crisps, Smith’s Crisps, Mexican cookie…

Briefly identify the business strategies that PepsiCo is using in each of its consumer

business segments.

The company was organized into four business division, which all followed the corporation’s

general strategic approaches:

Fristo-Lay North America: the business strategy for this segment

The first thing need to consider is how PepsiCo provide convenience to its customer over time

with its product. For example, they produce snacks packaged in smaller bags to address the

overeating concerns and were additionally convenience to take along on an outing. The

convenience foods included both salty and sweet snacks. Going abreast with the more conscious

about nutritional and healthy content, FLNA provides better for you and good for you snacks.

They improve the performance of the division’s score salty brands and further developing health

and wellness productas a key strategic action. They offered fruit and vegetable snacks which is

deficientcy in most diets

PesiCo Beverages North America

For PepsiCo carbonated soft drinks business, PepsiCo use “Power of one” which is a strategy

for supermarkets to place Pepsi and Frito –Lay products on shelves. Not only that, they try to

improve the local distribution, the information flow coming from retailer through “Innovation

Summits”. Lastly, they enhanced the nutritional properties of soft drink with attempt to develop

new types pf sweeteners that would lower the clorie content of nondiet drinks. In other hand, for

PepsiCo’s non carbonated Beverages Brands, PepsiCo offered healthier beverages like –flavor

and vitamin enriched water...

PepsiCo International

Applied the global strategy, PepsiCo sale of beverage in international market utilize using

“Power of One Strategy “ with a modification for snack foods international to suit the different

form country to country

Quaker Foods North America

PepsiCo tried to enhance the quality of product while diversifying the product’s categories with

hot and ready to eat cereals, pancake mixes and syrup, and rice and pasta side dishes….

Question 2: What is your assessment of the long-term attractiveness of the industries

represented in PepsiCo’s business portfolio?

Industry AttractivenessMeasure

weight beverage   cereal   snack  

Market size and projected growth rate

0.2 8 1.60 6 1.20 7 1.40

Intensity of Competition 0.15 9 1.35 8 1.20 7 1.05

Emerging Opportunities and threats

0.15 6 0.90 6 0.90 6 0.90

Resource Requirements 0.15 9 1.35 7 1.05 7 1.05

Societal Political, Regulatory & Environmental factors

0.05 8 0.40 8 0.40 8 0.40

Industry Profitability 0.25 8 2.00 6 1.50 7 1.75

Industry Uncertainty & Business Risk

0.05 8 0.40 7 0.35 7 0.35

TOTALS 1   8   6.6   6.9

Since all of the industries holding by PepsiCo is cored more than 5, so they pass the

attractiveness test as a whole.

What is your assessment of the competitive strength of PepsiCo’s different business units?

Competitive Strength Measure

Weight Frito-LayN.A in snack

industry

Pepsi N.A in

beverage industry

Pepsi International in snack, cereal &

beverage industries

Quaker N.A in cereal industry

Relative Market share 0.15 8 1.20 7 1.05 5 0.75 5 0.75

Costs relative to competitors' costs

0.15 7 1.05 8 1.20 5 0.75 6 0.90

Ability to match or beat rivals on key product attributes

0.10 9 0.90 7 0.70 6 0.60 5 0.50

Ability to benefit from strategic fits with

sister business

0.10 8 0.80 8 0.80 6 0.60 4 0.40

Barraging leverage with suppliers

buyers calibre of alliance

0.10 9 0.90 6 0.60 6 0.60 3 0.30

Brand image and reputation

0.10 10 1.00 9 0.90 7 0.70 5 0.50

Competitively valuable capabilities

0.10 8 0.80 8 0.80 5 0.50 5 0.50

Profitability relative to competitors

0.20 9 1.40 8 1.60 4 0.80 5 1.00

Total 8.45 7.65 5.3 4.85

Since the Frito-Lay N.A in snack industry, Pepsi N.A in beverage industry have the score of

competitive strength rating above 6.7 so they are strong market contender in the industry. The

other 2 which is Pepsi International in snack, cereal & beverage industries and Quaker N.A in

cereal industry have the score in the 3,7-6,7 range so they have moderate competitive strength

comparing to other rivals.

What does a 9-cell industry attractiveness/business strength matrix displaying PepsiCo’s

business units look like?

So Fristo-Lay N.A, PepsiCo NA and PepsiCo international are for growth and built base on their

big size and high level of industry attractive. Besides, Quaker N.A is for maintain, harvesting

base on their average industry attractive and relative market size comparing to other industry

Question 3: Does PepsiCo’s portfolio exhibit good strategic fit?

Yes,they had a noteworthy successes with $160 million cost saving from product ingredients and

packing material, $40 million cost saving form joint venture. PepsiCo’s management team was

dedicated to capturing the strategic fit benefits within the business line up throughout the value

chain. The company’s procurement activities were coordinated globally to achieve the greatest

possible economies of scale, best practices. They also share marketed research information to

better enable each division to develop new product

What value-chain match-ups do you see?

they combine purchasing activities, gain more leverage with suppliers, and realize supply chain

economies; share technology, transfer technical skills, combine R&D; combine sales and

marketing activities, use common distribution channels, brand name, and combine after-sale

service activities and usingcross-business collaboration to create new competitive capabilities.

What opportunities for skills transfer, cost sharing, or brand sharing do you see?

I believe that PepsiCo have the all 3 opportunities. For skill transfer, since PepsiCo include much

of business units and divisions, they can have skill transferring within the own corporate and the

globe. The best practices were routinely transferred between its 230 plants, 3600 distribution

systems, and 120,000 service routes around the world. For cost sharing, since PepsiCo can

capture the strategic fit and resources fit benefits, they also prove to have cos-saving over time.

Like, they achieve $160 million in cost-saving resulting from corporate-wide procurement of

product ingredients and packaging material. And for Brand Sharing, we have to mention one of

the most successful strategies was “Power of One”, they allow PepsiCo to obtain the synergistic

benefit of combining Pepsi-Cola and Frito-Lay. For instance, in Chile, Frito-Lay has over 90%

of the market, but Pepsi is in lousy shape but due to Frito-Lay image Pepsi able to get a shelf

space.

Does PepsiCo’s portfolio exhibit good resource fit? What are the cash flow characteristics

of each of PepsiCo’s four segments? Which businesses are the strongest contributors to

PepsiCo’s free cash flows?

Yes, PepsiCo’s portfolio exhibit good

resource fit. Overall business’s

situation is good. There is no Cash

Hogs and Dog. Frito-Lay is the

strongest cash generated business unit and Pepsi International is less efficient business unit

(revenue/profit/asset)

Based on the preceding analysis, what is your overall evaluation of PepsiCo’s business

portfolio? Does the portfolio provide the company’s shareholders with an opportunity for

above-average market returns?

Since there is no cash hogs which will erode all of the cash flow using to fund their expansion, or

no Dog which also hurt the cash flow of PepsiCo. All of business units are in its good condition,

they can generate enough cash flow for themselves and also for supporting other operating

activities. With the company’s business portfolio’s growth and more than sufficient cash-flow,

PepsiCo is expected to generate above average market return for now, but in the future if it want

to keep it’s position and profitability, there will need funding to build its business unit further not

just stop and be satisfy with what it own right now.

2004 2005 2006 2007

Net Cash Provided by operating activities

5,054 5,852 6,084 6,934

Capital Spending (1,387) (1,736) (2,068) (2,430)

Sale of property, plant and equipment

38 88 49 47

Management operating cash flow

3,705 4,204 4,065 4,551

Question 4: What strategic actions should Indra Nooyi take to sustain the corporation’s

impressive financial and market performance? Should its free cash flows be used to fund

additional share repurchase plans, pay higher dividends, make acquisitions, expand

internationally, or for other purposes? What other strategic actions should be pursued by

corporate level management?

PepsiCo has used very successfully the related diversification corporate strategy as their basic

approach. PepsiCo should remain their related activities within the value chain between the

various beverage and snack food brands to utilize the strategic fit and resources fit in order to

reduce costs and increase profits.  Some of the elements of the value chain should be considered

is marketing, processing, research and development. An importance noting here is that, PepsiCo

should define clearly their priority in order to have a proper decision making and resources

allocation. Beside form what is mentioned above, if the company cash flow is enough to

pursuing more, then PepsiCo should go after some other option like fund additional share

repurchase plans, pay higher dividends and buying security, investing in mutual fund… to

strengthen their financial performance and secure its profit again rivals.

Based on the videos we watched, what strategic actions is Indra Nooyi taking to sustain the

corporation’s impressive financial and market performance? Also, what does

“sustainability” mean to Indra Nooyi at PepsiCo

According to the video, with some change and modification, Indra Nooyi had taken an initiate to

restructure the business, he created the new 3-division structure which is PepsiCo America

Beverage, PepsiCo America Food and PepsiCo International. Further detail, PepsiCo America

Food include 3 units - Frito-Lay North America, Quaker Foods North America, Latin America

Foods, and PepsiCo International includes UK & Europe, Middle East, Africa & Asia

“Sustainability” is defined as "Performance with Purpose”. With the consideration that

customers now combine the own rules, value and principle with the purchasing decision.

Consequently, PepsiCo tried to join purpose and performance in to one. Three specific aspects of

Performance with Purpose is presented. First, offering foods and beverages with social

responsibility to provide good nourishment to not only customers but also societies is executed.

Second, there is a mission to minimize the company’s operating impact on the surrounding

environment. And third, creating a safe, healthy and inclusive environment where the best people

want to work is lead by PepsiCo’s management and participated by the company’s employees.

What recommendations would you make to Indra Nooyi and her management team as they

expand globally around the world?

First, since PepsiCo prove its current Strategy to develop the company is effective, they should

remain and pursue it restless. As for international market, company can continue with the

multinational strategy to earn every benefit while implementing global strategies and executing

marketing and distribution similarly in all regions. Further, PepsiCo need to reconsider their

corporate strategy within their international markets to ensure they are able to increase their

market share as well as the company growth throughout their sectors. Also, revalue the growth

and attractive at the some countries to pull out from country with sluggish growth with low

market share, decreasing sale… About the R&D, first PepsiCo need to acquire more market

information to better enable each division to develop new product. From there, they can continue

pursuing product innovation to account for the healthy trend and social responsibility recently.

Question 5: Conduct a financial analysis using the template provided on Beach-board.

What does the financial information reveal about the company’s success and performance

during the 2001-2010 years?

Year (Numbers in $Mil)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Revenue $23,512.0 $25,112.0 $26,971.0 $29,261.0 $32,562.0 $35,137.0 $39,474.0 $43,251.0 $43,232.0 $57,838.0

COGS $10,750.0 $11,497.0 $12,379.0 $13,406.0 $14,176.0 $15,762.0 $18,038.0 $20,351.0 $20,099.0 $26,575.0

SG&A $8,189.0 $8,523.0 $9,460.0 $10,299.0 $12,314.0 $12,711.0 $14,196.0 $15,489.0 $14,612.0 $22,326.0

Operating Income

$4,021.0 $4,730.0 $4,781.0 $5,259.0 $5,922.0 $6,502.0 $7,182.0 $6,959.0 $8,044.0 $8,332.0

Net Income $2,662.0 $3,313.0 $3,568.0 $4,212.0 $4,078.0 $5,642.0 $5,658.0 $5,142.0 $5,946.0 $6,320.0

   

Total Assets $21,695.0 $23,474.0 $25,327.0 $27,987.0 $31,727.0 $29,930.0 $34,628.0 $35,994.0 $39,848.0 $68,153.0

Total Liabilities

$13,047.0 $14,176.0 $13,453.0 $14,464.0 $17,476.0 $14,562.0 $17,394.0 $23,888.0 $23,044.0 $46,989.0

Total Equity $8,648.0 $9,298.0 $11,874.0 $13,523.0 $14,251.0 $15,368.0 $17,234.0 $12,106.0 $16,804.0 $21,164.0

Some financial indicator of PepsiCo from 2001-2010

 Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

COGS as % of Revenue

45.7% 45.8% 45.9% 45.8% 43.5% 44.9% 45.7% 47.1% 46.5% 45.9%

SG&A as % of Revenue

34.8% 33.9% 35.1% 35.2% 37.8% 36.2% 36.0% 35.8% 33.8% 38.6%

Operating Income as a % of Revenue

17.1% 18.8% 17.7% 18.0% 18.2% 18.5% 18.2% 16.1% 18.6% 14.4%

Net Income as a % of Revenue

11.3% 13.2% 13.2% 14.4% 12.5% 16.1% 14.3% 11.9% 13.8% 10.9%

Return on Assets

12.3% 14.1% 14.1% 15.0% 12.9% 18.9% 16.3% 14.3% 14.9% 9.3%

Return on Equity

30.8% 35.6% 30.0% 31.1% 28.6% 36.7% 32.8% 42.5% 35.4% 29.9%

Financial Leverage (Assets/Equity)

2.51 2.52 2.13 2.07 2.23 1.95 2.01 2.97 2.37 3.22

Some financial indicator of PepsiCo as a percentage of revenue

First, the revenue steady rose about 246% from 2001 to 2010 which may show a good indicator

for the company current performance. Also, at about the same rate of 247% the cost of good sold

increases from 10,750 to 26,575. Additionally, The trend of CoGS’s fluctuation indicates a good

control over the rising cost over years-not above 50% of revenue is remained. The operating

expense is enlarged at the faster rate-273% comparing to the operating income which have the

rising rate of 207%. Despite all of that the net income in PepsiCo shows a good trend of stable

increasing-237%. PepsiCo did a lot of acquisition after 2001 with the hope for valuable strategic

fits over the value chain of related businesses. Those acquisition-fast-growing food and beverage

companies in enable PepsiCo to make a good use of the cost-savings. Its bargaining power and

supplier relationship help much in producing at lower cost. Moreover, the ROA has decrease

from 12,3% to 9,3%. This may happen due to the aggressive expansion of PepsiCo which pretty

much offset the increasing of net income. ROE also in the same road with ROA but its

decreasing is just small from 30,8% to 29,9%. The only considerable about ROE is its fluctuation

over time which may be the result of the unstable change in the number of share outstanding.

From 2001 to 2006, PepsiCo not really use the financial leverage to finance it operating, but the

from 2006 to 2010, the trend of using leverage is gradually increasing. This is understandable

since PepsiCo expand its business though numerous acquisition which need to make use of debt.