Diversification
The diversification of PepsiCo is evident in that each of its top 18 brands generates over $1,000 million in annual sales (Lexis Nexis). PepsiCo products range from carbonated beverages to cake mixes. This broad product base helps to insulate PepsiCo from shifting business climates.
Distribution
PepsiCo delivers its products directly from its manufacturing factories and warehouses to customer warehouses and retail stores. This approach also includes employees making direct store deliveries of snacks and beverages and the use of third party distribution services. PepsiCo’s multi-channel distribution system strengthens the companies hold in the industry.
II. Weaknesses
Overdependence on Wal-Mart
Wal-Mart sales alone account for over 12% of PepsiCo’s total net revenue (Lexis Nexis). Because of this Wal-Mart is PepsiCo’s largest customer. This results in PepsiCo’s fortunes being heavily influenced by the business strategy of Wal-Mart. The Wal-Mart “lowest prices” theme puts pressure on PepsiCo to keep its prices low.
Overdependence on U.S. Markets
PepsiCo’s international presence is obvious; however, the majority of its revenues (52%) are generated in the US. This high concentration leaves PepsiCo vulnerable to the impact of changing economic conditions. PepsiCo’s lack of bargaining power can be exploited by US customers, thus negatively impacting its revenues.
Low Productivity
In recent years PepsiCo has had lower revenue per employee compared to its competitors. This can be an indication of comparatively low productivity on the part of PepsiCo’s employees.
Image Damage Due to Product Recall
In 2008 salmonella contamination forced PepsiCo to hold a recall on Aunt Jemima pancake and waffle mix from retail shelves. This recall followed incidents of exploding Diet Pepsi cans which occurred during 2007. This occurrences cause damage to PepsiCo’s image and can reduce consumer confidence in PepsiCo products.
III. Opportunities
Broadening of Product Base
PepsiCo is working to address one of its potential weaknesses; overdependence on US markets, by acquiring Russia’s leading Juice Company, Lebedyansky, and V Water in the United Kingdom (Lexis Nexis). PepsiCo continues to broaden its product base by introducing TrueNorth Nut Snacks and increasing its Lipton Tea venture with Unilever. These plans will allow PepsiCo to adjust and adapt to the changing lifestyles of its consumers.
International Expansion
PepsiCo has recently been working on investments in China and India. Both initiatives are part of its expansion into international markets and a decrease on its dependency on US markets. PepsiCo is also planning on major capital initiatives in Brazil and Mexico.
Growing Savory Snack and Bottled Water Market in US
In the past years PepsiCo has positioned itself well to capitalize on the growing bottled water market. In 2012 this market was worth over $23 million. PepsiCo products such as Aquafina and Propel are well established and positioned to take advantage of this growing market. PepsiCo snack products including Doritos, Cheetos, Tostitos, Fritos, Ruffles, Sun Chips, and Rold Gold are all benefiting from the growing savory snack market. It was projected in recent years that this expanding snack market will grow as much as 27% by 2013, which would represent an increase of $28 million.
IV. Threats
Decline in Carbonated Drink Sales
As the social norm moves toward healthier lifestyles, the number of carbonated drink sales has decreased. The sale of carbonated drinks has gone down almost 3% which has resulted in a decrease of close to $65 million in value. PepsiCo is currently in the process of diversification, but has felt the impact of this decline.
Potential Negative Impact of Government Regulations
PepsiCo has anticipated that government initiatives related to environmental, health, and safety issues will have the potential to negatively impact the company. Examples of these would include manufacturing, marketing, and distribution of food products that may be altered as a results of state, federal or local dictates. If PepsiCo is required to add warning labels or place warnings in certain locations where its products are sold, this would cause a negative effect on sales.
Intense Competition
PepsiCo’s primary competitor is the Coca-Cola Company. Other top competitors include Nestle, Groupe Danone, and Kraft Foods. This intense competition influences pricing, advertising, and sales promotion initiatives undertaken by PepsiCo.
Potential Disruption Due to Labor Unrest
Based upon recent history, PepsiCo may be vulnerable to strikes and labor disputes. Back in 2008 there was a strike in India that shut down production for almost an entire month. This strike disrupted both manufacturing and distribution for PepsiCo.