STRATEGIC MANAGEMENT

REPORT

ON

PEPSICO INDIA

Submitted By:

Akanksha Gupta

MBA- Agriculture and Food Business

A1403114009

Amity Institute of Organic Agriculture

COMPANY PROFILE

Business definition, Vision, Mission and Objectives

MISSION

As one of the largest food and beverage companies, in the world (3), our mission is to provide consumers (1) around the world with delicious, affordable, convenient and complementary foods and beverages (2) from wholesome breakfasts to healthy and fun daytime snacks and beverages to evening treats. We are committed to investing in our people (9) , our company and the communities where we operate to help position the company for long-term, sustainable growth (5).

1. Customers

2. Product Services

3. Markets

5. Survival Growth profit

9. Employees

VISION

• At PepsiCo, we're committed to achieving business and financial success while leaving a positive imprint on society – delivering what we call Performance with Purpose.

• In practice, Performance with Purpose means providing a wide range of foods and beverages from treats to healthy eats; finding innovative ways to minimize our impact on the environment and reduce our operating costs; providing a safe and inclusive workplace for our employees globally; and respecting, supporting and investing in the local communities where we operate.

Three elements have been covered:

Significantly stretch

Inspire

Unite

BRANDS

Foods

PepsiCo’s foods division Frito-Lay is the leader in the branded salty snack market. All its products are free of trans-fat and MSG. It manufactures Lay’s potato chips, Cheetos extruded snacks, Uncle Chipps and traditional snacks under the Kurkure and Lehar brands.

The company’s high-fibre breakfast cereal, Quaker Oats increase the number of healthy choices available to consumers.

• Cheetos

• Kurkure

• Lay’s

• Lehar Namkeen

• Quaker Oats

Beverages

• PepsiCo India’s expansive portfolio includes iconic refreshment beverages Pepsi, 7UP, Nimbooz, Mirinda, Slice and Mountain Dew, in addition to low-calorie options such as Diet Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports drink Gatorade and fruit juices such as Tropicana and Tropicana 100%.

• 7UP

• Aquafina

• Duke's

• Gatorade

• Mirinda

• Mountain Dew

• Nimbooz

• Pepsi

• Slice

• Tropicana

• Uncle Chipps

• Indra Krishnamurthy Nooyi , who was ranked No. 11 in Fortunes list of the most powerful women in business, joined the company in 1994and was named CEO in 2001. She was born in India and has done her education in India . She has been the chief executive of PepsiCo since 2006. During her time, healthier snacks have been marketed and the company is striving for a net-zero impact on the

environment. This focus on healthier foods and lifestyles is part of Nooyi’s "Performance With Purpose" philosophy.

WORLD’S HEADQUARTERS

PepsiCo World Headquarters is located in Purchase at New York.

A. Business history (current location, age, size, growth rates etc.) have a look at the past decade.

PEPSICO IN INDIA

• PepsiCo and its partners have invested more than US$ 700 million in India - building businesses, which today provide direct or indirect employment to more than 150,000 people.

• PepsiCo entered India’s hot beverages category in2003 through a tie-up with Hindustan Lever Ltd.,a leader in hot beverages and owner of the Lipton brand. To produce its beverages, PepsiCo has 37 bottling plants in India, including 17 company-owned plants and 20 owned by franchisee partners.

• FritoLay India is one of the market leaders in the Indian snack foods segment and has other brands like Cheetos (potato wafers), Quaker Oats and Aliva low fat baked biscuits. The Lays potato chips, however, dominates the other brands.

• Frito-Lay, the snack food division of PepsiCo India, is contemplating export of indigenously-developed products Kurkure and Aliva to markets such as the US and UK. Kurkure, a cheeto-like snack is already exported to Pakistan. Aliva, a cracker launched last year, is yet to be exported.

• The flavor concentrates used to make soft drinks are produced at a separate state-of-the-art plant at Channo in the Sangrur district of Punjab and supplied all across South Asia.

• PepsiCo has invested heavily in building local production facilities and transferring agro technology to the country. The company also undertakes contract farming across the country to source raw materials for its products.

WORKING METHODOLOGY

PepsiCo is organized in three business units, as follows:

PepsiCo Americas Foods (PAF) which includes Frito- Lay North America, Quaker Foods North America and all of our Latin American food and snack businesses (LAF).

PepsiCo Americas Beverages (PAB) which includes PepsiCo Beverages North America and all of our Latin America beverage businesses.

PepsiCo International (PI) which includes all PepsiCo businesses in the United Kingdom, Europe, Asia, the Middle East and Africa.

PepsiCo’s three businesses units were comprised of six reportable segments, as follows:

1. Frito- Lay North America (FLNA) FLNAs most significant properties include its headquarters building and a research

facility in Plano, Tex., both of which are owned. FLNA also owns or leases approximately 40 food manufacturing and processing

plants and approximately 1,750 warehouses, distribution centers and offices. FLNA also utilizes approximately 55 plants and production processing facilities that

are owned or leased by contract manufacturers or co-packers.

2. Quaker Foods North America (QFNA) QFNA owns a plant in Cedar Rapids, Iowa, which is its most significant property. QFNA also owns or leases five plants and production processing facilities in North

America. QFNA utilizes approximately 25 manufacturing plants, production processing

facilities and distribution centers that are owned or leased by our contract manufacturers or co-packers.

3. Latin America Foods (LAF) LAFs most significant properties include a food plant in Celaya, Mexico, and three

snacks plants in the Mexican cities which are owned. LAF also owns or leases approximately 50 food manufacturing and processing plants

and approximately 660 warehouses, distribution centers and offices. LAF also utilizes one plant facility that is owned by a contract manufacturer.

4. PepsiCo Americas Beverages (PAB) PAB also owns or leases approximately 40 plants and production processing facilities

and approximately 50 warehouses, distribution centers, and offices. In addition, authorized bottlers in which they have an ownership interest own or lease

approximately 65 bottling plants.

PAB also utilizes approximately 70 plants and production processing facilities and approximately 60 warehouses and distribution centers that are owned or leased by contract manufacturers or co-packers.

5. United Kingdom and Europe Europes most significant properties are its snack manufacturing and processing plants

located in U.K., each of which are owned. Europe also owns or leases approximately 35 plants and approximately 320

warehouses, distribution centers and offices. In addition, authorized bottlers in which they have an ownership interest own or lease

seven plants and approximately 30 distribution centers. Europe also utilizes approximately one plant and production processing facility and

approximately two distribution centers that are owned or leased by contract manufacturers.

6. Asia, Middle East & Africa (AMEA) AMEAs most significant properties are its beverage plant located in Shenzhen, China,

and its snack manufacturing and processing plant located in Tingalpa, Australia, each of which are owned.

AMEA also owns or leases approximately 100 plants and approximately 1,100 warehouses, distribution centers and offices. In addition, authorized bottlers in which they have an ownership interest own or lease approximately 25 plants and 120 distribution centers.

AMEA also utilizes two plants and production processing facilities that are owned or leased by contract manufacturers.

B. Statement of management goals: what is top management trying to accomplish?

As they look 2015 and beyond, they remain focused on positioning PepsiCo for long- term sustainable growth while continuing to deliver strong financial results.

C. What are management concerns, issues and problems?

Their business strategies are designed to address key challenges facing their company, including:

Uncertain macroeconomic conditions, including geopolitical, economic and social instability

Evolving consumer tastes and preferences including continued consumer focus on nutritious products

Changes in customer channels including the growth of e- commerce Resource scarcity

They believe that many of these challenges create new growth opportunities for the company. Like continued consumer focus on health and wellness and changes in consumer and distribution channels will provide them with new opportunities to expand their product offerings and interact with their customers and consumers.

In order to address these challenges and capitalize on these opportunities, they intend to do the following:

Strengthen their presence around the world Continue to broaden the range of our product portfolio, including expanding

their offerings of more nutritious products. Continue to adopt to changing customer channels Continue to focus on productivity Continue to embrace sustainable business practices across their supply chain Build and retain top talent Deliver on the promise of Performance with Purpose

UNDERSTANDING OF THE PROBLEM

A. INDUSTRY ANALYSIS (It has to focus on the specific problems)1. Five forces analysis2. Industry driving forces3. Make a conclusion from the five forces concerning expected average

industry profitability.4. What are key success factors for any company in this industry? (Through

Internal and External Factor Analysis)

B. COMPETITIVE ANALYSIS (Relate it specifically to your central strategic issue)1. What is the current strategy of the firm? ( Create a Strategic groups and

work CPM matrix )2. What are the strengths in the firm to pursue the strategy? Weaknesses?

Identify how these strengths and weaknesses fit with the industry key success factors?

3. What are the opportunities in the marketplace relevant to the company? To what external threats is the company vulnerable with its current strengths and weaknesses? What are the industry key success factors to pursue these opportunities? What key success factors are suggested by the threats?

4. Is there unique competitive advantage possessed by this firm?5. What is the key problem that this firm must solve in order to achieve a

sustainable competitive advantage?

INDUSTRY ANALYSIS

External Environment

Potter’s Five Forces Model

Porters Five force model for PepsiCo

Threat of New Entrants

Indian Government encourage foreign investors

Make in India program Ease of access to distribution channel

Intra Industry Rivalry

Coca- Cola Barrier to exit is high

Bargaining power of customers

High population Big market Many options for

buyers Affordable prices as

compared to products like energy drinks

Hot climatic condition encourages buying

Lower switching cost

Bargaining power of suppliers

Many suppliers Low switching cost Suppliers of bottling

and packing holds no power

Threat of substitutes

Substantial product differentiation

Substitutes like water, fresh juices, tea, beer etc.

Growing trends of healthy beverages

PESTLE ANALYSIS

Political Factors

PepsiCo is non alcoholic beverage and has to follow regulated by FDA with consistency. Also, it deals in different markets and every market has its own policies and procedures that are either stringent or either relaxed. Specially cross border situations are very different and Pepsi has to adapt to these changes accordingly.

PepsiCo’s competitors use competitive pricing strategy and Pepsi has to always keep this in mind.

PepsiCo has to also deal with government’s focus on stricter water pollution norms and land aquisition for new factories in different countries.

Economic Factors

Usually whenever there is an economic downturn faced by the economy, companies sales are badly affected and they have to restructure their strategies.. Also, with falling profits companies sometimes have to undergo downsizing. Economic scenario has a great influence on any business. But the economic in 2008 was in Pepsi’s favor. It resulted in increased sales of its beverages as people were jobless and were sitting at home, spending more time with family and friends.

Also, fuel prices greatly affect PepsiC0’s transport costs as there is a lot of distribution involved.

Availability of labor is another very important economic factor .In some countries the labor is quite expensive and if it’s cheap then sometimes labor is not well trained.

Social Factors

Social factors greatly affects Pepsi, as it’s a non-alcoholic beverage that deals worldwide it has keep in mind stark and strict differences of cultures the world wide. Mostly, the social implications are seen in advertising campaigns like some countries have religious festivals, so Pepsi has to keep in line with all these festivals and design advertising campaign accordingly to cash upon the opportunity to the fullest.

Technological Factors

With the technologies coming in, companies have changed their strategies and operations accordingly. A recent trend that has been seen and something that almost every company is inclining toward is Social Media.

Environmental Factors

Also the solid waste management program affects the operations at PepsiCo. PepsiCo has to be extra careful when it comes to waste disposable in order to maintain its image of a socially responsible firm.

Also, PepsiCo introduced plastic bottles and cans and came up with innovative and newer designs.

ETOP ANALYSIS

Helps to identify Opportunities- Threats To consolidate and strengthen organization’s position Helps in formulating appropriate strategy

THREAT MATRIX

High

IMPACT

Low

High Low

PROBABILITY OF OCCURRENCE

OPPORTUNITY MATRIX

High

IMPACT

Low

Major Moderate Threats Threats

Moderate Minor Threats

Threats

Very attractive Moderately

attractive

Moderately Less attractive

attractive

High Low

PROBABILITY OF OCCURRENCE

COMPETITIVE ANALYSIS

Competitor Analysis Components

1. Future Objectives How do our goals compare with our competitor’s goals?

2. Current strategy How are we currently competing? Does the strategies support changes in the competitive structure?

3. Assumptions4. Capabilities

All of these give the response: What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors?

PepsiCo’s Competition-

The beverage, food and snack products of PepsiCo are in highly competitive industries and markets and compete against products of international beverage, food and snack companies that operate in multiple geographies, as well as regional, local and private label manufacturers and other value competitors.

The Coca- Cola Company is the primary beverage competitor. Other beverage, food and snack competitors include Kellogg Company, Kraft Foods Group Inc., Mondelez International, Monster Beverage Corporation, Nestle S.A., Red Bull GmbH and Synder’s- Lance Inc.

The beverage, food and snack products compete primarily on the basis of brand recognition, taste, price, quality, product variety, distribution, advertising, marketing and promotional activity, packaging, convenience, service and the ability to anticipate and respond to consumer trends.

THE COMPETITIVE PROFILE MATRIX

CPM identifies a firm’s major competitors.

Success in this competitive environment is dependent on:

Effective promotion of existing products Introduction of new products Effectiveness of PepsiCo’s advertising campaigns Marketing programs Product packaging Pricing Increased efficiency in production techniques New vending and dispensing equipment Brand and trademark development and protection

Strength of the brands, innovation and marketing, coupled with the quality of PepsiCo’s products and flexibility of the distribution network, allows PepsiCo to compete effectively.

The identified Critical Success Factors for PepsiCo are:

Internal Environment

Internal Analyses Outcomes

Unique resources, capabilities and competencies (required for sustainable competitive advantage.)

Components of Internal Analysis leading to Competitive Advantage and Strategic Competitiveness-

• Valuable• Rarity• Costly to imitate• Non- substitutability

Resources-

Are the source of a firm’s capabilities Cover a spectrum of individual, social and organizational phenomenon Are a firm’s assets

Capabilities-

Discovering Core Competencies

Competitive Advantage

Strategic Competitiveness

Four criteria of sustainable Advantages

Value Chain Analysis

Core Competencies

Capabilities

Resources

Tangible Intangible

Outsource

Represent the capacity to deploy the resources that have been purposely integrated to achieve a desired end state.

Based on human capital

Core Competencies- Resources and capabilities that are the sources of a firm’s competitive

advantage. Activities that a firm performs itself

IFE MATRIX

S No. Business Strengths

Weight Rating Weighted Score

1. Market Share

0.100 2 0.2

2. Share Growth

0.150 2 0.3

3. Product quality

0.100 4 0.4

4. Brand Reputation

0.100 4 0.4

5. Distribution network

0.050 3 0.15

6. Promotional effectiveness

0.150 2 0.3

7. Productive capacity

0.025 4 0.1

8. Productive efficiency

0.025 3 0.075

9. Unit costs 0.050 3 0.15

10. Material supplies

0.050 5 0.25

11. R & D Performance

0.050 4 0.2

12. Managerial Personnel

0.150 5 0.75

1.000 3.275

SWOT ANALYSIS

STRENGTHS

Product diversity Extensive distribution channel CSR Competency in mergers and

acquisitions 22 brands earning more than $ 1

billion a year Successful marketing and

advertising campaigns Complementary product sales Proactive and progressive

WEAKNESSES

Low pricing Questionable practices Weak brand awareness Too low net profit margin

OPPORTUNITIES

Growing beverages and snacks consumption in emerging markets

Increasing demand for healthy food and beverages

Further expansion through acquisition

Bottled water consumption growth Savory snacks consumption growth

THREATS

Changes in consumer tastes Water scarcity Decreasing gross profit margin

STRATEGY IMPLICATIONS OF ATTRACTIVENESS/ STRENGTH MATRIX

BCG MATRIX

Shows the product portfolio analysis of the PepsiCo using BCG Matrix analysis.  Accordingly, PepsiCo is consisted of 5 major brands: Gatorade, Quaker, Pepsi products, Frito-Lay and Tropicana. As mentioned the assessment has been based on each products provided by the company.  With this, it shows that the products that belong to the question mark are Gatorade and also Tropicana. Because of the emergence of different healthy drinks and beverages in the global market, the market share of Tropicana and Gatorade are being threatened. Although these brands have already established in the marketplace, the company still needs to have an effective marketing approach to increase the sale of these brands or brands. Accordingly, question mark category means that these products have a low share of a possible high growth market and may become a star product because of the positive response of the customers.

As can be seen in the figure, the services that fall in star category are is the pay-is Pepsi brands. The star category shows the products with a high share of a gradual growth of market and these products have a tendency to produce high amount of profits. The next category that can be seen in the figure is the cash cows.  Herein, the products are considered to have a high share of a slow growth market ( 2005).  With regards to the PepsiCo, services that can be considered in the cash cows are the Quaker. Lastly, it can be seen that Tropicana, Gatorade and Frito-Lay are products that can be considered in the dogs’ category.

ANALYSIS OF CURRENT STRATEGIES

Make a clear statement of your strategic perspective. Analyze there corporate strategies followed over the past decade, how it lays foundation for theirGeneric strategies and its integration with functional strategies,

Do its portfolio analysis to create a relative structure for strategy,

For example:

1. Who is the customer?

2. What is the product you are trying to sell?

3. What scope of activities will you be performing?

4. Where (geographically) will the company be if they select this alternative (national? regional? local?)?

5. Strategic and financial objectives;

6. Quantified performance target that directly measures the strategic alternative;

7. Timetable for accomplishment.

8. What are the strengths in the firm to pursue the strategy? Weaknesses? How do these fit with the industry key success factors?

9. What are the opportunities in the marketplace pursued by the strategy? To what external threats is the company vulnerable with this alternative strategy? What industry key success factors are suggested by these opportunities and threats?

10. What is the unique competitive advantage that will be possessed by this firm if it successfully pursues this alternative or follows your recommendation(s)?

11. How likely is this approach to succeed? What are the downsides?

CORPORATE STRATEGY

• Strategic planning can be defined as “the process of determining an organisation’s primary objectives and adopting courses of action that will achieve these objectives” and it plays a critical role in ensuring long-term growth of a business entity.

• PepsiCo mission statement has been worded by CEO Indra Nooyi as ‘Performance with Purpose’ and this principle is closely integrated with the strategic direction chosen for the company.

• The most prominent aspects of PepsiCo strategy forwarded by Ms Nooyi are based on the following seven principles.

• First, international market expansion strategy through mergers and acquisitions. Mergers and acquisitions can offer the advantages of gaining access to competencies and infrastructure, reducing direct costs and overheads and achieving organic growth.

Recently, PepsiCo has engaged in important mergers and acquisitions such as acquisition of juice and diary businesses Lebedyansky and Wimm-Bill-Dann in Russia, Lucky snacks and Mabel cookies in Brazil, and Dilexis cookies in Argentina.

Second, formation of strategic alliances in global scale. Specifically, strategic partnerships have been formed with Tingyi in China in order to claim a share in growing beverage market in China. Moreover, formation of a joint-venture with Tata in India to enhance drinking water manufacturing capabilities, and initiation of strategic partnership with Almarai in Saudi Arabia can be mentioned to illustrate PepsiCo’s adoption of strategic alliances as an integral part of the corporate strategy.

Important strategic alliances are formed by PepsiCo at home markets as well. Specifically, by forming a strategic alliance with Starbucks – a global coffee house chain, PepsiCo has been able to claim its share from increasing energy drink market segment.

Third, focus on emerging markets. The share of net revenues from developing and emerging markets such as China, India, and Russia have been increased from 24% in 2006 to 35% in 2012 (Annual Report, 2012) through mergers and acquisitions as well as, on the basis of formation of direct subsidiaries. Moreover, PepsiCo CEO Indra Nooyi has publicly expressed commitments to further increase the level of presence of the company in emerging markets.

Fourth, focus on organisational culture. Organisational culture can be defined as “the collection of words, actions, thoughts, and “stuff” that clarifies and reinforces what a company truly values”  and the nature of organisational culture directly impacts its performance in short-term and long-term perspectives.

PepsiCo CEO Indra Nooyi is widely believed to be an unconventional corporate leader for a good reason. It has been noted that “she’s been known to walk the halls at Pepsi barefoot, sometimes even singing along the way” and this fact communicates

her willingness to embrace her differences with positive implications on employee morale and organisational culture.

The same message is effectively communicated to organisational stakeholders and integrated into Pepsi Brand as well in a way that the brand marketing message is associated with ‘making the most of the moment’, and ‘embracing own individuality’.

Being listed among the top 25 ‘World’s Best Multinational Workplaces’ by the Great Place to Work Institute in 2012 can be interpreted as an indication of effective working culture within PepsiCo.

Fifth, developing and promoting the idea of One PepsiCo. Specifically, Indra Nooyi has been striving to increase the level of association of individual brands with PepsiCo company values and philosophy through promoting the idea of One PepsiCo. This is meant to be facilitated through sharing supply-chain management and infrastructure, operational costs for many brands within PepsiCo portfolio have been decreased.

Sixth, innovation in marketing initiatives. A wide range of innovative marketing initiatives developed by PepsiCo marketing team include “Do Us a Flavor” campaign that involved consumers in 17 countries submitting flavour ideas, development of Lipton Brisk Star Wars game application for mobile phones, and using celebrity endorsement in an innovative manner by attracting a popular singer amongst Pepsi brand target customer segment.

Importantly, cross-cultural differences in various markets are taken into account when developing and delivering PepsiCo marketing messages. For example, the marketing tagline of “Live for Now” associated with Pepsi brand has been modified as “Yalla Now” and “Oh Yes Abhi” for Middle East and Indian markets respectively taking into account cross-cultural differences associated with these markets.

• Seventh, focus on increasing core organic revenue. Core organic revenue can be explained as a type of revenue that is achieved through increasing the volume of production and sales. PepsiCo core organic revenues were increased by 5% during 2012 (Annual Report, 2012) and the company strategic level management is committed to further increase the levels of core organic revenues through maintaining high quality standards and applying effective marketing strategy.

• Moreover, organic revenues can be further increased by concentrating on core competencies of the business. It can be specified that “a competence is an attribute or collection of attributes possessed by all or most of the companies in an industry.”

FUTURE GROWTH AND PROSPECTS

PepsiCo announced that its targeted investment of Rs. 33000 crores in India by 2020. This investment will further strengthen PepsiCo’s position as one of India’s leading food and beverage companies. Strategic initiative will fund investments in innovation manufacturing, selling and go-to-market infrastructure and agriculture.

RECOMMENDATIONS AND IMPLEMENTATION

A. What is your final recommendation? State it or re-state it clearly. Briefly summarize your strongest arguments(with evidences).Recommend specific strategies and long-term objectives. Compare your recommendations to actual strategies planned by the company.

Specify how your recommendations can be implemented and what results you can expect. Present a timetable or agenda for action.

Recommend procedures for strategy review and evaluation.

B. What must the business do to implement your recommendation? Be very specific for each functional and administrative area: the top managers (and I) must understand exactly what needs to be done. For example:

1. Building an organization capable of executing the strategy. Discuss hiring and recruiting (and/or layoffs), training, and organizational structure (including reporting relationships, new business units to be formed, old business units to be eliminated).

2. Establishing a strategy-supportive budget. On what sources of funds will you draw? Where will you invest resources? Discuss expenditures that must be made to make the strategy work, such as advertising and marketing, facilities and equipment, research and development, etc.

3. Installing internal administrative support systems. Discuss policies and procedures, information systems for monitoring and control, project schedules, inventory systems, computer applications, reporting systems, etc.

4. Discuss rewards and incentives (such as pay, bonuses, awards, etc.) that are to be tightly linked to objectives and strategy.

5. Shaping the corporate culture to fit the strategy. Discuss nature of communications, workplace values and ethic, work environment, and relationships to be encouraged.

6. Exercising strategic leadership. What can managers do to shape the work culture and keep the organization on track?