1. Evaluate the corporate strategy used by PepsiCo to compete with the best in “big business circles
...all three industries was, in large part, a function of a company’s ability to create a distinctive image and develop innovative and tasty new products. PepsiCo’s strengthened its portfolio during the 1980s and early mid-1990s with such snack food and beverage acquisition as Mug root beer and 7UP International Walker’s Crisps and Smith Crisps and ready-to-eat popcorn and Chevys Mexican Restaurants in 1993. The restaurants acquisition strategy was primarily to acquire established market leaders that might be entering a rapid period of growth because Americans spent a rising portion of their food dollars at restaurants. The growing numbers of fast food outlets and value-conscious consumers produced strong price competition among the leading fast-food chains, with an increasing reliance on discounted value meals to increase volume at the expense of margins. The market became more saturated and competitive. Also, the restaurants were absorbing too much funds and with the stagnant growth in the restaurant sector and the declining profit margin. Spinning off was the most appropriate strategy. In addition, with the acquisition of restaurants, there were two different cultures in the company. The beverage culture and the restaurant cultures simultaneously were not possible. One culture has to be dominant. Consequently, in 1997 PepsiCo spun off all of its restaurants. Despite the fact that these restaurants acquisition did not prove profitable in the longrun, PepsiCo succeeded in enticing Coca-Cola into disastrous introduction of New coke in 1985. During the late 1990s, PepsiCo acquired Cracker Jack, Tropicana and Smith’s Snackfood Company. PepsiCo acquisition of Tropicana Products was the largest ever undertaken and gave the company the world’s largest producer and marketer of juices. PepsiCo vast distribution system was expected to increase Tropicana’s availability. To concentrate more on the snack food and beverages businesses, PepsiCo acquired Quaker Oats in 2001 which had brand equity. The acquisition of Quaker Oats would insert the leading sports drink into PepsiCo’s portfolio and provide ample opportunities for revenue growth and cost sharing through synergies existing between PepsiCo’s and Quaker’s brand. Gatorade of Quaker Oats had a market share of nearly 85 percent in the 1990s. Neither Coke nor Pepsi was able to exploit its vast distribution systems to become a key challenger to Gatorade. Thus the acquisition of Quaker Oats enabled PepsiCo to have a competitive edge over its competitors. In 2001, PepsiCo was the second-largest food products company in the United States and was diversified into salty and sweet snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and coffees, nutraceutical and isotonic beverages, hot and ready-to-eat breakfast cereals, grain-based products, and breakfast condiments. Many PepsiCo brands held number one or two positions in their respective food and beverages categories. 3. The Company’s strengths, weaknesses, opportunities and threats. The SWOT Analysis is a conceptual framework for a systematic analysis that facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization. It has been common to suggest that companies identify their strengths and weaknesses as well as opportunities and threats in the external environment. The acquisition of Quaker Oats would insert the leading sports drink into PepsiCo’s portfolio and provide ample opportunities for revenue growth and cost sharing through synergies existing between PepsiCo and Quaker Oats brands. According to Newstream (2000), the addition of Quaker is expected to be accretive to PepsiCo’s earnings per share in the first full year and thereafter. The acquisition will immediately improve PepsiCo’s return on invested capital and also, it will enhance PepsiCo’s ongoing sales and profit growth rates. The acquisition of Quaker provides PepsiCo with several key strategic and economic benefits (PepsiCo press release, 2000): Quaker’s powerful Gatorade brand, the world’s number one sports drink, will make PepsiCo the clear leader in non-carbonated beverages, the fastest growing sector of the beverage industry. Additionally, leveraging the much larger scale of Gatorade’s vast warehouse distribution system will enable PepsiCo’s Tropicana juice unit to gain the scale it needs to make its ambient juice brands stronger and more profitable. Combining with the world-renowned PepsiCo organization will, no doubt, unleash the tremendous global growth potential of the Gatorade brand and will leverage the strengths of its food business. Quaker’s rapidly expanding snack business – including granola bars, rice snacks and fruit and oatmeal bars – is highly complementary to PepsiCo’s Frito-Lay unit, the world leader in salty snacks. The Quaker brand will extend PepsiCo’s reach into morning on-the-go meal occasions, snacks aimed at kids and grain-based snacks. Distribution of Quaker’s snacks through Frito-Lay’s vast distribution system will create very substantial growth opportunities in the U.S and internationally. Quaker’s highly profitable non-snack food business (with leading brands like Quaker Oatmeal, Life and Cap’n Crunch cereals, Rice a Roni and Aunt Jemina syrup) generates hundreds of millions of dollars in cash, and through increased innovation and efficiencies can continue to provide steady profit growth and substantial free cash flow. Combining PepsiCo and Quaker will create a company with an exceptionally strong position in the rapidly growing market for convenient foods and beverages. The combined company, which will retain the PepsiCo name, will have pro forma revenue of $25 billion (Newstream, 2000). Its expected market capitalization of more than $80 billion will place it among the world’s five largest consumer products companies. In addition to significantly bolstering its food and beverage offerings, the purchase of Quaker Oats represents a major coup for Pepsi in its long-running war to gain on its chief rival Coke, in the eyes of analysts (CNN money, 2000). With Gatorade, Pepsi will now assume a leadership position in the increasingly important non-carbonated beverage category, and the fastest growing segment in the beverage industry, and perhaps for the first time put Coke in a position of looking at Pepsi. Coke is at an increasing disadvantage as Pepsi is looking up the non-carbonated segment. In fact, Coke is dealing with restructuring its internal problems while Pepsi is being proactive about growth. In a trend that began where consumers were increasingly drawn to healthy food choices, PepsiCo had the advantage of having Gatorade in its portfolio. In fact, Gatorade which was a borderline nutraceutical that included sodium, potassium, and chloride, appeared to have begun benefiting from the trend and had its sales figures gradually increasing. Also, the company had the opportunity to capture further growth in the demand for nutraceutical food and beverage products through Gatorade Energy Bars and Propel fitness water- a bottled water including four B vitamins and two antioxidants (vitamins A and C). The main threat that PepsiCo could face was the lack of a proper corporate vision. The company did not have a clearly defined strategy. It acquired small businesses which were not in the same fields. Consequently, there were different cultures prevailing in the corporation which will definitely create management problems. The acquisitions of restaurants, for instance, created two cultures, which resulted in the spinning off of them ultimately. Moreover, these restaurants absorbed a lot of investments which could have been used in the process of research and development which the company did not have. PepsiCo had no research and development ability because almost all funds were being invested in the restaurants business. PepsiCo was not very creative and thus, it faced severe competition in its line of business. The company’s beverage business began to fall behind Coca-Cola by a growing margin in both domestic and international markets. With the acquisition of restaurants business, PepsiCo invested a lot of funds. Also, with the increasing portion of food dollars at restaurants, these quick-service restaurants were appealing. However, with the growing number of fast-food outlets and value-conscious consumers producing strong price competition among the leading fast-food chains, there has been an increasing reliance on discounted value meals to increase volume at the expense of margins. The U.S market became saturated and competitive, and the leading franchised restaurants focused greater attention n international markets as a source of growth. There also, they faced a lot of problems like difficulties in repatriating profits because of local government restrictions and international currency fluctuations. Also, site development costs abroad were frequently higher than in the U.S, and qualified suppliers were not readily available. With the average consumer product company losing a quarter of its market value in 1999, the investors perceptions of the company was not good. This threat can have negative impact on the share price of PepsiCo as well as on the level of profit. Threats from e-commerce also were also present. 4. Its globalisation strategy. According to Hill (2003:6), globalisation refers to the shift toward more integrated and interdependent world economy. A global strategy seeks to maximize worldwide performance through sharing and integration (Mintzberg et al, 2003:281). The newly merged company - Pepsi-Cola and Frito- Lay-pushed PepsiCo’s growth forward with new product introductions, expansions into international markets, aggressive marketing and clever advertising campaigns. PepsiCo entered markets in Japan and Eastern Europe. In fact, PepsiCo became the first foreign product sold in the Soviet Union in 1972, expanded into china in 1982 and by 1984 sold products in nearly 150 countries and territories. PepsiCo strengthened its portfolio during the 1980s and early to mid-1990s with the global snacks food and beverage acquisitions like Mug Root Beer, 7UP International, UK’s Walker’s Crisps, Mexican Cookie among others. The globalisation strategy enabled the company to benefit from the advantage of cost sharing and skill transfer. Moreover, PepsiCo worldwide acquisition of Pizza Hut, Taco Bell and KFC offered it a captive market and positioned it in an additional high-growth industry. Whereas the early restaurant acquisition strategy was to acquire established markets leaders, the company later acquired small, relatively unknown companies that might be entering a rapid period of growth. The quick-service restaurant industry was found appealing because many Americans spent a rising portion of their food dollars at restaurants. However, even though consumers were eating a greater number of meals away from home, the fast-food segment of the restaurant industry became a challenge by market saturation and increasing price competition during the 1990s. As the U.S market became saturated and competitive, the leading franchised restaurants focused greater attention on international markets as a source of growth. But despite the fact that international markets were attractive, there were many risks associated like repatriating profits, local government restrictions, international currency fluctuation and qualified staffs. In 1996, as the attractiveness of the global fast-food industry continued to decline and the restaurants businesses were plagued with declining same-store sales and narrowing profit margin, spinning off the restaurant business was the best solution. In addition, with the acquisition of restaurants, there were two different cultures in the company. The beverage culture and the restaurant cultures simultaneously were not possible. One culture has to be dominant. Consequently, in 1997 PepsiCo spun off all of its restaurants. PepsiCo acquired Cracker Jack in 1997 to capitalize on the snacking opportunities. In 1998, to exploit the North American market, PepsiCo acquired Tropicana which gave the company the world’s largest producer and marketer of branded juices. PepsiCo spun off more than 50 percent of its bottling operations around the...