PepsiCo 3rd Report

Final Report on Summarized Strategic Analytical Overview of PepsiCo Southern African Beverage Division.

By Faraaz Gani BAccSc (Wits) Cima Dip MA Tel: 078 651 9292 Email: [email protected]

Title and Content Layout

1. Foreword.

2. Introduction.

3. Project Amalgam. 3.1 Applying Project Amalgam to Corporate Strategy. 3.2 Corporate Political Activism.

4. Translating the Pepsi Refresh Project themes to Project Amalgam through 3 Elements. 4.1. Corporate Governance Element of Project Amalgam. 4.2. Efficient Operations Element of Project Amalgam. 4.3 Brand Building Element of Project Amalgam.

5. Conclusion and Recommendation.

1. Foreword A Connected Capitalist Approach to increasing competitive advantage.

A Connected Capitalist Approach.

• This final report builds on the concluding remarks of the first PepsiCo report composed which put forth an ideal or statement that eluded to the fact that PepsiCo Southern Africa Beverage Division did not have to necessarily ‘innovate to dominate’ but rather introduce its global Mother/Sister companies successful campaigns into the local Southern African Market to achieve greater competitive advantage.

• Project Amalgam highlighted further in this report seeks to apply the above ideal and is fundamentally embodied by a concept ironically conceived by Mr Neville Isdell: the former Chairman of Coca Cola (PepsiCo’s Arch Rival in the Beverage Sector). A connected Capitalist approach seeks to build competitive advantage intrinsically through partnering of a company with the macro and micro communities in the immediate operating environment of a company to achieve mutual benefit for all connected parties.

2. Introduction:

• Elucidating the statement in the foreword section, this final report proposes Project Amalgam (no pun intended to PepsiCo SA’s arch rival’s partner: Amalgamated Beverage Industries)

• Project Amalgam at its core is a strategy that is composed of 3 elements which aims to improve competitive advantage of PepsiCo SA Beverage Division by using principles of connected capitalism and the balance scorecard.

• It seeks to establish a marriage of the main facets of the of the political business landscape to super-ordinate company corporate strategy & operations such as Corporate Governance, Efficient Operations Management on the assurance side and on the consultative side, includes facets such as building Brand Awareness.

• This Holistic Project Proposal thus services the ultimate and super-ordinate goals/objectives of increasing competitive advantage as the previous reports but does so through 3 elements not traditionally extensively focused upon. These elements stem from an a broad based balanced scorecard approach.

3.1 Applying Project Amalgam to Corporate Strategy.

• PepsiCo International has historically always taken a strong stance regarding the political climate in South Africa from its past decisions to divest and uphold economic sanctions in the then Apartheid South Africa, to its decision to open the first ‘Black’ owned/managed bottling operation through its New Age Beverage Company Project in post Apartheid South Africa.

• This Corporate Political Activism while not entirely successful for PepsiCo Southern Africa’s endeavours in the past, ultimately represents the spirit and culture of its global personality.

• Thus, the nexus of Project Amalgam is to use a Corporate Political Activism Strategy as a basis to achieving super-ordinate objectives through the use of principles of connected capitalism and balance scorecard which manifest and combine to form the CPA strategy through the 3 elements previously mentioned namely: Corporate Governance, Efficient Operations Management on the assurance side and on the consultative side, includes facets such as building Brand Awareness.

3.2 Corporate Political Activism (CPA) Strategy.

• How does one accomplishing objectives using a Corporate Political Activism Strategy through the 3 elements?

• Drawing to the remark, that PepsiCo SA Beverage Division does not necessarily need to ‘innovate to dominate’. It would appear that PepsiCo SA Beverage Division already has a platform from which to launch the Corporate Political Activism strategy. This platform is its Mother Company’s recent highly successful previous campaign entitled: ‘The Pepsi Refresh Project’.

• PepsiCo SA Beverage Division simply needs to tailor the above campaign to represent the South African Dynamic. Therefore, the 3 elements (Corporate Governance, Efficient Operations Management, Building Brand Awareness) can all be structured to converge and manifest the corporate political activism strategy by focusing on different aspects of the a newly tailored Pepsi Refresh Project.

• This tailoring of a previously used campaigns is not a novel undertaking requiring excessive resources since certain aspects are merely repackaged and not newly invented. An example is PepsiCo’s Arch Rival Coca Cola who implemented a previously tried and tested campaign used in other international markets in the South African Market recently. This campaign was the ‘Names on the Tins and PET Bottles’ of its main product – COKE. This campaign had been previously used in both the United Kingdom and Australia by Coca Cola and thus proves that a Repackaged Pepsi Refresh Project can work wonders for PepsiCo SA Beverage Division with the dynamics of such a campaign adjusted in the context of the South African Market.

• Since this report is merely an overview, significant detail into the Pepsi Refresh Project will not be discussed, however the prominent themes of the campaign that are aligned with the CPA Strategy will be dissected to be used in carrying out Project Amalgam.

Strong Political Undertones are present in the Pepsi Refresh Project which fits well with the strategy of Corporate Political Activism used to implement Project Amalgam. How these messages will be translated to suit a South African Dynamic will follow in the next slides.

Brief Overview of the Prominent themes and messages in the Pepsi Refresh Project.

Strong Political Undertones are present in the Pepsi Refresh Project which fits well with the strategy of Corporate Political Activism used to implement Project Amalgam. How these messages will be translated to suit a South African Dynamic will follow in the next slides.

Brief Overview of the Prominent themes and messages in the Pepsi Refresh Project.

4. Translating the Pepsi Refresh Project themes to Project Amalgam through the 3 Elements.

4.1 Corporate Governance Element. 4.2 Efficient Operations Element. 4.3 Brand Building Element.

4.1 Translating the Corporate Governance Element. • The spheres of Corporate Governance in itself are vast, however one specific aspect concerning Corporate Governance such as the

Social Responsibility Aspect is integral to achieving project Amalgam through a Corporate Political Activism Strategy.

• The Social Responsibility aspect fits well with the main themes of the Pepsi Refresh Project as eluded to above. It also fits the wider responsibilities of Internal Auditing Function which are not traditionally focused on.

• Social Responsibility can be defined as ‘taking more than just the immediate interests of the shareholders into account when making a business decision’.

• Translating this Social Responsibility Aspect of the Corporate Governance Element in Project Amalgam can be achieved by repackaging the political undertones and messages of the Pepsi Refresh Project. Thus, instead of ‘Vote to Refresh America’, a re-oriented message can be conveyed by changing the messages to ‘Vote to Refresh South Africa’. The ‘Vote Now’ message can simply be re-used without change, since South Africa will have its periodic democratic elections in 2014 which fits perfectly with the ethos that the Pepsi Refresh Project embodied which are to convey to the broader market regarding efforts on key issues such as food, health, education and pollution etc. The same ‘Do Good in 2010’ can be refitted as ‘Together we can do good in 2014’

• The Political Climate in South Africa can be said to be ideal for using this Social Responsibility Element. This is because the Country is in a ‘pseudo revolt’ over recent Government Decision such as South Africa’s E-Tolling system. Thus, generally speaking, since every demographic and consumer type shares a common concern regarding this issue, they can be deemed to be more responsive to Social Responsibility messages since they need a foil organisation/body to side with; which was represented by the former commission against the E-Tolling System. The Social Responsibility aspect will act as a pseudo foil for all consumers to recognise but which does not take direct side for or against the South African Government. It merely depicts what ideal and common values should be shared by stakeholders as a whole on a macro level.

4.1 Translating the Corporate Governance Element Continued.... • On a side note, the Pepsi Refresh Project embodied the values and ambitions that former South African Nelson Mandela stood for.

With his recent passing in South Africa, a social responsibility message may well work wonders as the consumer inevitably will correlate the social responsibility messages in the Pepsi Brand to what national and international media convey with regards to the Great Nelson Mandela Legacy. Already, there is mass international and national coverage relating to the passing of Former South African President Nelson Mandela. A Social Responsibility Element using the Pepsi Brand that shares common themes can easily ‘piggy back’ off well established vestiges of perception already in the minds of consumers in a national/international and work well on a visceral and subliminal level.

• Therefore through Project Amalgam and the CPA strategy using the corporate Governance Element of Social Responsibility will allow PepsiCo’s Pepsi Brand in South Africa to garner greater brand awareness, possible increased sales and other financial benefits. More importantly from an Internal Audit Stance, this greater focus on Social Responsibility will also boost other links in the Corporate Governance Chain such as PepsiCo SA’s true compliance with the guidelines of the Global Reporting Initiative (GRI), Triple Bottom line reporting, King 3 (South Africa only) compliance, integrated reporting aspects etc. As an aside, this social responsibility aspect can form a nice ‘sugar coating’ for PepsiCo Southern African consolidated financial reports since it can include this as an IFRS Voluntary Management Commentary Section addition.

• The actions to implement and communicate the above social responsibility messages to the ultimate consumer will not be discussed in detail since this report is only an overview. However, it is logical and keeping in line with the remark in the foreword that PepsiCo SA does not necessarily need to ‘Innovate to Dominate’, that the preferred mediums would again follow the chosen media in the original Pepsi Refresh Project. Such mediums would merely be re-orientated to suit the media that South Africans are more responsive to.

4.2 Translating the Efficient Operations Element. • Project Amalgam through its CPA Strategy will require systematic cohesion in PepsiCo Southern African Beverage Division’s

Operations in terms of its manufacturing, marketing, distribution and various ancillary departments etc. This is because Project Amalgam will require that the communication of its repackaged ‘Pepsi Refresh Project’ through its CPA Strategy to be a culmination of efforts from all of the above departments.

• PepsiCo Southern Africa Beverage Division mostly has the above departments (especially the manufacture and distribution of beverage products) outsourced to other third party companies such as Pioneer Foods. Thus, the project will require Pioneer Foods to improve its efforts in terms of its Manufacturing, Distribution and Merchandising of PepsiCo Pepsi Brand Soft drinks since this project may form the keystone for future competitive advantage. The exact means to improvement is featured later on.

• Efficient operations and their controls will be have to be re-engineered since project Amalgam will necessitate a deeper analysis of the value chain and the linkages of activities in the value chain of PepsiCo Southern Africa Beverage Division and its manufacturing and distribution partners to bring to life the physical evidence (illustrations of physical evidence depicted later on) of the CPA Strategy and its repackaged ‘Pepsi Refresh Project’.

4.2 Translating the Efficient Operations Element Continued.... • The term ‘value’ is supremely broad. Although at first sight, the efficient operations element of Project Amalgam’s CPA strategy may

seem out of place but clearly to achieve the ultimate objective of Project Amalgam since this forms part the integral functional level at which the 2 other elements of the strategy naturally depend on.

• This is consistent with Sawyer’s broader philosophy of internal auditing as an active force influencing events in a business through a sharp focus on operational or performance auditing which strongly encourages looking beyond financial statements and financial-related auditing into areas such as purchasing, warehousing and distribution, human resources, information technology, facilities management, customer service, field operations, and program management.

• While this report is merely an overview, brief execution strategies to implement the Efficient Operation Element in Project Amalgam will follow in the next slide.

Implementation Strategy.

4.2.1 Implementation Strategies to the Efficient Operations Element

Restructure Joint –Venture Agreement with Pioneer Foods and indirectly with NAMPAK. 1. Amended JV conditions: 2. PepsiCo SA should negotiate with Pioneer foods if it can produce special short production runs of tailored tins with different prints on them as well as PET variants with different labels . This will consequently involve indirect negotiations with NAMPAK if they have the ability to carry out such an operation. 3. This restructuring from an Internal Auditing stand point will present designing specialized controls to cope with the unique nature of the project/campaign.

4. PepsiCo SA will also have to negotiate with the Ceres Beverage Company which is Pioneer Foods’ Division handling the distribution and merchandising of beverage products. This direct communication is essential as operationally, the key to the success of Project Amalgam is the ability to effectively merchandise the message and products through traditional marketing means. 5. The prints on the tins and labels will reflect the messages of the CPA strategy of Project Amalgam such as featuring strong values of the repackaged Pepsi Refresh Project. Examples include: education, green planet, health etc. These message slogans are analogous to Coca Cola’s current campaign with the names on the tins and labels.

6. Alternatively, graphics reflecting the intended messages can be printed on the soft-drink tins and PET label variants. 7. Such unique graphics can be analogous to PepsiCo International’s North American Campaign which had special prints of musical icons such as Beyonce and Michael Jackson. In the South African Context, these prints can be prints of former South African President Nelson Mandela and other graphics such as a globe representing a greener earth and a book representing education etc. 8. PepsiCo SA could also commission the renowned Australian marketing firm that handled Kraft foods’ Cadbury Chocolate Joyville Launch or make use of Draft FCB who handled Coca Cola’s launch of their names on bottles campaign.

Historic Short-run unique prints on Pepsi Brand Cans in PepsiCo Internationals’ previous campaigns. Per Project Amalgam, the prints will feature themes of the repackaged Pepsi Refresh Project and Nelson Mandela instead of the musical stars that were previously featured.

4.2.2 Illustration of the physical evidence of implementation strategies of the Efficient Operations Element.

4.3 Translating the Brand Building Element. • The Brand Building Element of the CPA Strategy and for project Amalgam overall is vital for achieving the projects objectives. The

Branding message of the Pepsi Brand and its operational execution thereof, was eluded to, in the corporate governance and operational elements through Project Amalgam above. However the principles which must be applied and followed to realize the brand were not delved into. In the Brand Building Element, these principles will be looked at.

• Branding in itself is a wide sphere of business acumen and since this report is only an overview, extensive detail into the depths of the academia of branding will be limited. A practical approach to brand building principles will be used which focuses specifically on what PepsiCo Southern Africa needs to inculcate in the branding process to achieve project objective.

• A Brand Building Case study best embodies a practical approach. A simple case study of Porsche Cars North America stemming from an interview with Porsche Cars North America CEO Detlev Von Platen shall be used to identify key brand building principles that PepsiCo SA should adopt. While Soft drinks and premium sports cars are two very different products, the ethos and vision is shared in terms of overall brand building desires.

• Brand Building Principles are difficult to convey in writing. By using actual quotes from the interview of the CEO of Porsche Cars North America regarding brand building, one is able to understand the principles that PepsiCo SA should follow in its brand building process to achieve project Amalgam. The Von Platen Brand Building Principles follow on the next page.

Clear and Concise principles for PepsiCo SA to build the Pepsi brand in terms of Project Amalgam and the CPA Strategy used in Project Amalgam.

4.3.1 Von Platen Principles on Brand Building:

5. Conclusion and Recommendation. Final remarks on Project Amalgam and related aspects.

5. Conclusion and Recommendation. • Project Amalgam can be seen as a holistic strategy to reviving the Pepsi Brand and its sub-brands to re-ignite the historic cola wars

and push PepsiCo’s Beverage brands and products to new heights where it can enjoy strong competitive advantage and challenge its rivals respectively.

• A broad based balanced scorecard approach was the focus in terms of project realization because in the draconian, highly competitive Beverage Sector that PepsiCo Southern Africa operates in, it is necessary to always link all business functions to the routes of the basic business model in place.

• This project should be undertaken since it clearly open up opportunities for the Pepsi brands and sub brands to finally live up to the market capitalization values that they enjoy in other international markets. Most importantly, above all else, Project Amalgam fits PepsiCo International’s slogan: performance with purpose.

Thank you for viewing/reading. Author’s Disclaimer: The intention of this report/presentaition was to project my ideas, thoughts and experiences as an Academic and Entrepreneur within Carbonated Soft Drink Beverage sector. I have intentionally negated to include any excessive use of Business Jargon, Business Technical Theory, including Strategic management and development models/frameworks etc. I have tried to keep this presentation very jovial and practical for the end user.

End of Report.

By Faraaz Gani BAccSc (Wits) Cima Adv Dip MA Tel: 078 651 9292 Email: [email protected]