By: Ray Moorman Dan McLindon Jeremy Smiley Kyle McDaniel Tom Anderson

By: Ray MoormanDan McLindonJeremy SmileyKyle McDanielTom Anderson

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 consumer preference?

• What has enabled PepsiCo to grow to be the world's largest snack and beverage company?

• How is PepsiCo’s current product portfolio performing?• What products and markets present the best opportunity for

future growth?• What actions should PepsiCo take to better position its portfolio?• How is Pepsi structured and what are the relative performances

of those divisions?• What actions should 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






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.

US Snack Market

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.

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.

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.

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.


• How is the performance of PepsiCo's current product portfolio?• What products and markets present the best opportunity for




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 High

Sweet Snack Yes Low – small offering Low

Soft Drink Yes Low High

Functional Water Yes High High

Isotonic Bev Yes High – FTC ruling ending High

Cereal No Low Low

Other Quaker Oats No Low Low

Non Carb Yes High High

Energy 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




of those divisions?• What actions could Pepsi take to better focus the structure of


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

TropicanaAquafina

Opp to acquire Red Bull

SoBe Energy Drinks – hold negligible market share

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.

• Will these commitments to industry trends help or hurt PepsiCo’s market share of convenience food?

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.

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.




of those divisions?• What actions could Pepsi take to better focus the structure of


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



24% Total Assets

Quaker Foods North America (QFNA)

5% Net Revenue

7% Operating Income


3% Total Assets

PepsiCo International (PI)

40% Net Revenue



50% Total Assets






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.

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 consumer preference?

Yes, and to do so we recommend….

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, Rice a Roni)

Recommendations• Divest sweet snack products as they do not fit model for

success or healthy eating trend. (i.e. Grandma’s Cookies)

• Further restructure divisions with more international focus.

• Stick with what works and continue to acquire soft drink and snack companies.– In US and developed countries target healthy alternatives.– In developing countries target companies with a track

record of knowing local taste preferences.• Special attention to strategic acquisitions in China.

Questions?

By: Ray Moorman Dan McLindon Jeremy Smiley Kyle McDaniel Tom Anderson

Documents

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