PepsiCo · The Pepsi Challenge Pepsi Challenge Cola War Early History 1893 1932 1974 1999 Now 1974,...
Transcript of PepsiCo · The Pepsi Challenge Pepsi Challenge Cola War Early History 1893 1932 1974 1999 Now 1974,...
Jo SunhwanSeo jonghyun
PepsiCo
Agenda
Part 1. Brief History of Successful StoriesPart 2. Business Strategy AnalysisPart 3. Korean Subsidiary
TimelineEarly historyCola warsPepsi ChallengeCola war II
Part 1. Brief History of Successful Stories
ColaWar II
Pepsi Timeline
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
ColaWar II
Early History
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1886, Coca-Cola was invented• Coca-Cola was invented by a Dr. John Pemberton. • Asa Candler acquired the formula and started brand
advertising of Coca-Cola.
ColaWar II
Early History
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1893, Pepsi-Cola was invented• Pharmacist Celeb Bradham invented Pepsi-Cola.• The name was came from ‘dyspepsia’ (indigestion)
ColaWar II
Early History
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1923-1932, Bankrupts1923, First bankrupt1932, Second bankrupt
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1934, Pepsi began to gain market share• Pepsi’s bargain campaign succeeded nationwide.• Pepsi sold a 12-ounce bottle for a nickel.• Pepsi’s cost saving features were irresistible, since it was
the midst of the Great Depression.
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1950, Market share of pepsi and coke• Coke’s share of the U.S. CSD market was 47%.• Pepsi’s share of the U.S. CSD market was 10%.
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1950, “Beat Coke”• Alfred Steele was named CEO and he set his theme as
“Beat Coke.”• He encouraged bottlers to focus on take-home sales
through supermarkets and introduced 26-ounce bottles to the market for family consumption.
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1963, “Pepsi Generation”• Donald Kendall, a new CEO, launched “Pepsi
Generation” campaign and targeted the young and “young at heart”.
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1960s, Pepsi and Coke Diversified flavor• Coke: Fanta (‘60), Sprite (‘61), low-calorie Tab (‘63)• Pepsi: Teem(‘60) , Mountain Dew (‘64), Diet Pepsi (‘64)
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1960s, Both Diversified into non-soft-drink industries• Coke: Minute Maid, Duncan Foods, Belmont Springs
Water• Pepsi: Frito-Lay
ColaWar II
The Cola War
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1970, Pepsi’s Market share doubled• Domestic soft drink consumption had reached 22.7
gallons per capita.• Coke believe market had saturated and focused on
overseas market.• Pepsi meanwhile battled aggressively in domestic market
and doubled its share between 1950-1970.
ColaWar II
The Pepsi Challenge
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1974, “Pepsi Challenge”• Blind test was conducted in Dallas, Texas.• Its result turned out that customers preferred Pepsi to
Coke.• After its sales skyrocketed in Dallas, Pepsi started to roll
out the campaign nationwide.
ColaWar II
The Pepsi Challenge
PepsiChallenge
ColaWar
EarlyHistory
1893 1932 1974 1999 Now
1979, Pepsi Overtook Coke in food store sales• Pepsi passed Coke in food store sales for the first time
with a 1.4 share point lead.
Cola is still most popular beverage in US- U.S. Beverage consumption, 2000
16%
1%1%1%3%
4%
6%
7%
9%12%
12%
29%
Source: Beverage Digest Fact Book, 2001
Carbonated soft drinks
Beer
Milk
Coffee
Bottled Water
Juice
Tea
Powdered drinks
WineSports drinks
Distilled spiritsAll others
200019981995199019851980
23%
Cola consumption is decreasing - U.S. Soft drink consumption trends, 2005
15%14%
7% 5%
-2%
2004
-2%
Source: USDA/Economic Research Service, 2005
0
7.5
15.0
22.5
30.0
37.5
45.0
1966 1970 1975 1980 1985 1990 1995 1998 2000
Coke Pepsi
Coke is still ahead of Pepsi- U.S. Soft drink Market share
Source: Beverage Digest Fact Book, 2001
0
10
20
30
40
50
60
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
Coke Pepsi
Coke was overtaken by Pepsi- Return on Equity
Source: Company annual report, 2001
Coke’s growth comes from international- Soft drinks sales for Coca-Cola
$ millionsSource: Company annual report, 2001
1980 1985 1990 1995 1998 2000
17655
1,650
1,3371,640
7,8706,934
5,513
2,461
1,8651,486
12,58811,70312,5596,1252,6772,349
International Domestic Other
Coke’s growth comes from international- Soft drinks sales for Coca-Cola
$ millionsSource: Company annual report, 2001
1980 1985 1990 1995 1998 2000
17655
1,650
1,3371,640
7,8706,934
5,513
2,461
1,8651,486
12,58811,70312,5596,1252,6772,349
International Domestic Other
International soft drink sales drives growth
Pepsi’s growth is coming from Frito-Lay- Soft drinks sales for Pepsi
$ millionsSource: Company annual report, 2001
1980 1985 1990 1995 1998 2000
1,8422,385
3,0401,4893,289
8,266
7,427
5,035
2,7252,368
15,30711,6978,60010,9914,8603,607
Other Domestic International
Pepsi’s growth is coming from Frito-Lay- Soft drinks sales for Pepsi
$ millionsSource: Company annual report, 2001
1980 1985 1990 1995 1998 2000
1,8422,385
3,0401,4893,289
8,266
7,427
5,035
2,7252,368
15,30711,6978,60010,9914,8603,607
Other Domestic International
Other than soft drinks drives its growth
Pepsi bought Quaker Oats in 2001- Food and beverage sales
$ billionsSource: Company annual report, 2005
General Milles
Anheuser-Busch
Groupe Danone
Diageo
Coca-cola
Unilever
PepsiCo
Kraft
Nestle
0 10 20 30 40 50 60
Pepsi bought Quaker Oats in 2001- Food and beverage sales
$ billionsSource: Company annual report, 2005
General Milles
Anheuser-Busch
Groupe Danone
Diageo
Coca-cola
Unilever
PepsiCo
Kraft
Nestle
0 10 20 30 40 50 60
Pepsi became world’s third largest food and beverage company
Part 2. Business Strategy Analysis
Soft drink industry briefCorporate overviewCorporate vision and missionBusiness / Functional strategySWOT analysis from competitiveness and environmental analysis
Industry Brief- Concentrate producer, Bottler, Retail channel
ConcentrateProducers ...
• blend raw material ingredients, packaged it in plastic canisters, and shipped the blended ingredients to the bottler.
• are responsible for advertising, promotion, market research, and maintaining bottler relationship.
Bottlers ... • purchase concentrate, add carbonated water and high fructose corn syrup, bottled or canned the CSD, and delivered it to customer accounts.
• The bottling process is capital-intensive.• Gross profits often exceed 40%, but operating
margins are thin.
Retail Channels ...
• are food stores, fountain outlets, vending machines, convenience stores, and other outlets.
Corporate Analysis
2005 Sales $32.5 billion (11.3% growth)
2005 Net income $4 billion (3.2% growth)
2004 Employees 153,000 (7% growth)
CEO Steven S. Reinemund
Top CompetitorsCoca-Cola
Cadbury SchweppesKraft Foods
Forbes 2000 128th place (Coke: 144th place)
Corporate Mission
1. Care for customers, consumers and the world we live in
2. Sell only products we can be proud of
3. Speak with truth and candor
4. Balance short term and long term
5. Win with diversity and inclusion
6. Respect others and succeed together
Pepsi International35%
Quaker Oats5%
Frito-Lay32%
Pepsi28%
Pepsi Sales Analysis- Frito-Lay, Pepsi, Quaker Oats, Pepsi International
$ millionSource: Company annual report, 2005
Pepsi Brands- Frito-Lay, Pepsi, Quaker Oats
Business / Functional Strategy
1. Extend global snack leadership
2. Extend global beverage leadership
3. Expand “smart” choices
4. Sustain productivity for growth
SMART• Start with a healthy breakfast• Move more• Add more fruit, veggies & whole grains• Remember to hydrate• Try lower calories or fat
SMART Spot• Put green dots on package,
if product qualifies the criteria
Business / Functional Strategy- Expand “smart” choices
Weakness• lack of long-term strategy
Strength• Enough growth momentum
for short term.
Strength and Weakness- From Business / Functional Strategy
Competitiveness Analysis- Financial ratio comparison with major competitors
Pepsi Schweepers Coca-Cola Kraft
Market Capital 90.68B 20.38B 103.96B 57.44B
Net profit 14.27% 6.72% 22.07% 8.36%
ROE 33.02% 15.35% 32.47% 9.34%
EPS (5 yr.) 11.87% -6.16% 15.34% 5.26%
PER 22.37 25.35 21.56 21.35
% insider own 0.54% 1.00% 12.76% 84.02%
Payout Ratio 25.51% 58.69% 37.56% 48.49%
Source: SMIP, 2005
Weakness• Insider owns little amount of
the company’s stock.• Low payout ratio.
Strength• Close to Coca-Cola, the
1st player, in many numers like market cap., net profit, and EPS.
• Industry leading company in terms of ROE
• Pepsi is far above other competitors except Coca-Cola in terms of EPS 5-yr. growth
Strength and Weakness- From financial ratio analysis
Competitiveness Analysis- Major brands of Kraft
Competitiveness Analysis- Major brands of Coke
Competitiveness Analysis (Coke)- Non-CSD sales
PowerAdeGatorade
76%
15%
Sports Drinks$ 2.6 billion
NesteaLipton
38%27%
Tea-based drinks$ 3.5 billion
DasaniAquafina
13% 8%
Bottled water$ 6 billion
MinuteMaidTropicana
44%
20%
Chilled juice$ 3 billion
Source: Industry Analysts, 2001
Competitiveness Analysis (Coke)- U.S. CSD retail outlets
VendingFountainConvenienceStores
FoodStores
36%32% 31%
35%42%
25%
65%
21%14%
50%
40%
10%
Source: Industry Analysts, 2001
Schweepers
Pepsi
Coke
Competitiveness Analysis (Coke)- International soft-drinks market shares
Africa,Middle east
AsiaPacific
LatinAmerica
Europe, Eurasia
47%
15%
65%
15%
51%
20%
71%
30%
Source: Various sources, 1999
42%32%
NorthAmerica
Weakness• Weak international
distribution channel• Weak sales on fountain
Strength• Diversified product
portfolio• Strong sales on
convenience stores
Strength and Weakness- From products and distribution channel analysis
Environmental Analysis- Increasing number of megastores
Fountain / Vending11%
Convenience store13%
Food store43%
Megastore33%
$ millionSource: Company annual report, 2005
Megastores• Buying decisions are
centralized in the hands of a small core of managers at the retailer’s headquarter.
• Ask suppliers for special customized product.
• Smaller inventory space, frequent delivery.
Environmental Analysis- Potential demand in international market
1999, Consumption per capita (8-oz)• Worldwide average was 125 cans.
• U.S. average was 874 cans.• China average was 22 cans.• India average was 6 cans.• However, population of China was 5 times of U.S. and
population of India was 4 times of U.S.
Environmental Analysis- Obesity-concerned customers
Carbonated soft drinks consumption is shrinking• During the past decade, consumer demand for classic
soft drinks had declined, while sales of healthier options like juice and bottled water had skyrocketed.
Environmental Analysis- Obesity-concerned customers
Overweight children• 17 % of children were overweight (2004).• Coca-cola, Pepsi, Schweppes agreed to stop selling
these products in school.• Couple of weeks ago, Disney and McDonald’s
announced an end of their ten year alliance.• Kid advertisement guidelines
Environmental Analysis- Bottler consolidation
Bottler consolidation• Soft drinks market shrinking damaged independent
bottlers.• Independent bottlers were merged into one, big,
company-owned bottler, and later they spun off.• In 2000, Coke’s top 10 bottlers producing 94% of
domestic volume, while Pepsi’s and Schweppes’ top 10 bottlers produced 85% and 71% of the domestic volume, respectively.
Threat• Increased buying power and
volume of retailers• Decreasing soft drinks
demands from the young age• Less brand loyalty in non-
CSD beverage market.
Opportunity• Still low soft drinks
consumption in developing countries
• Increasing demand for “SMART” products
• Strategic alliance for international distribution with other beverage company
Opportunity and Threat- From environmental analysis
Part 3. Korean Subsidiary
Korean Subsidiary- Value chain
Pepsi International
Korea PepsiCola
Lotte Chilsung
Importconcentrate
Bottling and distributeproduct
Start in 1993 Start in 1970
Pepsi, Mountain Dew, Gatorade
Korean Subsidiary- Revenue
Korea PepsiCola
Lotte Chilsung
Revenue
Soft-drink sales
27B won 33B won
2005 2004
348B won
210B won
7.7%
369B won
239B won
7.24%
Material cost
Pepsi share
Korean Subsidiary- Pepsi market share in Korea
Korea PepsiCola
Lotte Chilsung
Market share
Market share
3.2% 3.1%
2005 2004
42.3%
210B won
7.7%
43.2%
239B won
7.24%
Material cost
Pepsi share inMaterial cost
CokeMarket share
19.8% 18.5%
Thank you