PepsiCo Diversification Strategy in 2008
• PepsiCo is the second largest snack and beverage company in the world. Established in 1965 when Pepsi-Cola and Frito-Lay shareholders merged their salty snack icon and soft drink giant. With revenues of $500 million with popular brands such as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Cheetos, and Ruffles, they have achieved growth and long-term value in its operational activities by creating competitive advantages through new product innovation and acquisitions. Its portfolio has grown year after year with its acquisition of Tropicana in 1998, two largest bottlers (Pepsi Bottling Group/PepsiAmericas) in 2010 and Wimm-Bill-Dann (dairy products) in 2011, and the merger with Quaker Oats in 2001. Profits generating $39.5 billion in net revenues in 2007 leading to 19 products each generating $1 billion in worldwide retail revenues in 2010. Some of the most popular inclusions have been Quaker Oats, Gatorade G2, Tiger Woods signature sports drinks, Cap’n Crunch cereal, Aquafina, and Aunt Jamima pancake mix. In keeping up with consumer health and wellness concerns of reducing saturated fats, cholesterol, trans fats, and simple carbohydrates, PepsiCo created better-for-you and good-for-you products under the Power of One alliance strategy which focused on increasing customers tendency to purchase more than one PepsiCo product during each visit. A quite ingenious innovation!
Branding Diversification Distribution
Overdependence on Snacks & Non-carbonated drinks Large Size Low Productivity
Broadening of Product Base International Expansion Growing Snacks of new flavors and Bottled Water market in U.S.
Decline in Carbonated Drink Sales Potential Negative Impact of Government Regulations Intense Competition Potential Disruption
Branding • PepsiCo’s top brand is its most recognized brand in the world, Pepsi, followed by its 155 varieties of Frito-Lay, PepsiCo beverages, Tropicana, Gatorade, and Quaker Oats brands. Most PepsiCo brands reached number one or two positions in their respective categories and has “24 other global and local brands with annual retail sales ranging from $250 million to $1 billion, including Sobe, Naked, AMP Energy, Propel Zero, Sabritas, Gamesa, Lebedyansky, Aunt Jemima and Rice‐A‐Roni .” (PepsiCo website) In2008, Frito-Lay was the top selling chip brand in the U.S. and Propel Fitness Water was the leading brand of functional water; In 2007 it was Gatorade, propel, and Aquafina with a 76 percent market share. Three initiatives leading the industry were “convenience, a growing awareness of nutritional content of snack foods, and indulgent snacking.” (Gamble & Thompson, 2012, pg. 426) The strength of these brands is evident in PepsiCo’s presence in 200 countries and proven in it’s 2007 net revenues of $39.5 billion globally and annualized revenues of $60 billion in 2010. (PepsiCo website) The company has the largest market share in the US beverage at 39%, and snack food market at 25%. Such brand dominance insures loyalty and repetitive sales.
Diversification • PepsiCo’s diversification not only integrates snacks (chips), ready-to-drink teas, juice drinks, flavored/bottled water, as well as breakfast cereals, cakes and cake mixes, but its brands are catered to its international franchise such Crujitos corn snacks, Fruko beverages, and Crueslic cereal sold in the UK, Europe, Asia, Middle East, and Africa. All the various products plus a multi-channel distribution system, and its 300,000 team of professionals that thrive on collaboration and respect were led by three CEOs (Enrico, Reinemund, Nooyi); all of which served to insulate PepsiCo position as the “world’s second largest food and beverage business”. (PepsiCo website) Distribution • The company delivers...