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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?
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Primary Question for PepsiCo

Jan 01, 2016

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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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Page 1: Primary  Question for PepsiCo

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?

Page 2: Primary  Question for PepsiCo

• 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

Page 3: Primary  Question for PepsiCo

Keys to PepsiCo’s Success and Growth

Soft Drinks Salty Snacks Complementary Goods

Strategic Acquisition

Ability to Build Strong Brands

Strong Relationships with

Retail PartnersGrowth

Page 4: Primary  Question for PepsiCo

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

Page 5: Primary  Question for PepsiCo

PepsiCo Growth: Reacting to Consumer

Increased Awareness of

Nutrition

Increase non-carb bev presenceReformulate

existing products

Page 6: Primary  Question for PepsiCo

PepsiCo Growth

Several 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!

Page 7: Primary  Question for PepsiCo

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

Page 8: Primary  Question for PepsiCo

• 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

Page 9: Primary  Question for PepsiCo

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.

Page 10: Primary  Question for PepsiCo

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.

Page 11: Primary  Question for PepsiCo

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?

Page 12: Primary  Question for PepsiCo

U.S. Convenience Food Market Share

21%

12%

9%

37%

Pepsico

Kraft Foods

Hershey

Kellogg

Master Foods

General Mills

P&G

Private Label

Others

• 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.

Page 13: Primary  Question for PepsiCo

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.

Page 14: Primary  Question for PepsiCo

• 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

Page 15: Primary  Question for PepsiCo

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

Page 16: Primary  Question for PepsiCo

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

Page 17: Primary  Question for PepsiCo

• 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

Page 18: Primary  Question for PepsiCo

• 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

Page 19: Primary  Question for PepsiCo

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

Page 20: Primary  Question for PepsiCo

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?

Page 21: Primary  Question for PepsiCo

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.

Page 22: Primary  Question for PepsiCo

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.

Page 23: Primary  Question for PepsiCo

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.

Page 24: Primary  Question for PepsiCo

• 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

Page 25: Primary  Question for PepsiCo

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 and 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.

Page 26: Primary  Question for PepsiCo

Slides that follow still need to be

placed

Page 27: Primary  Question for PepsiCo

Question Facing PepsiCo

Non-Carbonated Drinks Healthy Snacks Complementary Goods

DOES

Page 28: Primary  Question for PepsiCo

Recommendations

Strategic Acquisition

Ability to Build Strong Brands

Strong Relationships with

Retail PartnersGrowth

• 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)