PepsiCo

Company: PepsiCo, Inc
CEO: Ramon Laguarta
Founders: Caleb Bradham
Year founded: 1898 (as Pepsi Cola), 1965 (as PepsiCo Inc.)
 Headquarter: Harrison, New York
Number  of Employees (FY2019): 267,000
Type: Public
Ticker Symbol: PEP
Annual Revenue (FY2019): $67.16 Billion
Profit | Net income (FY2019): $ 7.31 Billion

Products & Services: Pepsi | Mountain Dew | Lay’s potato chips | Gatorade | Tropicana beverages | 7 Up | Doritos tortilla chips | Quaker foods and snacks | Cheetos | Mirinda | Ruffles potato chips | Aquafina bottled water | Tostitos tortilla chips | Mist Twist | Fritos corn chips | Walkers potato crisps
Competitors: Coca-Cola | Red Bull | Kellogg | Unilever | Nestle | Kraft Foods | Campbell Soup Company | Conagra Brands | Link Snacks | Monster Beverage | General Mills

PepsiCo’s Strengths

1. Best Global Brand – According to Forbes 2019 ranking, PepsiCo is ranked # 29 most valuable brand with a brand value of $18.8 Billion.

2. Power of One Strategy – Selling “Food & Snacks” (Frito Lays, Cheetos, Doritos, Kurkure) and “Beverages” (Pepsi, Gatorade, Tropicana) under one umbrella makes PepsiCo a stronger and diversified business. Its food business accounted for 54%, and beverages accounted for 46%.

pepsi revenue breakdown in food and beverage space
Image source: PepsiCo annual report 2019

3. Highly Diversified Portfolio – The main strength of PepsiCo lies in the large number of brands under its portfolio spanning across the food and beverage sector. PepsiCo has 22 brands, such as Pepsi, Diet Pepsi, Pepsi Max, Fritos, and others; each generates more than $1 billion in annual retail sales.

4. Strong Global Presence – PepsiCo has exploited the benefits of a strong global presence by partaking in more than 200 countries across the world. PepsiCo’s overwhelming presence in markets across the world has enhanced global awareness and recognition of the brand among consumers. One of the strengths that has enabled PepsiCo to go head-to-head with competitors, such as Coca Cola.

pepsi US and outside share
Image source: PepsiCo annual report 2019
Pepsi revenue by region
Image source: PepsiCo annual report 2019

5. Direct-Store-Delivery: PepsiCo uses direct store delivery (DSD) for its supply chain and distribution network, which ensures that independent bottlers and distributors deliver beverages, snacks, and foods directly to retails stores. DSD ensures faster restock better in-store promotion and maximum visibility.

6. Market Dominance: The marketplace favors superior and dominant businesses giving them room to dictate terms. According to Information Resources, in 2019, Pepsi accounts for 22 %, and Coca Cola accounts for 20% of the U.S. liquid refreshment beverage category. It exploits its dominance to nurture favorable relationships with retailers gaining significant and easily accessible shelf space.

7. Effective Marketing Strategy: Pepsi understands the importance of marketing evidenced by the fact that it has been sponsoring the Super Bowl halftime show for seven years, reaching an audience of 100 million people in 2019.

8. Iconic Youthful Brand: Pepsi’s target audience has always been a younger generation. Pepsi has nurtured its image as an iconic youth brand. Historically, many iconic ads were targeted towards pre-teens/ teens with the fun element of sports, music, etc.

9. Effective Supply Chain Management: In the current highly globalized marketplace, businesses operate in different markets across the world to attain cost-efficiency, which can be challenging without an effective supply chain management.

Pepsi has one of the most effective supply chain management strategies in the world, allowing the company to exploit cheaper raw materials from countries across the world. Logistical supremacy is a major strength for Pepsi.

For example, in case of coconut water, in which fresh ingredients and refrigeration are needed all the way to retail store shelves. Raw coconut comes from growers in Indonesia and the Philippines; packaging material comes from Europe, Asia, and the Middle East; and storage and redistribution happen at the port of California and New York.

10. Marketing through Sports: Partnerships with sports clubs and organizations provides an invaluable opportunity to advertise directly to consumers in sporting arenas.

For example, Pepsi entered into a 7-year championship level partnership with the Tampa Bay Lightning and AMALIE Arena.

11. Strong Corporate Social Responsibility: PepsiCo Foundation (philanthropic division) works with hundreds of international, national, and community-based organizations to enhance resource sustainability and tackle challenges facing societies across the world.

For example, PepsiCo has partnered with the Inter- American Development Bank (IDB) in projects providing clean drinking water and improved sanitation in Latin America.

12. Customer Loyalty: PepsiCo has an extremely loyal customer base, particularly among the younger generation who love the iconic taste of the company’s soft drinks.

Recently, Pepsi has launched a first-ever cash back loyalty program “PepCoin” to reward their loyal customers with cash prizes for pairing their favorite soft drink and snack.

PepsiCo’s Weaknesses

1. Overdependence on Food and Beverages: Over dependency on carbonated soft drinks and packaged foods undermine companies’ flexibility and agility in case of turmoil in that segment. PepsiCo decided to go against the wise men by putting its eggs in one basket – food and beverages. The company should diversify to avoid the possibility of losing everything.

2. Products Perceived as Unhealthy: Perception is everything when it comes to consumer products such as soft drinks and snacks. Most of PepsiCo’s carbonated soft drinks contain high sugar concentrates while its snacks are excessively salted with chemical additives and flavors. This a major weakness, particularly in the current health-conscious consumer markets.

3. Effects of Failed Products: Failure in any venture is a weakness. PepsiCo’s failed products such as Crystal Pepsi (Colorless Cola), Pepsi Blue, etc. demoralized employees and portrayed them as incompetent in the public sphere giving room for the competition to grow.

4. Controversial Advertisements: Companies are required to use their elevated position to advance society’s common good. Unfortunately, in 2017, PepsiCo’s advert featuring Kendall Jenner was criticized for trivializing the Black Lives Matter movement. The ad was pulled after one day.

The company released this statement:

“Pepsi was trying to project a global message of unity, peace, and understanding. Clearly, we missed the mark, and we apologize. We did not intend to make light of any serious issue. We are removing the content and halting any further rollout. We also apologize for putting Kendall Jenner in this position.”

This is a major weakness compared to the positive values of life, such as family get-togethers consistently advocated for in most of Coca Cola’s advertisements.

PepsiCo’s Opportunities

  1. Product Diversification: Diversification into different segments enables businesses to exploit benefits beyond their traditional field of operation and attain stability. Even though PepsiCo has 22 brands under its portfolio, all these brands are concentrated within the food and beverage industry. PepsiCo can exploit benefits in other segments by diversifying its products portfolio into other sectors beyond food and beverages, such as sportswear, through the acquisition of a small but established sportswear brand.
  2. Expand E-Commerce: More customers are using digital channels for online shopping. PepsiCo has the opportunity to exploit the benefits of online shopping by expanding its e-commerce (mobile apps) and grow sales through these channels.
  3. Enhance Alliances and Partnerships: In a globalized marketplace, businesses that seek and nurture strong alliances and partnerships are more successful. For example, PepsiCo can extend the current partnership with Starbucks into other areas to harness all benefits of their partner’s numerous coffee outlets.
  4. Increase Consumer-Driven R&D: Adaption to changes in the marketplace is the key to success. PepsiCo has the resources to increase investment in research and development, manufacturing, and go-to-market capabilities and attain an edge over competitors in the changing consumer and retail landscapes.
  5. Expanding Operations in Emerging Market: The rapid growth and improved economic situation in emerging markets in Africa, Asia, and South America provide PepsiCo with an invaluable opportunity to expand its operations in these markets and grow its customer base.
  6. Efforts towards Health-Conscious customers’ needs: PepsiCo has increased its focus on reducing sugar, salt and fat in 75% of its food products by 2025 to less than 100 calories of added sugar per 12 ounces, 1.3 milligrams of sodium per calorie and less than 1.1 grams of saturated fat per 100 calories.
  7. Increase Healthy Options: The fact that most of the soft drinks and snacks offered by PepsiCo are considered as unhealthy implies that there is room for improvement. Only 44% of PepsiCo’s beverage portfolio has under 100 calories per serving, which are high and unhealthy. The company can exploit the opportunities presented by an increasing number of health-conscious consumers by broadening product lines to include healthy options such as milk or vegetable-based shakes.
  8. Introduce New Flavors: Companies need to adapt to changes in consumer preferences and tastes by ensuring consistent top-line growth. PepsiCo can introduce new flavors in the soft drinks and snacks offered to the market and expand its customer base.
  9. Enhance Corporate Social Responsibility: Consumers’ decisions are influenced by sentimental and emotional values. PepsiCo can enhance its corporate social responsibility activities to enhance the sustainable use of renewable resources and tackle issues affecting consumers directly, which strengthens loyalty while attracting new customers.
  10. Acquisition of Energy Drink– In March 2020, PepsiCo announced its plans to acquire Rockstar Energy Beverages for $3.85 Billion to compete with its biggest competitors Monster Beverage in energy drink space.
  11. At home Soda Machine – The company further expanded its push into healthier fare with the $3.2 billion acquisition of at-home seltzer maker SodaStream and subsequently launched of sparkling water brand Bubly.

PepsiCo’s Threats

  1. Stiff Competition: PepsiCo’s profitability and market share are threatened by stiff competition from Coca Cola, Nestle, Dr. Peppers, Unilever, and so on. The competition also threatens long-term sustainability and profitability because it increases the cost of protecting market share through adverts, promotions, and discounts to retain customers.
  2. Economic Slowdown or Recession: Even though food and beverage consumer markets are going strong, the possibility of a slowdown or recession soon cannot be ruled out. In case of a recession, PepsiCo can incur losses because its product portfolio is concentrated with products, which are usually among the first expenses to be dropped by consumers during economic hardship. In the 2008-09 recession, Pepsi had to cut over 3300 jobs due to a decrease in soft drink sales.
  3. Competitors Adopt Technology More Effectively: In the current technologically advanced and highly competitive business arena, the success or failure of businesses depends on the adoption rate of emerging technologies. PepsiCo can lose competitive advantage to competitors if they adopt game-changing technologies more effectively.
  4. Changes in Demographics: Changes in demographics and economic situation transforms target markets, which can impact businesses negatively. For example, the demographics of Nordic nations such as Sweden (median age 41.1 years) have shifted with an increase in older consumers and a decreased number of youths. These changes can threaten PepsiCo’s profitability and sustainability because a large portion of its customer base consists of the youth.
  5. Increase in Trade Tensions: Uncertainty and instability impede effective operations. In the past two years, US-China trade tensions have increased uncertainty and instability in global markets. PepsiCo’s global operations can be undermined if trade tensions escalate, leading to trade war, isolationism, and protectionism in the company’s markets overseas.
  6. Government Laws and Regulations: In the recent past, governments have increasingly adopted pro-health regulations to reduce lifestyle diseases and illnesses attributed to junk and unhealthy products. Escalation of this trend in the future can undermine profitability, sustainability, and even the existence of PepsiCo since its product portfolio consists mainly of unhealthy soft drinks and snacks.
  7. Increasing Health Consciousness: The fact that most of the soft drinks and snacks offered by PepsiCo are considered as unhealthy implies that increasing health consciousness in consumer markets is a threat (Cannibalism) to the company.

Sources:

https://bstrategyhub.com/pepsico-swot-analysis/

Pepsi SWOT Analysis (2020). Business Strategy Hub. (2020, June 10). https://bstrategyhub.com/pepsico-swot-analysis/.

Acknowledgement: We gratefully acknowledge the Business Strategy Hub organization for their efforts in sharing information about strategic management and corporate analyses. Thank you Business Strategy Hub team.

https://bstrategyhub.com/pepsico-swot-analysis/

Pepsi SWOT Analysis (2020). Business Strategy Hub. (2020, June 10). https://bstrategyhub.com/pepsico-swot-analysis/.

Acknowledgement: We gratefully acknowledge the Business Strategy Hub organization for their efforts in sharing information about strategic management and corporate analyses. Thank you Business Strategy Hub team.