Symbol: PEP Exchange: NYSE Industry: Processed & Packaged Goods Sector: Consumer Goods Purchase Price: $43.12 Purchase Date: December 2002 52week High $78.09 52week Low $61.89 Initial Floor 2 $74.26 Trailing Floor 3 $77.87 Beta N/A Market Cap $123.11 billion Shares Outstanding 1.61 billion Dividend Yield 1.50% P/E Ratio 20.49 Competitor #1 Coca-Cola (KO) Competitor #2 Cadbury Schweppes (CSG) Type of Security: Large Cap Growth Predicted Shareholder Return 1 year: 14.1% Past 5 years: 34.53% Past 10 years: 128% Predicted Annual Return:
Strategic and Competitive Analysis The first point of analysis which should be examined when using Porter’s five forces is the competition within the industry. Pepsi has varying degrees of competition in their different sectors. In their carbonated beverage sector Pepsi really only has one major competitor; Coca-Cola. Cadbury Schweppes is also a competitor, but Cadbury is in the process of selling off their carbonated beverage sector. The major competition Pepsi has to deal with in this sector is Coca-Cola, thus creating a sort of Duopoly. The competition is slightly minimized however because of the product differentiation. Many avid soda drinkers will say that there is a difference between Pepsi and Coke, and both have their own secret recipes. Unfortunately for Pepsi, the market is not a complete duopoly because of substitutes. It is also intensely competitive. Pepsi does have a differentiated product in the carbonated soft drink sector but there are substitutes; store brands. This limits Pepsi’s ability to raise prices. As a result, Pepsi’s price increase ability is limited to inflation that will presumably affect all producers of carbonated soft drinks (assuming all have similar hedging strategies). Pepsi’s other products experience different competition. The Frito-Lay brand’s major rival is Proctor and Gamble, and again, store brand substitutes. However, Frito-Lay has had a very successful marketing program in past years, and revitalized their brand image for Doritos and Sun Chips. Both of these products are very differentiated and there are few substitutes for Doritos and currently none for Sun Chips. Pepsi’s product differentiation caused by their marketing strategies has severely limited the threat of new entrants. Also, the heavy start up costs of manufacturing and packaging plants would be a deterrent. Still, the biggest deterrent is brand image and reputation; a new company would be very hard pressed to take market share away from an established brand like Pepsi or its affiliates. SWOT Pepsi’s strategy is to meet consumer demand by introducing new products in order to increase market share. The demand for carbonated soft drinks has been decreasing as consumers focus more on healthy substitutes. PepsiCo recently acquired sparkling juice company IZZE. The firm has also signed a licensing agreement with Ben & Jerry’s for the sale of milkshakes and a deal with Starbucks to distribute its Ethos water brand. It has launched a coffee-flavored cola, Pepsi Max Cino, in the U.K. The company has also entered into a joint-venture with Starbucks in China. Pepsi is allowing Starbucks to sell its beverages in its current distribution centers in an attempt to capture a portion of the implementation of “grab-n-go” coffee in Asian markets. In addition, Pepsi is participating in a marketing campaign to be shown on the flat-screen televisions that line the walls of subway cars in Shanghai. The marketing ploy is interesting because it involves short clips of a movie, or “subopera,” to be shown in small segments over forty weekdays. The movie is a love story and apparently, is not shy about showing both the Starbucks and Pepsi logos. Marketers in the US and Asia believe this method will be effective, as it fits with the trendy and upscale Asian subway audience. Bowing to obesity concerns in the U.S., Pepsi has developed an interest in the health and wellness of its customers and...
Please join StudyMode to read the full document