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Primary Question for PepsiCo. Can PepsiCo continue their strong performance in the North America market, and also strengthen their presence in developing markets, while at the same time responding to changes in consumers’ preferences?. Secondary Questions. - PowerPoint PPT Presentation
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Primary Question for PepsiCo
Can PepsiCo continue their strong performance in the North America market, and also strengthen their presence in developing markets, while at the same time responding to changes in consumers’ preferences?
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
Keys to PepsiCo’s Success and Growth
Soft Drinks
Salty Snac
ks
Complement
ary Goods
Strategi
c Acquisition
Ability to Buil
d Strong
Brands
Strong
Relationshi
ps with
Retail Partn
ers
Growth
PepsiCo Growth: Key M&A ActivityDate Activity Primary Result
1961 Merger of Pepsi-Cola and Frito-Lay Soft Drink + Salty Snack
1977 -1986 Acquire Pizza Hut, KFC, Taco Bell Soft Drink, Snack, Fast Food
1980s – 1990s Acquire Mug, 7-Up, Sun Chips, many QSRs,
Strengthened portfolio of snack and beverage
1997 Spinoff restaurants Refocused on drink + snack
2001 Acquire Quaker Oats Gatorade, oatmeal, and several well-known grocery brands
2001+ “Tuck-in” acquisitions of small fast growing companies
International portfolio growth
PepsiCo Growth: Reacting to Consumer
Increased Awareness
of Nutrition
Increase non-carb bev presence
Reformulate existing
products
PepsiCo GrowthSeveral successful mergers and acquisitions over the years.
Successful at reacting to changing consumer preferences
Adapting to changes in the external environment are critical to sustainable growth!
External Environment: PESTCategory Issue Threats/Opportunities Ranking
(1-5)
Political FTC stipulations to merger of Quaker Oats
Threat- not allowing PepsiCo to utilize Power of One Strategy with Gatorade. May impact their ability to acquire other
companies in future.
4
Economic Rising incomes in BRIC countries Opportunity – increase in
discretionary income will raise spend on drinks and snacks
5
Social Change in customer preferences to healthier food and drink options in developed countries
Threat to many of PepsiCo’s existing products.
Opportunity for Quaker brands and new product innovation
4
Technological IT improvements in distribution network.Opportunity – improved
relationships with retailers, less chance of stock outs.
3
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
US Liquid Refreshment MarketBeverage Share of Total
US BeveragesVolume Growth
RatePepsi Brand Pepsi Market
SharePepsi Market
PositionCarbonated Soft
Drinks48% -2.6% Several 31.1% #2 behind Coke
(41.6%)Bottled Water 29% 6.9% Aquafina 15% #1
Fruit Beverages 13% -3.3% Tropicana 30% #1, Coke Brand Minute Maid #2
at 25%Sports Drinks 4.4% 2.5% Gatorade 76% #1
RTD Tea/Coffee 3% 14.3% Lipton and Frappuccino
39.5% #1, 4x Coke’s Nestea
Enhanced Water
1.7% 30.5% Propel 40% #1
Energy Drinks 1% 24.6% SoBe Negligible Negligible (Red Bull #1 at 40%)
Pepsi trailing Coke in large but negative growth carbonated soft drinks. Also little presence in high growth energy drinks. Possibly look to acquire Red Bull.
Pepsi dominating in the rapidly growing non-carbonated beverage categories which position it well in North American market as consumers look for healthier drink options.
PepsiCo’s International Salty Snack Food Market Share by Country
Country 2006 % of Market Share
2010 Market Sizes (projected)
Mexico 75 #4Holland 59South Africa 57Australia 55Brazil 46 #1 or #2India 46United Kingdom 44 #3Russia 43 #5Spain 41China 16 #1 or #2
There is significant growth opportunity in international markets. PepsiCo will need focus on gaining more market share in the top 3 markets in 2010. They will also benefit from an increase in servings per month in both developed and developing international countries.
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
Strategic Fit and Growth Potential of Select ProductsProduct Group Strategic Fit?
Snack + Bev = Success
US Organic Growth Potential
Intl Organic Growth Potential
Salty Snack Yes Low HighSweet Snack Yes Low – small offering LowSoft Drink Yes Low HighFunctional Water Yes High HighIsotonic Bev Yes High – FTC ruling ending HighCereal No Low LowOther Quaker Oats No Low LowNon Carb Yes High HighEnergy Yes Low – way behind comp. High
Outlook of PepsiCo’s PortfolioTopic Analysis
US Market Opportunity = Emerging products (Functional H20, Isotonic, Non-Carb)
International Market Opportunity = Core products (Salty + Soft Drink) and emerging products
Sweet Snack Fits strategically but PepsiCo is behind competition
Energy Drink Fits strategically but PepsiCo is behind competition
Quaker Products Low Growth and contradicts success factors
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
Quaker Oats = Mixed Performance
Breakfast Cereals/ Oatmeal Quaker Oats
Aunt Jemima and PastaRoni/Rice-A-
Roni
Cereals hold third largest market share in N.A. (14%) with projected growth
Strong domestic and international sales in oatmeal products – able to customize to different markets
58% market share in N.A.
Organic options and healthy alternative for breakfast – aligned with consumer preferences
Sales are declining
Business are not aligned with core business strategy
Products are not aligned with healthy social trends
Conclusion – Sell Cereals, Aunt Jemima and PastaRoni/Rice-A-Roni product lines – not in line with core business strategy. Continue to customize Oatmeal and Quaker Oats products to meet consumer preferences in each market. Both products appeal to healthy living trend.
PepsiCo Beverage PortfolioCarbonated Drinks
Fruit Juices Bottled Water
Isotonic Sports Drinks
Energy drinks
PepsiMountain Dew
Gatorade
Analysis: Red Bull holds 40% market share for energy drinks. PepsiCo lacks a real player in this growing market. – Acquisition target
TropicanaAquifina
Opp to acquire Red Bull
SoBe Energy Drinks – hold negligible market share
Snack Market Comparison
Frito-Lay70%
All others30%
Salty Snack Market PepsiCo
21%
12%
9%
6%5%2%1%
7%
37%
Sweet and Salty Snack Market
PepsiCoKraft FoodsHersheyKelloggMaster FoodsGeneral MillsProcter & GamblePrivate LabelOthers
Majority of Market Share Market Share Competition
Analysis: PepsiCo is extremely successful with salty snack market while sweets are severely underperforming. Sweets also work against healthy social trends. Sell Grandma’s Cookies and other sweet snacks.
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
PepsiCo Organizational Structure 2007PepsiCo Inc.
Frito Lay North America (FLNA)
29% Net Revenue
36% Operating Income
28% Capital Expenditures
22% Total Assets
PepsiCo Beverages North America (PBNA)
26% Net Revenue
28% Operating Income
20% Capital Expenditures
24% Total Assets
Quaker Foods North America (QFNA)
5% Net Revenue
7% Operating Income
2% Capital Expenditures
3% Total Assets
PepsiCo International (PI)
40% Net Revenue
29% Operating Income
50% Capital Expenditures
50% Total Assets
Secondary Questions• What has enabled PepsiCo to grow to be the world's largest
snack and beverage company?• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
PepsiCo International Markets
Country/Region Carbonated Market Share
Salty Snack Market Share
India 49% 46%
Russia 24% 43%
China 36% 16%
Brazil N/A 46%
Mexico N/A 75%
Country Carbonated Soft Drinks per month
Salty Snacks per month
United States 60 servings 6.6 servings
Other Developed
23 servings 4.0 servings
Developing 6 servings 0.4 servings
1. Great opportunity for growth in both developed and developing international markets, especially Brazil and China. Strong market share in many today, with exception of China
2. Pepsi should be focused on growing market share in China Salty Snacks, predicted to be largest market by 2010.
3. Power of One strategy could play well in international markets.
Quaker Foods Brands
Weak International Sales ($500 million total, 75%
from 6 countries)
Strong sales (over ½) in better-for-you
and good-for-you products
With exception of Gatorade, Quaker brands have limited success internationally.
Opportunity for growth in US and developed countries as consumers shift to eating healthier.
Quaker Foods North AmericaProduct Volume
Growth RateMarket Share Market
PositionQuaker Oats N/A 58% #1
Quaker Ready to Eat Cereal
Mid single digits
14% #3 behind Kellogg’s (30%) and General Mills (26%)
Aunt Jemima Slight decline N/A #1
Rice-A-Roni Double digit decline
33% N/A
Many Quaker Foods brands have strong market share, but not in the salty food or beverage markets. Majority of brands compete in Ready to Eat Cereal space, against well-established competitors Kellogg’s and General Mills.
Salty Snack Food Industry – Key Trends
• Due to these 3 key industry trends, PepsiCo started developing new flavors of salty snacks, using healthier oils in chips, & packaging snacks in smaller bags.
• PepsiCo should differentiate its products while staying committed to the industry trends.
Frito Lay’s Commitment to Industry Trends
• Eliminating trans fats & acquiring Flat Earth showed FLNA’s commitment to the publics growing awareness of nutritional content.
• Introduction of new chip flavors was a commitment to the indulgent snacking trend.
• Did these commitments to industry trends help or hurt PepsiCo’s market share of convenience food?
U.S. Convenience Food Market Share
21%
12%
9%
37%
PepsicoKraft FoodsHersheyKelloggMaster FoodsGeneral MillsP&GPrivate LabelOthers
• PepsiCo is the leading manufacturer in the market due to its commitment to industry trends.
• Their only close competition seem to be from Kraft Foods & Hershey. But you cannot count out the 37% of the market that “other” manufacturers currently have.
• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?
• How is the performance of PepsiCo's current product portfolio?• What does the success of PepsiCo's industries look like long
term?• What actions could PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances
of those divisions?• What does the success of PepsiCo's divisions look like long term?• What actions could Pepsi take to better focus the structure of
the organization towards high growth markets?
Secondary Questions
PepsiCo after 2008 RealignmentPepsiCo Inc.
PepsiCo Americas Beverages PepsiCo Americas Foods
Frito Lay North America
Quaker Foods North America
Latin America Foods
PepsiCo International
UK and Europe
Middle East, Africa, Asia
Appears goal of realignment of divisions was to put more focus on growth outside North America.
Question we have is did PepsiCo go far enough? Does not appear to be much of a change.
2008 Realignment – Not Far Enough
Proposed RealignmentPepsiCo Inc.
PepsiCo Americas
PepsiCo Americas Food
PepsiCo Americas Bev
PepsiCo Europe
PepsiCo Europe Food
PepsiCo Europe Bev
PepsiCo Asia
PepsiCo Asia Food
PepsiCo Asia Bev
PepsiCo Middle East & Africa
PepsiCo Middle East & Africa Food
PepsiCo Middle East & Africa Bev
This structure appropriately puts more focus outside of North America.
PepsiCo is better structure to execute its success factors and to employ the Power of One strategy as it applies to each region.
Slides that follow still need to be
placed
Question Facing PepsiCo
Non-Carbonated
Drinks
Healthy Snacks
Complementar
y Good
s
DOES
RecommendationsStrategi
c Acquisition
Ability to Build Strong
Brands
Strong
Relationshi
ps with
Retail Partn
ers
Gro
wth
• Look to acquire an energy drink company (i.e. Red Bull) , stick with formula that has worked in the past…
• Divest parts of Quaker Oats brand that do not fit into PepsiCo’s success formula (i.e. Pancake & Cereal Brands)