pepsi
DESCRIPTION
Strategic Management Case StudyTRANSCRIPT
COMPANY HISTORY
• 1898 - Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C. pharmacist.
• 1961 - Frito-Lay, Inc. was formed by the merger of the Frito Company, founded by Elmer Doolin in 1932, and the H. W. Lay Company, founded by Herman W.Lay
“PepsiCo was founded in 1965 through
the merger of Pepsi-Cola and Frito-Lay”.
Donald M.Kendall & Andrell Pearson (1965 – 1985)
Pepsi launched following brands under Pearson:Pepsi Light in 1975.Grandma’s cookies in 1980.Tostitos in 1981.Pepsi Free in 1982.Slice in 1984.
• Pepsi diversified its business portfolio by acquiring:North American Van Lines in 1968.Wilson Sporting Goods in 1970.Pizza Hut in 1977.Taco Bell in 1978.
Cont………………
• PepsiCo purchases Kentucky Fried Chicken.
Cont………………
Wayne Calloway (1986 – 1996)
Calloway described three-legged stole:
Soft Drinks.Snack Foods.Fast food Restaurants.
• Three legged stole offer skill transfer and cost-sharing opportunities.
• Calloway divested following from three legged stole:North American Van Lines in 1984.Wilson Sporting Goods in 1985.
Cont………………
• Pepsi strengthen its portfolio by snack food and beverage acquisition:
In 1986:• Mug Root Beer.• 7UP International.
In 1989:• UK’s Walker Crisps.• Smith Crisps.• Us Ready to eat Popcorn.
Cont………………
In 1990:• Mexican cookie Company Gamesa.• Hot ‘ N Now hamburger chain).• In 1991,Pepsi acquired Sun Chips.• In 1992,It acquired California Pizza
Kitchen.In 1993:
• East Side Mario’s.• D’Angelo’s Sandwich Shop.• Chevy Mexican Restaurants.
Cont………………
• Pepsi became a leader by use of celebrities.
Cont………………
• In 1996,Pepsi was the 2nd largest manufacturer and marketer of soft drinks.
Cont………………
• Frito-Lay contribute to 28% Pepsi-Cola profit in 1995.
• Quick Service Restaurant a distinctive unit of Pepsi-Cola.
Top five U.S Chains:1.KFC.(70% U.S Chicken Market)2.Taco Bell (68% Mexican Fast Food
Market)3.Pizza Hut (51% Pizza Chain).
Cont………………
Chicken SegmentCHICKEN SEGMENT KFC
Church'sChicken
PopeyesChicken
Chick fill-A
Kenny RogersRoaster
EI Polo Loco
Boston Market
Grandy's
Lee's RecipeChicken
BojangleChicken &Biscuits
PIZZA SEGMENT
Pizza Hut Domino Pizza Little Caesars
Papa John's Round Table Pizza Chck E.Cheese's
Shaey's Godfather's Pizza Inn
California Pizza Chicken
MEXICAN SEGMENT
Taco bell
Chi-Chi's
EI-Torito
Del Taco
Jaco John
Taco Cabana
Chevys Fresh Mex
EI Chico
Taco Time
Don Pablo's
PepsiCo’s Organizational Structure(1996)
PEPSI-COLA
Frito-Lay North America
Frito-LayEurope/Africa/Middle East
Frito-LayLatin America
/Asia Pacific/AustraliaTropicana
Pepsi-ColaNorth America
Pepsi-ColaInternational
Pepsi Strategy
• Pepsi-Cola strategy was to acquire the market leaders.
• Later, Pepsi change strategy and acquired small relatively unknown companies.
• In 1990,U.S market become more saturated and competitive & moved toward international market.
• In 1996,Wall Street Analysts expressed that Pepsi should divest or spin-off its restaurant business due to high losses.
Beverages Restaurants Snack Food
North American Sales1996 $7,725 $9,110 $6,6181995 $7,400 $9,202 $5,8631994 $6,541 $8,694 $5,3561993 $5,918 $8,026 $4,674
International Sales1996 $2,799 $2,331 $3,0621995 $2,982 $2,126 $2,6821994 $2,535 $1,827 $2,9081993 $2,148 $1,330 $2,353
North American operating profits1996 $1,428 $370 $1,2861995 $1,249 $726 $1,1491994 $1,115 $637 $1,0431993 $804 $685 $901
International operating profits1996 ($846) $153 $3461995 $117 $112 $3011994 $136 $86 $3541993 $97 $109 $285
Assets1996 $9,816 $6,435 $6,2791995 $10,032 $6,759 $5,4511994 $9,566 $7,203 $5,0441993 $9,105 $6,412 $4,995
Depreciation1996 $440 $546 $3461995 $445 $579 $3041994 $385 $539 $2971993 $359 $457 $279
Capital Expenditures1996 $648 $657 $9731995 $566 $750 $7691994 $677 $1,072 $5321993 $491 $1,005 $491
Source: 1996 PepsiCo, Inc. 10-K
Financial Results for PepsiCo's Three Businesses,1993-96 (in millions)
Roger Enrico (1996 – 2001)
• In 1996,the company’s beverage began to fall due to growing margin of Coca-Cola in domestic & international.
Enrico’s Spin-off of KFC, Pizza Hut, and Taco Bell
• In January 1997,Pepsi divestiture KFC ,Taco Bell, and Pizza Hut with the creation of Tricon Global Restaurants.
The Acquisition of Cracker Jack
• In 1997,PepsiCo acquired Borden Foods 104 years old snack mix of candy-coated popcorn and peanuts.
• Cracker Jack turned profit to $100 m during its first year of acquisition.
The Tropicana Acquisition
• In 1998,PepsiCo acquired Tropicana from Seagram Company Ltd.
• Tropicana acquisition made PepsiCo world’s largest producer and marketer of branded juices.
Tropicana brands include:Tropicana Pure Premium.Tropicana Season’s Best.Dole.
Tropicana Brands
• Pepsi acquired Tropicana at $3.3 billion while sales of Tropicana was $2 billion.
• Tropicana has 71% market share of orange juice market.
• Pepsi get four-to-one advantage over Coca-Cola Minute Maid.
• Pepsi’s Vast distribution increased Tropicana availability.
Cont………………
Snack Foods Beverages
Foods
Frito-Lay North AmericaFrito-Lay International
Pepsi-Cola North AmericaGatorade/Tropicana North AmericaPepsiCo Beverages International
Quaker North America
Snack Foods
Frito-Lay North America
Lay’sRuffles DoritosSantitasFritos CheetosRold Gold
Funyuns Sunchips Cracker Jack Chester’s popcornGrandma’s cookiesMunchos Smartfood Baken-ets fried pork skinsOberto meat snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks
Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks
Snack Foods
Frito-Lay International
Bocabits wheat snacksCrujitos corn snacksFandangos corn snacksHamkas snacksNiknaks cheese sticksQuavers potato snacksSabritas potato chips Twisties cheese snacks
Walkers potato crispsWalkers Square potato snacksWalkers Monster Munch Corn snacks Miss Vickie’s potato chipsGamesa cookiesDippasSonric’s sweet snacks
Beverages
Pepsi-Cola North America
Pepsi-ColaMountain DewSliceMugSierra MistFruitWorks
Lipton Dole Aquafina Frappuccino SoBe AMP
Beverages
Gatorade/Tropicana North America
GatoradePropelTropicanaDole juices
Beverages
PepsiCo Beverages International
Loóza juices and nectarsCopella juicesFrui’Vita juicesTropicana 100 juices
Foods
Quaker North America
Quaker OatsCap’n Crunch cerealLife cerealQuisp cerealKing Vitaman cerealMother’s cereal
Quaker rice cakes and granola barsRice-A-Roni side dishesNear East couscous/pilafsAunt Jemima mixes & syrupsQuaker grits
1997 Beverage Digest/Maxwell CSD Data
1997 1996 Share 97 Cases 96 Cases Vol. 1996
Companies Share Share Change (Millions) (Millions) % Chg. Rank
1 Coca-Cola Co. 43.9 43.1 +0.8 4208.6 4006.1 +5.1 1
2 Pepsi-Cola Co. 30.9 31.0 -0.1 2965.7 2880.6 +3.0 2
3 Dr Pepper/Seven Up 14.5 14.7 -0.2 1392.3 1366.8 +1.9 3
4 Cott Corp. 3.2 2.9 +0.3 305.0 265.0 +15.1 4
5 National Beverage 2.0 1.9 +0.1 188.0 180.0 +4.4 5
6 Royal Crown 1.7 1.9 -0.2 160.2 176.2 -9.1 6
7 Monarch Co. 0.5 0.6 -0.1 52.0 57.0 -8.7 7
8 Big Red 0.3 0.3 flat 30.4 28.3 +7.4 9
9 Double Cola Co. 0.3 0.3 flat 29.5 31.2 -5.4 8
10 Private label/other 2.7 3.2 -0.5 258.3 298.8 -13.6 10
Industry totals 100.0 100.0 9590.0 9290.0 +3.2
1997 1996 Share 97 Cases 96 Cases Vol. 1996
Brands Share Share Change (Millions) (Millions) % Chg. Rank
1 Coke Classic 20.6 20.8 -0.2 1978.2 1929.2 +2.5 1
2 Pepsi-Cola 14.5 14.9 -0.4 1391.5 1384.6 +0.5 2
3 Diet Coke 8.5 8.7 -0.2 819.0 811.4 +0.9 3
4 Mt Dew 6.3 5.8 +0.5 605.2 535.6 +13.0 6
5 Sprite 6.2 5.8 +0.4 598.0 541.5 +10.4 4
6 Dr Pepper 5.9 5.8 +0.1 566.1 536.9 +5.4 5
7 Diet Pepsi 5.5 5.7 -0.2 524.5 529.8 -1.0 7
8 7UP 2.3 2.3 flat 216.7 217.7 -0.5 8
9 CF Diet Coke 1.8 1.9 -0.1 172.8 180.1 -4.1 9
10 CF Diet Pepsi 1.0 1.0 flat 94.0 94.6 -0.6 10
IPO of PepsiCo’s Bottling Operations
• In 1991,PepsiCo spun-off more than 50% of its bottling operations.
• PepsiCo management believed that control over production & distribution give advantage over Coca-Cola.
Bottlers of PepsiCo
There are four major bottlers of Pepsi-Co:
• PBG• Whitman
Corporation.• Pep Com Industries
Inc.• Pepsi Americas, Inc.
• The three companies that form the anchor of the PepsiCo bottling network are:
• PBG is the largest of PepsiCo's bottlers. In 2006, PBG produced 40% of PepsiCo beverages sold worldwide.
• PAS is the second-largest bottler in the Pepsi system. In 2006, it accounted for 19% of Pepsi's total U.S. sales.
• PBV is the third-largest domestic bottling company within the Pepsi system. The company was formed in 1999 when five of Pepsi’s bottling companies consolidated to form PBV.
• These three bottlers account for 60% of Pepsi’s North America volume distribution and 18% of its international distribution. The remaining 82% of international distribution is handled by PepsiCo International, which uses both its own bottling operations and a system of affiliated bottling partners
The Quaker Oats Acquisition
• Enrico & Quaker Oats CEO Robert Morrison announced acquisition of $14.5 billion with Quaker Oats Company.
• Quaker Oats was a 99-year old company.
Quaker Oats Company's Income Statements, 1998-2000 (in millions, except per share amounts)
2000 1999 1998Net sales 5,041.00$ 4,725.20$ 4,842.50$
Cost of goods sold 2,288.30 2,136.80 2,374.40Gross profit 2,752.70 2,588.40 2,468.10
Selling, general, and administrative expenses 1,968.80 1,904.10 1,872.50Restructuring charges, asset impairments, and (gains) losses on divestitures-net 182.5 -2.3 128.5Interest expense 54 61.9 69.6Interest income -9.0 -11.7 -10.7Foreign exchange loss-net 5.3 18.1 11.6 Income before income taxes 551.1 618.3 396.6Provision for income taxes 190.5 163.3 112.1Net income 360.6 455 284.5Preferred dividends-net of tax 4.2 4.4 4.5 Net income available for common 356.40$ 450.60$ 280.00$
Per common shareNet income 2.71$ 3.36$ 2.04$ Net income-diluted 2.61$ 3.23$ 1.97$ Dividends declared 1.14$ 1.14$ 1.14$ Average number of common shares outstanding (in thousands) 131,689 134,027 137,185
Source: Quaker Oats Company, 2000 10-K
Financial Summary for Quaker Oats Company, 1995-2000 (in millions, except per share amounts)
2000 1999 1998 1997 1996 1995
Net sales 5,041.0$ 4,725.2$ 4,842.5$ 5,015.7$ 5,199.0$ 5,954.0$ Gross profit 2,752.7 2,588.4 2,468.1 2,450.8 2,391.5 2,659.6 Income (loss) before income taxes 551.1 618.3 396.6 (1,064.3) 415.6 1,220.5 Provision (benefit) for income taxes 190.5 163.3 112.1 (133.4) 167.7 496.5
Net income (loss) 360.6$ 455.0$ 284.5$ (930.9)$ 247.9$ 724.0$
Percommon share:Net income (loss) 2.71$ 3.36$ 2.04$ (6.80)$ 1.80$ 5.39$ Net income (loss)--diluted 2.61$ 3.23$ 1.97$ (6.80)$ 1.78$ 5.23$
Dividends declared:Common stock 149.30$ 151.80$ 155.20$ 155.90$ 153.30$ 150.80$ Percommon share: 1.14$ 1.14$ 1.14$ 1.14$ 1.14$ 1.14$ Average number of commonshares oustanding (in thousands) 131,689 134,027 137,185 137,460 135,466 134,149
Financial StatisticsWorking capital 153.3$ 58.4$ 105.9$ 187.3$ (465.0)$ (621.6)$ Property, plant, and equipment-- net 1,120.0$ 1,106.7$ 1,070.2$ 1,164.7$ 1,200.7$ 1,167.8$ Depreciation expense 123.5$ 114.0$ 116.3$ 122.0$ 119.1$ 115.3$
Total assets 2,418.8$ 2,396.2$ 2,510.3$ 2,697.0$ 4,394.4$ 4,620.4$
Long-term debt 664.1$ 715.0$ 795.1$ 887.6$ 993.5$ 1,051.8$ Common shareholders' equity 354.7$ 197.3$ 151.0$ 228.0$ 1,229.9$ 1,079.3$
Market price range of common stock:High 98 15/16 71$ 65 9/16 55 1/8 39 1/2 37 1/2Low 45 13/16 50 7/8 48 1/2 34 3/8 30 3/8 30 1/4
Source: Quaker Oats Company 2000 10-K
Quaker Oats Brands
• Quaker Oatmeal.• Cap’n Crunch.• Rice-A-Roni Cakes• Quaker Chewy Granola & fruit.• Oatmeal Bars.• Gatorade.
Gatorade
• Gatorade was developed in 1965.• In 1967,it was sold to Stokely-Van
Camp.• In 1983,Quaker acquired Gatorade
from Stokey-Van Camp.• At time of acquisition, Gatorade was
available only in two flavours:a) Lemon-lime.b) Orange.
Quaker acquired Gatorade
Gatorade become largest beverage brand in U.S.
In 1999, Annual advertisement budget was $80 million:
• 5 time greater than Coca-Cola.• 500 times greater than PepsiCo.
• In 1999- 2000,Gatorade became official drink of every sport league.
• Gatorade had ability to grow 10% annually with no new entrants in isotonic beverage.
• 100 of new entrants came and went.
• Neither Coke nor Pepsi was able to exploit its vast distribution system to become key challenger to Gatorade.
• Quaker executive assessed the relative competitive strength of Gatorade.
“Coke and Pepsi had distribution,But we had brand equity”
• PepsiCo, Coca-Cola and Swiss food gaint Nestle all were attracted to Gatorade.
• Gatorade was nutraceutical that included sodium, potassium and chloride.
• Pepsi Co became successful bidder for Quaker Oats and Gatorade.
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
For the year
Net sales $20,438 $20,367 $22,348 $20,914 $31,645 $30,421 $28,472 $25,021 $21,970 $19,292Operating profit 3,225 2,818 2,584 2,662 2,546 2,987 3,201 2,907 2,371 2,112
interest expense , net 145 245 321 353 474 555 555 484 472 452
Gain on bottling transactions --- 1,000 --- --- --- --- 1,370,414,750
Income from continuing operations
before income taxes and cumulative
effect of accounting changes 3,210 3,656 2,263 2,309 2,047 2,432 2,664 2,423 1,899 1,660
Income taxes-current and deferred 1,027 1,606 270 818 898 826 880 835 597 580
Income from continuing operations
before cumulative effect of accounting changes $2,183 $2,050 $1,993 $1,491 $1,149 $1,606 $1,784 $1,588 $1,302 $1,080Cumulative effect of accounting changes --- --- --- --- --- --- ($34) --- ($928) ---
Net Income 2,183 2,050 1,993 1,491 1,149 1,606 1,752 1,588 374 1,080
Net Income per share $1.51 $1.40 $1.35 $0.98 $0.70 $1.00 $1.09 $0.98 $0.23 $0.68
Cash dividends declared per share $0.56 $0.54 $0.52 $0.49 $0.45 $0.39 $0.35 $0.30 $0.26 $0.23
Total assets $18,339 $17,551 $22,660 $20,101 $24,512 $25,432 $24,792 $23,706 $20,951 $18,775
Long-term debt 2,346 2,812 4,028 4,946 8,174 8,439 8,509 8,841 7,443 7,965
Capital spending 1,067 1,118 1,405 1,506 2,287 2,104 2,253 1,982 1,550 1,458
Financial Summary, For PepsiCo, Inc 1991-2000 (in millions, except per share amounts)
Steve Reinemund (2001……2005)
• Chairman of the Board and Chief Executive Officer.
2nd largest Position of PepsiCo in 2001
• In 2001,PepsiCo had number of products: Salty & Sweet Snacks. Soft Drinks. Orange Juice. Bottled Water. Ready to drink teas & coffees. Nutraceutical & isotonic beverages. Hot and ready-to-eat breakfast cereals. Grain based products. Breakfast Condiments.
Total Revenue by Company Divisions
Describing PepsiCo as being in the “Beverage Industry” is slightly inaccurate, as one-third of all Revenue comes for Frito-Lay Chip division for North America.
• President and Chief Executive Officer of PepsiCo.
Indra K. Nooyi (2006 - …….)
Pepsi-Co
PepsiCo
Pepsi-Co
Pepsi-Co
Income Statement - 10 Year Summary (in Millions)
Sales EBIT Depreciation Total Net Income EPS Tax Rate (%)
12/08 43,251.0 7,021.0 1,486.0 5,142.0 3.21 26.76
12/07 39,474.0 7,631.0 1,362.0 5,658.0 3.41 25.86
12/06 35,137.0 6,989.0 1,344.0 5,642.0 3.34 19.27
12/05 32,562.0 6,382.0 1,253.0 4,078.0 2.39 36.1
12/04 29,261.0 5,546.0 1,209.0 4,174.0 2.41 24.74
12/03 26,971.0 4,992.0 1,165.0 3,568.0 2.04 28.53
12/02 25,112.0 4,433.0 1,067.0 3,000.0 1.67 32.33
12/01 23,512.0 3,644.0 1,008.0 2,400.0 1.33 34.14
12/00 22,337.0 3,761.0 987.0 2,543.0 1.42 32.39
12/99 25,093.0 4,275.0 1,066.0 2,505.0 1.38 41.4
PepsiCo’s Financial Summary of 10 Years
Balance Sheet - 10 Year Summary (in Millions)
Current Assets
Current Liabilities
Long Term Debt
Shares Outstanding
12/08 35,994.0 23,888.0 7,858.0 1.6 Bil
12/07 34,628.0 17,394.0 4,203.0 1.6 Bil
12/06 29,930.0 14,562.0 2,550.0 1.6 Bil
12/05 31,727.0 17,476.0 2,313.0 1.7 Bil
12/04 27,987.0 14,464.0 2,397.0 1.7 Bil
12/03 25,327.0 13,453.0 1,702.0 1.7 Bil
12/02 23,474.0 13,951.0 2,187.0 1.7 Bil
12/01 21,695.0 13,021.0 2,651.0 1.8 Bil
12/00 20,757.0 13,104.0 3,009.0 1.7 Bil
12/99 17,551.0 10,670.0 2,812.0 1.5 Bil
PepsiCo’s Financial Summary of 10 Years
New Organizational Structure of PepsiCo
PepsiAmericas
Food
PepsiAmericas
Food
PepsiCoAmericas
Beverages
PepsiCoAmericas
BeveragesPepsiCo
International
PepsiCoInternational
PepsiCo
• Pepsi market itself as for “New Generation”.
Pepsi Segmentation
• Pepsi Cola targeted the consumers of age 18 – 29.
• Also ,it emphasized on consumers of age 12 – 18.
FINANCIAL SUMMARY OF FIRST - QUARTER 2009 DIVISION RESULT
% Growth Constant Currancy % Growth
Net Revenue
Core division Operating Profit
Reported Net Revenue
Core Division Operating Profit
Reported Division Operating Profit
PAF 10 14 4 8 7
FLNA 12 12 10 10 10
QFNA Flat 7 -2 6 5
LAF 11 27 -11 1 -1
PAB -9 -10 -12 -13 -16
PI 17 11 3 -2 -4
Europe 17 10 -4 -16 -18
Amea 18 12 -11 11 -8
Competitive edge of Coca-Cola
• Coca-Cola use the name Coca – Cola Classic, which inferring to the oldest customers :
• Reliability.• Old time Values.
Strength of Pepsi-Cola
• Strong franhising system.
Bottler of Pepsi In Pakistan
• Shamim & Company(Pvt)Ltd is largest manufacturer , distributor and seller of Pepsi-Cola since 1973.– It located in Multan.– Before Pepsi Shamim & Company were
operating under 7-Up bottlinh sysytem.
• Nubhar Bottling Company is also one of largest manufactrer of Pepsi-Cola.
Loyalty of Customers
Futures of Pepsi-Co
Estimate of In depth Earnings
Current Quarter Mar 09
Next Quarter
Jun 09
Current Year
Feb 09
Next Year Feb 10
Average Estimate
$0.67 $0.99 $3.67 $4.03
Number of Analysts
12 11 13 8
High Estimate
$0.69 $1.04 $3.75 $4.17
Low Estimate
$0.63 $0.90 $3.60 $3.82
Year Ago EPS
$0.70 $1.05 $3.68 $3.67
Growth Rate
(5)% (5.71)% (0.17)% 9.80%
• What type of corporate diversification strategy is PepsiCo employing?
• What are the key elements of PepsiCo’s “new” corporate strategy?
• Are there any common elements in the business strategies it uses in each of its consumer business segments – Pepsi-Cola soft drinks and beverages ,Frito-Lay snack foods , Gatorade / Tropicana and Quaker foods North America – or are the strategies in each business group substantially different?
PepsiCo employed related diversification strategy by acquiring:• Soft Drinks• Fruit Juices.• Non-Carbonated Beverages.• Snack Foods.
New corporate strategy elements:• Innovations.• Skill Transfer.• Technology.
Consumer business segments has following common elements:•Satisfy Customer needs.•Quality of product.•Quality service.
• What is your assessment of the long-term attractiveness of the industries represented in PepsiCo’s business portfolio?
• What is your assessment of competitive strength of PepsiCo’s business units?
Competitive Strength
• What does a nine – cell industry attractiveness / business strength matrix displaying PepsiCo’s North American business units look like? Should PepsiCo be pleased about the position of the business it acquired in the Quaker Oats deal?
Competitive StrengthsA
ttra
ctiv
enes
s
Low
High
LowHigh
North American Beverages
• Does PepsiCo’s portfolio exhibit good strategic fit? What value chain match-ups do you see ? What opportunities for skill transfer , cost sharing ,or brand sharing do you see ? How might Quaker Oats portfolio of grain based snacks ,breakfast items , Gatorade benefit from being a part of the PepsiCo business portfolio?
• What strategic actions should Steve Renemund take to capitalize on the portfolio restructuring engineered by Roger Enrico ? Are any further modifications to the portfolio or to PepsiCo’s strategy worthy of consideration?
Snack Foods Beverages
Foods
• PepsiCo should focus on its core businesses
Thank you