Pepsico Final project

By

Abdulgader Shukri

Amin Khayat

Amjad Ali

Saleh Alsaif

Dar Mir

Intro

History

Mission

Labib

2nd largest beverage company in the world.

Presence in 200 countries

Key International markets include Argentina, Brazil,

China, India, Mexico, Saudi Arabia, Spain, Thailand and

U.K.

Introduction

History

1890 – Founded by Caleb Bradham

1903 – Trademark

1923, 1931 – Bankrupt

1936- 1938 – Great Depression,

Profit Doubled , 10-5 cents.

1941 – Pepsi stock 1st time

1950 – Franchise outside U.S.

1960 – Target market – Young adults

1965 – Pepsi Cola Merger with Frito-Lay to form PepsiCo.

1970-1980 – Bought restaurant chains such as Pizza hut, Taco

bell, KFC

1980-1990 – Cola Wars

1994-1999 - International Growth and Diversification,

Tropicana $ 3 billion

2000 – Quaker Oats, Gatorade

Cont’d..

Soft drinks are not referred to as items of necessity.

Sodas stand between liquor and juice.

• Frito-Lay brands account for 59% of U.S. snack chip industry

Acquired Tropicana in 1998

Available in more than 63 countries.

Pure, fresh fruit juice in easy to handle package has

attracted the consumers

Gatorade is the first isotonic sports drink.

Created in 1965 by researchers at University of Florida for

the football team “The Gators”

Worlds leading Sports Drink

PepsiCo merged with Quaker Oats -2001

Wide range of healthy food

Three business units

1. PepsiCo Americas Foods which includes:

Frito-Lay North America ,

Quaker Foods North America,

all of its Latin American food and snack businesses.

2. PepsiCo Americas Beverages consisted of:

PepsiCo Beverages North America

all of its Latin American beverage businesses.

3. PepsiCo International.

all PepsiCo businesses in Europe, Asia, Middle East

and Africa (AMEA)

Mission Statement

“ Our mission is to be the world's premier consumer

Products Company focused on convenient foods

and beverages. We seek to produce financial

rewards to investors as we provide opportunities

for growth and enrichment to our employees, our

business partners and the communities in which

we operate. And in everything we do, we strive for

honesty, fairness and integrity.”

Mission Statement evaluationComponents Mentioned

Customers NO

Products/Service YES

Markets YES

Technology NO

Concern for Survival, Growth, Profitability

YES

Philosophy YES

Self-Concept NO

Concern for Public Image YES

Concern for Employees YES

Company Objectives

Capture larger market share through product

innovation and diversification.

To use synergy between product portfolios to cross sell

products.

Achieve higher growth from its international markets.

Company Objectives

Create a sustainable business for the communities and

environment.

To spot the shift in consumer preferences.

Supporting product initiatives with creative marketing

and sales initiatives.

Company Strategies

Marketing Developme

nt

Product Developme

nt

Conglomerate

Diversification

Forward Integration

Amjad

Financial Evaluations.

Internal strength &

Weakness.

Historical Financial Analysis

  2007 2008 2009  Assessment

Liquidity Ratios      

Current Ratio 1.31 1.23 1.44 P

Quick Ratio 1.01 0.94 1.14 P

Historical Financial Analysis

  2007 2008 2009  Assessment

Asset Utilization Ratios        

Inventory Turnover 17.24 17.14 16.51 N

DSI 21.17 21.28 22.10 P

AR Turnover 8.99 9.24 9.35 P

DSO (ACP) 40.58 39.52 39.04 N

Fixed Asset Turnover 3.52 3.71 3.41 N

Total Asset Turnover 1.14 1.20 1.08 N

Historical Financial Analysis

  2007 2008 2009 Assessment 

Debt Management Ratios        

Debt Ratio 0.50 0.66 0.58 P

TIE 35.07 22.34 21.35 N

Historical Financial Analysis

  2007 2008 2009  Assessment

Profitability Ratios        

Gross Margin 0.54 0.53 0.54 P

Operating Margin 0.20 0.17 0.20 P

Profit Margin 0.14 0.12 0.14 P

BEP 0.23 0.20 0.21 P

ROA 0.16 0.14 0.15 P

ROE 0.33 0.42 0.35 N

Competitor Financial Analysis

  Competitors Assessment

  Pepsi KO Dr.

Pepper Industry KO Dr.

Pepper

Liquidity Ratios            

Current Ratio 1.44 1.27 1.50 1.40 S W

Quick Ratio 1.14 1.10 1.19 1.20 S W

Asset Utilization Ratios

  Competitors Assessment

  Pepsi KO Dr.

Pepper Industry KO Dr.

Pepper

Asset Utilization Ratios            

Inventory Turnover 16.51 13.16 21.11 6.00 S W

DSI 22.10 27.73 17.29 54.48 S W

AR Turnover 9.35 8.25 8.85 10.20 S S

DSO (ACP) 39.04 44.26 41.24 35.78 S S

Fixed Asset Turnover 3.41 3.24 4.99 - S W

Total Asset Turnover 1.08 0.64 0.63 0.80 S S

Debt Management Ratios

  Competitors Assessment

  Pepsi KO Dr.

Pepper Industry KO Dr.

Pepper

Debt Management Ratios            

Debt Ratio

0.58

0.49 0.64  - S W

TIE

20.43

24.00 4.57 2.40 W S

Profitability Ratios

  Competitors Assessment

  Pepsi KO Dr.

Pepper

Industry KO Dr.

Pepper

Profitability Ratios            

Gross Margin 0.54 0.64 0.60 0.59 W W

Operating Margin 0.19 0.27 0.20  - W W

Profit Margin 0.13 0.20 0.10 0.18 W S

BEP 0.20 0.18 0.13  - S S

ROA 0.14 0.13 0.06 0.13 S S

ROE 0.33 0.25 0.17 0.39 S S

Internal Strength & WeaknessWeights Rating Weighted

Scorekey external factor

Strength

0.40 4.00 0.10 Strong differentiation strategy

0.27 3.00 0.09 Strong product diversification strategy

0.30 3.00 0.10 strong focus on using product synergies

0.18 2.00 0.09 Due to the attractive regulation and relation AR. shows a good standing in company to their competitors

0.16 2.00 0.08 Access to global employee base

0.27 3.00 0.09 Decentralized operations

Weakness

0.40 4.00 0.10 High spend on promotional activities

0.40 4.00 0.10 Targeting contemporary consumers

0.08 1.00 0.08 Global organization slow to adopt to change

0.24 3.00 0.08     Many production facilities still on high energy and high waste system

0.18 2.00 0.09 Weak profit margin

2.88   1.00  

Internal environment

RBV model

Resources Valuabl

e

Rare Inimitab

le

Non-

substituta

ble

Competitive

advantage

Expected

performance

Water Competitive

parityA Return

Decentraliz

ed

structure

Temporary

competitive

advantage

A to AA

Return

Brand Sustainable

Competitive

advantage

AA Return

Recipe Temporary

competitive

advantage

A to AA

Return

Abdulgader

External Opportunity &

Threats

SOWT Analysis.

External environment

Tools used:

General environment.

Competitive environment. (Five forces)

Strategic group.

External environment

General Environment

External environment

Porter’s five forces model

Strategic Groups

Strategic groups Coca-Cola Dr Pepper

1. Objectives different different

2. Strategies same same

3. Strengths Market share Product position

4. Weaknesses Undiversified product

Undiversified product

External environment

Weights Rating Weighted Score

key external factor

Opportunities

0.40 4.00 0.10 Business Internationalization

0.36 4.00 0.09 Changing consumer preferences

0.30 3.00 0.10 Energy efficient production techniques

0.16 2.00 0.08 high barrire to entry

0.10 2.00 0.05 low bargining power of supplier

0.45 3.00 0.15 large portfolio than competitors

Threats

0.40 4.00 0.10 political & community support

0.27 3.00 0.09 ecnomic factors

0.18 2.00 0.09 technological innovation

0.21 3.00 0.07 the intesity of rivalry among competitors in a industry is high

0.16 2.00 0.08 number two rank in market share

2.99 1.00

The Internal-External (IE) MatrixHold & maintain

1) MKT penetration 2) Product development

SWOT MATRIX

STRENGTH WEAKNESS

1. Strong differentiation strategy 2. Strong product diversification

strategy 3. Strong focus on using product

synergies 4. Due to the attractive regulation

and relation AR. Assets shows a good standing in company to their

competitors 5. Access to global employee base

6. Decentralized operations

1. High spend on promotional activities

2. Targeting contemporary consumers 3. Global organization slow to adopt

to change 4. Many production facilities still on

high energy and high waste system 5. Weak profit margin

OPPORTUNITY SO STRATEGIES WO STRATEGIES

1. Business internationalization 2. Changing consumer

preferences(healthy style) 3. Energy efficient production

techniques 4. Low barrier to entry

5. Low barging power of supplier

1. Using differentiated and diversified products enter into the

emerging markets (S1, S2, S6, O1)

2. Diversified products portfolio can be aligned to customer

preferences (S1,S2, O2) 3. Product synergies and innovation

can give it continued leadership position (S3, O6)

1. Business internationalization will allow top line growth for lower incremental promotional spend

(W1, O1) 2. Changing consumer preferences

will allow it to go beyond the contemporary segments (W2, O2)

3. Availability of energy efficient techniques can allow it to divest

from less efficient production sites (W4, O3)

THREATS ST STRATEGIES WT STRATEGIES

1. Political & community support 2. Economic factors

3. The intensity of rivalry among competitor in an industry is high

4. Technological Innovation 5. Number two rank in market share

1. Decentralized operations will allow the political and local

communities to be better engaged (S6, T1)

2. Differentiation and diversification with product synergies will allow it to rise above price competition

(S1, S2, S3, T2, T5)

1. Political and community support will help reduce the incremental promotional spend by creating

positivity around PepsiCo brand (W1, T1)

2. Technological innovation will help it divest the high energy and waste production sites and also improve

the social and environmental impacts (W4, T4)

SO STRATEGIES

Using differentiated and diversified products enter into the emerging markets • (S1, S2, S6, O1)

Diversified products portfolio can be aligned to customer preferences • (S1,S2, O2)

Product synergies and innovation can give it continued leadership position • (S3, O6)

WO STRATEGIES

Business internationalization will allow top line growth for lower incremental promotional spend • (W1, O1)

Changing consumer preferences will allow it to go beyond the contemporary segments • (W2, O2)

Availability of energy efficient techniques can allow it to divest from less efficient production sites • (W4, O3)

ST STRATEGIES

Decentralized operations will allow the political and local communities to be better engaged • (S6, T1)

Differentiation and diversification with product synergies will allow it to rise above price competition • (S1, S2, S3, T2, T5)

WT STRATEGIES

Political and community support will help reduce the incremental promotional spend by creating positivity around PepsiCo brand • (W1, T1)

Technological innovation will help it divest the high energy and waste production sites and also improve the social and environmental impacts • (W4, T4)

Amin

Mission Statement

Revision.

Alternative Strategies.

Strategy

Implementation.

Revised Mission Statement

‘Our mission is to be the world’s premier consumer

Products Company focused on new technologies to

produce diversified convenient foods and beverages that

delight all varieties of customers and bring value into

their lives. We seek to produce financial rewards to

investors as provide opportunities for growth and

enrichment to our employees, our business partners and

the communities in which we operate. We make sure

doing it the right way. And in everything we do, we strive

for honesty, fairness and integrity ’

Alternatives Strategies

Market Development

Product Development

Market Penetration

The Grand Strategy Matrix

MKT penetrations Product development MKT development   key external & internal factorsTAS AS TAS AS TAS AS Weight Opportunities

0.3 3 0.4 4 0.4 4 0.1 Business Internationalization

0.27 3 0.36 4 0.27 3 0.09 Changing consumer preferences

0.3 3 0.4 4 0.3 3 0.1 Energy efficient production techniques

0.16 2 0.16 2 0.16 2 0.08 high barrire to entry

0.1 2 0.1 2 0.1 2 0.05 low bargining power of supplier

0.15 1 0.6 4 0.45 3 0.15 large portfolio than competitors

              Threats

0.2 2 0.3 3 0.4 4 0.1 political & community support

0.18 2 0.27 3 0.18 2 0.09 ecnomic factors

0.18 2 0.27 3 0.27 3 0.09 technological innovation

0.07 1 0.14 2 0.07 1 0.07 the intesity of rivalry among competitors in a industry is high

0.08 1 0.16 2 0.08 1 0.08 number two rank in market share

            1  

              Strengths0.3 3 0.4 4 0.3 3 0.1 Strong differentiation strategy

0.27 3 0.36 4 0.27 3 0.09 Strong product diversification strategy0.2 2 0.4 4 0.2 2 0.1 strong focus on using product synergies

0.09 1 0.27 3 0.09 1

0.09 Due to the attractive regulation and relation AR. Assets shows a good standing in company to their competitors

0.08 1 0.16 2 0.08 1 0.08 Access to global employee base0.27 3 0.18 2 0.18 2 0.09 Decentralized operations

              Weaknesses0.2 2 0.4 4 0.1 1 0.1 High spend on promotional activities0.2 2 0.4 4 0.1 1 0.1 Targeting contemporary consumers

0.24 3 0.24 3 0.08 1 0.08 Global organization slow to adopt to change

0.16 2 0.16 2 0.16 2

0.08     Many production facilities still on high energy and high waste system

0.09 1 0.18 2 0.18 2 0.09 Weak profit margin

4.09 6.31 4.42 1.00

Product development

Marketing:

Long-Term Objective:

Delivering catered products to each region to match customer

preference and needs.

Annual Objective:

Introduce one new product every year.

Support developed products with creative marketing campaigns.

Policy:

All Marketing activity must be evaluated before execution to insure

success. In addition, the marketing activity of developed products should

cover wider spectrum of customers to utilize marketing budget effectively.

Strategy:

Conduct Market Survey and research to understand consumer preference

and needs.

Collect loyal consumers’ feedback and ideas for future product

development.

Product development

Operation:

Long-Term Objective:

To produce top quality products.

To be prepaid to adapt any new operational processes to develop new

product.

Eliminate supplies inventory.(JIT)

Annual Objective:

Hire skilled and experienced people.

Develop efficient (JIT) plan.

Product development

Product development

Policy:

Being very selective in hiring, by choosing skilled and

experienced employee.

Schedule semiannually meeting with suppliers.

Strategy:

Use latest technology in the manufacturing process.

Take an advantage of low supplier bargaining power and

empower JIT.

Management:

Long-Term Objective:

Reduce or eliminate resistance to change of process and

individual.

Annual Objective:

Increase the understanding about the advantage of change

Support and endorse creativity for all employees.

Product development

Policy:

Employees will be required to present at least two new ideas

to their superior every year.

Strategy:

Use rational or Self-interest change strategy to assure easy

and fast implementation of any changes required for

developing new product.

Product development

Finance:

Long-Term Objective:

Company must continue Aggressive financial planning

to support budgeting.

Annual Objective:

By developing new products every year the company

must maintain 20% increase in revenue yearly.

Product development

ImplementationProduct development

Policy:

The company must cover the rising costs by increasing

revenue proportionately.

Strategy:

Company will acquire a $500 million dollar loan financed

and paid over a 5 years period.

Research Development:

Long-Term Objective:

Develop at least fifteen ready to launch new products in the next 5

years.

Develop healthier snacks.

Annual Objective:

Develop 5 new products every year and pick the best one to launch.

Follow up and analyze food safety issues to develop the right product.

Product development

Policy:

All developed products should go through testing process and

evaluation before lunching to make sure targeted consumers will be

satisfied.

Strategy:

Innovate in heart-healthy oil, sodium reduction and more whole grains.

Appropriate incentive plans for employees who contribute to new

product development.

Product development

Pro-forma

Projected Financial

ratios

Balanced Scorecard

Saleh

PRO-FORMA : Income StatementPERIOD ENDING 31-Dec-07 31-Dec-08 31-Dec-09 2010 Assessment

Total Revenue 39,474,000 43,251,000 43,232,000 51,878,400 20% increase

Cost of Revenue 18,038,000 20,351,000 20,099,000 23,706,302 Percentage of sales = 45.6%

Gross Profit 21,436,000 22,900,000 23,133,000 28,172,098  

Operating Expenses    

Research Development - - - -  

Selling General and Administrative 14,208,000 15,901,000 15,026,000 19,233,280 Historical trend + 20%

Non Recurring - - - -  

Others 58,000 64,000 63,000 63,000 As prior year

Total Operating Expenses 14,266,000 15,965,000 15,089,000 19,296,280  

Operating Income or Loss 7,170,000 6,935,000 8,044,000 8,875,818  

Income from Continuing Operations    

Total Other Income/Expenses Net 685,000 41,000 67,000 67,000 As prior year

Earnings Before Interest And Taxes 7,855,000 7,350,000 8,476,000 8,942,818  

Interest Expense 224,000 329,000 397,000 528,010 Historical trend

Income Before Tax 7,631,000 7,021,000 8,079,000 8,414,808  

Income Tax Expense 1,973,000 1,879,000 2,100,000 2,204,987 Tax rate 26.2%

Minority Interest - - -33,000 -33,000 As prior year

Net Income From Continuing Ops 5,658,000 5,142,000 5,946,000 6,176,821  

Net Income 5,658,000 5,142,000 5,946,000 6,176,821  

PRO-FORMA : Balance SheetStockholders' Equity 2007 2008 2009 2010   

Misc Stocks Options Warrants -   -   -104,000 -104,000 As prior year

Redeemable Preferred Stock -   -97,000 -   - As prior year

Preferred Stock 41,000 -   -   -  

Common Stock 30,000 30,000 30,000 30,000 As prior year

Retained Earnings 28,184,000 30,638,000 33,805,000 39,981,821Ending Retained Earnings + Projected net

income

Treasury Stock -10,519,000 -14,122,000 -13,383,000 -13,383,000 As prior year

Capital Surplus 450,000 351,000 250,000 250,000 As prior year

Other Stockholder Equity -952,000 -4,694,000 -3,794,000 -3,794,000 As prior year

Total Stockholder Equity 17,234,000 12,106,000 16,804,000 22,980,821  

Total liabilities and stock holder equity 34,628,000 35,994,000 39,848,000 40,628,821  

PRO-FORMA : Balance SheetLiabilities 2007 2008 2009 2010  

Current Liabilities    

Accounts Payable 6,209,000 6,494,000 8,292,000 9,950,400 As sales

Short/Current Long Term Debt -   369,000 464,000 564,000 Prior year + 100M

Other Current Liabilities 1,544,000 1,924,000 -   - As prior year

Total Current Liabilities 7,753,000 8,787,000 8,756,000 10,514,400  

Long Term Debt 4,203,000 7,858,000 7,400,000 10,760,000 Historical trend + 400M

Other Liabilities 4,792,000 7,017,000 5,591,000 5,591,000 As prior year

Deferred Long Term Liability Charges 646,000 226,000 659,000 659,000 As prior year

Minority Interest -   -   638,000 638,000 As prior year

Negative Goodwill -   -   -   - As prior year

Total Liabilities 17,394,000 23,888,000 23,044,000 17,648,000  

PRO-FORMA : Balance SheetPERIOD ENDING 31-Dec-07 31-Dec-08 31-Dec-09 2,010 Assessment

Assets    

Current Assets    

Cash And Cash Equivalents 910,000 2,064,000 3,943,000 2,115,161 Plug figure

Short Term Investments 1,571,000 213,000 192,000 192,000 As prior year

Net Receivables 4,389,000 4,683,000 4,624,000 5,548,800 As sales

Inventory 2,290,000 2,522,000 2,618,000 3,141,600 As sales

Other Current Assets 991,000 1,324,000 1,194,000 1,194,000 As prior year

Total Current Assets 10,151,000 10,806,000 12,571,000 12,191,561  

Long Term Investments 4,475,000 3,998,000 4,484,000 4,484,000 As prior year

Property Plant and Equipment 11,228,000 11,663,000 12,671,000 13,831,260 Historical trend + 400M

Goodwill 5,169,000 5,124,000 6,534,000 6,534,000 As prior year

Intangible Assets 2,044,000 1,860,000 2,623,000 2,623,000 As prior year

Accumulated Amortization -   -   -   - As prior year

Other Assets 1,356,000 2,324,000 965,000 965,000 As prior year

Deferred Long Term Asset Charges 205,000 219,000 -   - As prior year

Total Assets 34,628,000 35,994,000 39,848,000 40,628,821  

Projected Financial Ratios  2007 2008 2009 2010 Assessment

Liquidity Ratios           Current Ratio 1.31 1.23 1.44 1.16 Negative Quick Ratio 1.01 0.94 1.14 0.86 Negative

           Asset Utilization Ratios          

Inventory Turnover 17.24 17.15 16.51 16.51 Same DSI 21.17 21.28 22.10 22.10 Same

AR Turnover 8.99 9.24 9.35 9.35 Same DSO (ACP) 40.58 39.52 39.04 39.04 Same

Fixed Asset Turnover 3.52 3.71 3.41 3.75 Positive Total Asset Turnover 1.14 1.20 1.08 1.28 Positive

           Debt Management Ratios          

Debt Ratio 0.50 0.66 0.58 0.43 Positive TIE 35.07 22.34 21.35 16.94 Negative

           Profitability Ratios          

Gross Margin 0.54 0.53 0.54 0.54 Same Operating Margin 0.20 0.17 0.20 0.17 Negative

Profit Margin 0.14 0.12 0.14 0.12 Negative BEP 0.23 0.20 0.21 0.22 Positive ROA 0.16 0.14 0.15 0.15 Same ROE 0.33 0.42 0.35 0.27 Negative

         Market Ratios          

P/E N/A N/A N/A N/A   P/CF N/A N/A N/A N/A   M/B N/A N/A N/A N/A  

Projected Financial Ratios

Ratio Category Projected

Liquidity Negative

Asset UtilizationFixed Asset turnover Total Asset Turnover

SamePositivePositive

Debt Management RatiosDebt Ratio

TIE

PositiveNegative

Profitability RatiosGross Margin

Op and Profit MarginROE

BEP and ROA

SameNegativeNegativePositive

Market N/A

Balanced ScorecardPerspective Goal Measurement

FinancialFirm growth and profitability Annual sales growth of at least 5%

every year and net profitability

improvements of 2-3%

CustomerValue creation, satisfaction

and support

Market leading position in all major

markets

Cost of sales dropping by 4-55 annually

Internal Business ProcessEfficiency & waste reduction Cost of production dropping by 4-5%

annually

Learning & GrowthInnovation and employee

satisfaction

Employee attrition drop by 10%

annually

At least 20% of annual sales from

products less than 2 years in the market

Rumelt’s Criteria

Conclusion

Labeeb

Rumelt’s Criteria

Consistency:

Strategy should not present inconsistent goals and

policies.

Introducing current segment products in new markets

will drive consistency of consumer expectations

regardless of the locations they are present in.

Consonance:

Need for strategies to examine set of trends.

Introduction of more health conscious products which

will cater to the growing market for health conscious

consumers, PepsiCo will be building momentum in

line with current trends.

Rumelt’s Criteria

feasibility:

Neither overtax resources or create unsolvable sub-problems

The new focus of regionalization or employee base diversification

will render to local market product development and idea

generation. The feasibility for such strategies should be in line with

research and development resources but will pay off eventually.

Rumelt’s Criteria

Advantage:

Creation or maintenance of competitive advantage.

The resources and skills within the company is notably

strong and defensive against future threats and with the

implementation of the new strategies it will be miles ahead

of its competition.

Rumelt’s Criteria

Conclusion

Serving consumers with premier convenient foods.

Environmental Sustainability.

Capture more of the aging population market share.

Consistency of innovative products.