Answer this: Is PepsiCo’s future outlook from your perspective
1PepsiCo: Is diversification a choice?Mohamed Ezz, MD, DM (UMUC)PepsiCo
(PEP)www.pepsico.comOverviewPepsiCo, a world leader in beverages, food, and snacks with net revenues of more than $ 65billion, has a product portfolio of 22 of the most iconic brands in the industry;each of which has annual retail sales of more than one billions dollars.PepsiCo is the world’s # 2 carbonated beverage maker. The company’s brand portfolio includes(PepsiCo, 2016):A. Beverages:Pepsi, 7-Up, Mountain Dew, Sierra Mist, Mirinda, Gatorade, Tropicana, Lipton, and Aquafina.B. Snacks:Doritos, Frito-Lay, Tostitos, Ruffles, Cheetos, Fritos, Brisk, and Walkers,C. Foods:Quaker Oatesand Rice-A-Roni.PepsiCo: History & Background(Hoovers, 2016)Pepsi was invented in 1898 by pharmacist Caleb Bradham in New Bern, North Carolina. He named his new drink Pepsi-Cola and marketed it as a cure for indigestion and dyspepsia. Bradham followed Coca-Cola’s bottling franchise model and by World War I 300 bottlers had signed up. Following the war, Bradham started stockpiling sugar to safeguard against rising prices; however, in 1920 sugar prices plunged, leading to his bankruptcy in 1923.After changing ownership for some time, Loft Candy bought the company in 1931. During the Depression (1939), the company doubled the size of its bottles to 12 ounces without raising itsprice, which helped improve its fortune. In 1939 Pepsi introduced the first radio jingle in the world. In1941, Loft Candy merged with its Pepsi subsidiary to create the Pepsi Cola Company.The company acquired Mountain Dew in 1964and Frito Lay in 1965, and changed its name to PepsiCo. In 1972 PepsiCo began distributing Stolichnaya vodka in the States in return for being the only Western firm allowed to bottle soft drinks in the Soviet Union. PepsiCo bought Pizza Hut (1977), Taco Bell (1978), and KFC (1986) and became a formidable force in the fast food industry. In the period from 1991-1996 PepsiCo aggressively expanded its international bottling operations; however, it was no match Coca-Cola’s well-oiled international distribution machine. The Companythen focused its attention to the organization of its internationalnetwork. In 1997,PepsiCo spun off its $10 billion fast-food unit (currently Yum! Brands), which better positionedto sell its soft drinks at other restaurants. Also in 1997 PepsiCo bought Smith snacks
2and Borden’s Cracker Jack snack from United Biscuits.In 1998, PepsiCobought Seagram’s Tropicana juices, the main competitor to Coca Cola’s minute Maid for $3.3 billion. In 1999, the companysold a 65% stake in its new Pepsi Bottling Group in an IPO. .In 2001, PepsiCo bought the Quaker Oates Company for more than $13 billion, and added the market leader Gatorade sports drink brand to its portfolio The Company then sold its competing All Sport energy drink toThe Atlanta-based Monarch Beverage Company. In 2004 PepsiCo, attempted to create a joint-venture with the Ocean Spray, the juice maker; however, the cranberry farmers who own the company refused. In 2005, PepsiCo then boughtGeneral Mill’s stake of their joint venture (Snack Ventures Europe)(SVE)for $750 millioncreating Europe’s largest snack food company.PepsiCo Organizational StructureIn 2003, PepsiCo started a major restructuring that created four company divisions(Hoovers, 2016): 1. PepsiCo International2. PepsiCo Beverages North America3. Frito-Lay North America4. Quaker Foods North America.In its questto become a fully integrated global beverage and food company, PepsiCo announced in 2012 a new organizational structure, where the regions retain P&L responsibility, while its global groups operate across regions to fully leverage the scale and power of the company(PepsiCo, 2012).PepsiCo: IndustriesPepsiCo operates in twoindustries mainly:1. Non-alcoholic beverages:Key economic drivers include: Per capita soft drink consumption healthy eating index, per capita disposable income, per capita sugar and sweetener consumption, and price of corn. Producers are expected to refresh their product lines to decelerate falling demand(Ibis World, 2016).2. Snacks:Key economic drivers include: Per capita disposable income, healthy eating index, and price of corn. More innovative flavors and healthier foods will boost industry growth (Ibis World, 2016).Snack food producers also compete with substitute snacks such as cookies, crackers and granola bars. Also, healthier brand extensions of regular crackers and cookies, including organic
3and reduced-fat varieties, have boosted demand for snacks. In addition, increased snacking in the morning has led consumers to snack on more granola bars and cereal (Ibis World, 2016)
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