Personal satisfaction
PepsiCo, Inc. is founded by Donald M. Kendall, president and chief executive officer of Pepsi-Cola and Herman W. Lay, chairman and chief executive officer of Frito-Lay, through the merger of the two companies. Before Donald’s retirement in May of 1986, Donald served as its chief executive officer for 21 years and served as chairman of the executive committee board from 1986 to 1991. Roger Enrico has been PepsiCo’s CEO since 1996, but he retired last year. Steven Reinemund is the chairmen and chief executive officer at PepsiCo Inc. since May of 2001.
Chairman’s letter in 2001 (the last few paragraphs)
"Growth with Integrity" is an idea that binds us all together, and it certainly was a hallmark of Roger's tenure. He made many contributions to our company during his 30 years. However, none was as significant as his leadership during the past five years, as he reshaped PepsiCo for the new millennium. As Roger retires from the company this year, he leaves with the deepest respect and best wishes of the entire PepsiCo team and particularly the Reinemund family.
Looking forward, PepsiCo is stronger than ever. We're focused and beautifully positioned to grow. And we continue to close in on our ultimate goal of being the world's very best consumer products company. I am proud of the entire PepsiCo team and look forward to the growth challenge ahead.
One aspect of the success of a business is weather the owner is satisfied with the business. It is clear from pervious data, PepsiCo’s major reason for mergers is growth. It certainly has done that in the past five years. Profits have gone up and net sales have gone up. With, such numbers, the chairman of PepsiCo Inc. has to be happy. Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C. pharmacist. As a chemist, he saw the popularity of Coke and started to test carbonate water and spices. His main purpose was to create a drink that can compete with Coke. It certainly has done that, Pepsi, now a subsidiary of PepsiCo is that second largest non-alcoholic beverage company in the world, and it is still growing.
- Factors of the PepsiCo’s success
- Personal factors:
PepsiCo, Inc. is founded by Donald M. Kendall, president and chief executive officer of Pepsi-Cola and Herman W. Lay, chairman and chief executive officer of Frito-Lay, through the merger of the two companies. The main reason for the merger is for growth. This legacy has been passed down to the next generation of CEOs which include Roger Enrico and now Steve Reinemund.
Donald M. Kendall (picture on the left) is a co-founder of PepsiCo, Inc. Before retirement in May of 1986, Donald served as its chief executive officer for 21 years and served as chairman of the executive committee board from 1986 to 1991. A National Business Hall of Fame laureate and distinguished World War II Naval aviator, he positioned the world's premier consumer product to serve the nation, foster international understanding and promote human equality.
Kendall continues to provide the company with counsel as well as serve as the company's ambassador throughout the world. After a few years in the Navy, Kendall joined the Pepsi-Cola Co as a fountain syrup sales representative. His rise in the company was meteoric. He advanced from sales to managing a sales crew, to managing sales for all company operated plants. In 1951, he became assistant national sales manager, and a year later was promoted to vice president in charge of national sales. In 1956, he became vice president in charge of marketing for the entire company. In 1957, Kendall became president of Pepsi Cola's overseas operations. In 1963, Kendall became president and CEO of Pepsi-Cola, and under his leadership, the number of countries in which Pepsi-Cola was available more than doubled and sales tripled. Two short years later he engineered the merger that brought Pepsi-Cola together with Frito-Lays, the nation’s leading snack food marketer to create PepsiCo. In 1971, he was elected chairman and CEO, a position he held until his retirement in May, 1986.
Driven by the desire for control, Kendall has succeeded in making PepsiCo an expert at what it does. Under his control and leadership, PepsiCo became one of the 25 largest corporations in the U.S., a leading bottler of soft drinks, the biggest salty snack producer and the largest operator and franchiser of restaurants in the world. His vision was to make Pepsi-Cola more successful than Coca-Cola. He recognized the potential demand for snack and beverage products and service, and both Lays and Kendall captivated that demand by agreeing to merge.
Both men have a passion for the business. It is not easy to become the best snack producer in the world and control two-fifth of the snack industry in the whole world. Kendall has also had his share of hard works. The Pepsi-Cola competition still exists today, and one of PepsiCo’s major goals is to become the world’s number one beverage provider. It is their love of the product and the process to the top that kept Kendall and Lays going, and now it is affecting Steve Reinemund, as he is the new CEO of PepsiCo Inc.
Perseverance is also another big factor in Kendall’s personal success. To create a business like PepsiCo, he often faced reason to give up. The long lasting war with Coca-Cola has lasted more than thirty years, and he is still concentrating on new strategies. There are long hours, family pressures, personal stress, and market uncertainty with World War II, the 1980s (Coca-Cola’s worst years), and also now the slump in the market. However, Kendall stuck with his ambitions and overcame the obstacles and has become very successful.
Teamwork is also another important factor for the success of a entrepreneur. Kendall took over the job of the CEO in 1971. As part of managing a business, development of teams is very important. Kendall is able to attract people with different skills, abilities, and personality types. Each person has worked together to achieve the goals of the business and that is to be the top of the snack and beverage industry. Kendall is a negotiator, a motivator, a teacher and, a counselor. He is ambitious and hardworking, which has made the job of other employees easier. During his time at PepsiCo, teamwork has lead to its famous "Pepsi Generation" (1964) and "Pepsi Challenge" (1975) advertising campaigns, both greatly increasing its sales to challenge those of archrival Coca Cola.
- Economic factors:
Supply and Demand
The basic relationship between supply and demand is, as the supply of a particular good or service increases, the price usually decreases if the demand remains the same. The price decrease is the result of increased competition, which promotes more and better research, cheaper manufacturing or distribution methods, and price reductions based on economies of scale. The lower prices, as well as increased availability in the market, increase the demand for the product. As the price drops, the competition tightens, businesses that are barely competitive start to leave the marketplace because they cannot make enough profit. PepsiCo’s products’ competition with Pringles, Unilever, and many other well-known brands have caused many of the marginal businesses that sells cheap products to go bankrupt. Therefore, less competition means more success for PepsiCo.
Due to PepsiCo’s close attention to demand, they have come up with newer and better product to compete with the market. In 1982, Pepsi Free and Diet Pepsi Free, the first major brand caffeine-free colas, are introduced. In 1993, Pepsi introduces "The Cube," an innovative 24-can multipack, that satisfies growing consumer demand for convenient large size soft drink packaging. On August 2, 2001 PepsiCo completes its merger with The Quaker Oats Company, creating a $25 billion food and beverage company focused on the rapidly growing consumer demand for convenience. These are just examples of the few, however, they do make a difference in the demand. People demand the products, and PepsiCo supplies them.
Canada has laws that prevent price fixings, which give equal opportunity for all businesses. Since, Pepsi is known for its advertising and quality, it has become one of the most competitive businesses. In 1965, it was one of the few large companies to enter the beverage and snack industry. This was at the time when people wanted convenience and demanded junk foods and soda drinks. PepsiCo’s timing was almost perfect and even though there were major competitors like Coca-Cola, Pepsi still gained much attention around the economy, which gives it a promotional value and leads to success.
Labor Market Condition
Businesses compete for the labor supply by offering higher wages, better working conditions, or excellent packages. Canada’s unemployment rate is 7.7%. Successful businesspeople usually examine the unemployment rate in a particular community before establishing a business there. For example, PepsiCo’s subsidiaries’ headquarters are in Mississauga, Ontario. Ontario’s unemployment rate is 5.9%. Then Toronto’s general welfare assistance has 64,161 total cases that include 144,758 total person.
Pepsi takes advantage of these subsidies offered by the government, in the form of tax breaks, low-interest loans, or actual government grants, by willingly investing money in training programs. Also, a place like Mississauga is filled with skilled professionals. Since Pepsi offers higher wages, better working conditions, and excellent compensations, more professionals would likely to accept a job there and that’s an advantage for PepsiCo.
The conditions of the Canadian labor market condition also tie in with Government factors and the economy of the U.S. Also, Given the low Canadian dollar, Canadian workers earn less than Americans would. Also, because taxpayers pay for medicare, the fringe costs per employee are about half what they'd be in the U.S. [where employers typically pay a portion of medical insurance]," the location expert comments. "Canada has a good education system, telecommunications and other infrastructure. Altogether, it's a strong package.
American corporations and Canadian workers settle down together easily because the two nations have grown increasingly similar over the last half-century. The TD Bank says real personal incomes per capita rose 13% during the 1990s, while Canadians' total income stagnated and their disposable income actually declined 5%. The Bank of Montreal reports, "Real personal disposable income per capita in Canada fell to 42% below the U.S. level in 1996...after fluctuating at around 20% below through the mid-1980s." Constitutions also confirm that the after-tax income of Canadian families has declined 5% since 1989. Therefore, PepsiCo can get the same skilled professionals in Canada that works at a lower price.
Inflation
Inflation is when the price of many products goes up while the purchasing power of money – the amount and quality of goods and services that money can buy – decreases. Canada has a low unemployment rate which means there are more jobs; more jobs leads to people earning salaries that are being spent on consumer goods; more spending leads to increased demand, increased prices, and ultimately inflation. Inflation is a problem to the consumer, but in many ways it is good for the company. For example, a bottle of Pepsi would cost $0.23 in 1965, now it would cost $1.35 in 2002 because of the affect of inflation.
PepsiCo is able to manage expenses and keep cost cutting to a minimum during the inflationary periods. It concentrates on providing good and reliable services to existing client, trying to keep prices reasonable (PepsiCo’s products have been in the same price range for the last ten years), and trying to attract new customers.
- Government factors:
One of the most important government factors that affect a business is tax. Each business must follow numerous regulations. First of all, there are the goods and services tax (GST) and the provincial sales tax (PST) – and income tax, etc. In June 2001, the Canadian government also passed a law reducing corporate income tax rates. Diluted earnings per share in 2001 include a tax benefit of $0.10 resulting from this law. For PepsiCo, their effective U.S. income tax rate was at 33.9%. In 2000, it was at 32.4% and 41.1% in 1999. In 2001, PepsiCo paid 226 million of foreign income tax, in 2000, they paid 165 million of foreign income tax and in 1999, they paid 322 million.
For products like soft drinks, the government wishes to encourage a free market and opposes control of supply. Therefore, the government has passed antitrust legislation.
Therefore, PepsiCo is able to compete freely with the other beverage companies. PepsiCo is also under the federal Competition act. In Canada, any effort to control the supply, price, or distribution of products and services in the marketplace without government approval is not permitted under this act. This Act encourages free and open competitions, one of the fundamental principles of a free market system which is a advantage for PepsiCo.
U.S. corporations also frequently seek, and are granted, federal
subsidies in the form of tax relief. In many cases, tax refunds for corporations exceed the amount they were required to pay in taxes. Between 1996 and 1998, for example, 41 corporations with profits totaling $25.8 billion received tax rebates. Companies that benefited most include PepsiCo. If these corporations paid taxes instead of receiving taxpayer subsidies, substantial resources would be available to fund important programs ensuring affordable housing and adequate health care.
Since, PepsiCo is a business that runs on debt, the Bank of Canada, established by the federal government in 1934 is also another factor to their success. The government also regulates the licensing and permits. Since, PepsiCo has its own transportation system, they need special permission to operate. Canada’s municipal governments also control where a business can locate with zoning regulations. PepsiCo has offices in industrial and commercial zones in mostly Mississauga Ontario.
Other regulations which PepsiCo has to follow in Canada include health and safety regulations, quality control, and ethical business practices. All of these regulations help PepsiCo stay consistent with the consumers and their products. In Canada, the Food and Drug Act requires testing of all new food products placed on the market. PepsiCo products need to conform to government specifications, so it will not be sued for millions of dollars and he stores which carry the products will not be sued as well.
The right of a business to compete with other businesses by providing lower-quality merchandise at a lower price is a basic part of snack food industry. However, the government does set standards in various industries such as agricultural products to ensure the minimum standards and consumer confidence. Tropicana, one of PepsiCo’s largest subsidiary, must follow the Canada Agricultural Products Standards Act to make sure the oranges they use are up to quality to confirm equal competition between all its competitors.
Since, PepsiCo is known for its commercials and promotions, it has to obey the Competition Act, which allows fair competitions. Therefore, PepsiCo cannot have false or misleading advertising, advertising a bargain price for merchandise that is unavailable for sale in reasonability quantity, and double ticketing. Tall these regulations make sire that PepsiCo is up to the demand of its consumers and still keeps its good quality.
- PepsiCo’s Top competitors:
The companies below are the major competitors for PepsiCo products.
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Pringles
- Nestlé USA, Inc.
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- Kraft Foods International, Inc.
- McCain Foods Limited
- Sara Lee Corporation
F/D: Focused Differentiation D: Differentiation C/L: Cost Leadership
However, the most well known and focused competitors known in history is the Cola war between Pepsi-Cola and Coca-Cola. The non-alcoholic beverage industry is highly concentrated. Three main companies, Coca-Cola, PepsiCo, and Cadbury Schweppes, hold approximately 90% of U.S. retail sales. The competition among these three companies is very strong. Even though, they products almost taste the same, the real battle is on advertising, promotion, and brand name. The information below focuses mainly on the Cola War between Pepsi Cola and Coca-Cola. It also mentions President’s Choice (distributed by Star Market) products and there are no real promotions.
PEPSI-COLA COCA-COLA
Vs.
One of the biggest threats for Pepsi is Coca-Cola. Coke's brand equity weighs in at 43.3 billion versus $8.9 billion for Pepsi. Pepsi is currently running several promotions including "The Pepsi Challenge," which directly challenges Coca-Cola. Also, they are sponsoring music and games challenge as a means of attracting consumers. With its creative advertisements on television such as the "Joy of Cola" song, Pepsi is trying to gain greater brand equity.
Pepsi’s Promotion
Major recent developments in the soft drink industry are Pepsi's increased pressure on Coca-Cola and Pepsi's new promotions. Pepsi's greatest marketing advantage is its attractiveness to the youth, especially over Coca-Cola. Pepsi targets "Generation X," composed of consumers ages 19-34. If the company spends more on advertisement, it should have no problem becoming a leader in this region. One of Pepsi's products, Mountain Dew, has grown rapidly from a regional to national drink, primarily due its appeal to the younger generation. Pepsi began 60-second advertisements for Mountain Dew on last January's Super Bowl. According to USA Today's Ad Track, 29% of viewers between 20s and 30s responded especially favorably. Among the 18 to 24 year-olds, 37% liked the advertisement (Farrell, 2000).
Additionally, Pepsi began a nationwide program called "Takin' It to the Fields." It offers ice chests and 12-packs of Pepsi to coaches, along with scorekeeping books if the coaches happen to have baseball and soccer teams that composed of children between the ages of six and thirteen. The coach is supposed to distribute the drinks at the end of the games. Pepsi is trying to win new consumers by appealing to them while they are playing sports (Hays, 2000).
Pepsi also began "Choose Your Music" promotion with Warner Music. Consumers of Pepsi products can collect the points and can make their own ten-song CD. Warner has helped to make the list of artist that cover music, which attract young people (Pepsi Press Release, 2000). As the success of Mountain Dew grows, Pepsi sees this as a way to gain market share over Coca-Cola. While Coca-Cola targets every generation, Pepsi targets only the youth, which are the future consumers. Pepsi uses a variety of advertisements and promotions to earn brand loyalty from the youth.
However, with the increase of the demands on health drinks such as bottled water, which is the third most popular nonalcoholic beverage in the U.S., Pepsi has the greatest opportunity. Aquafina is the number one water in take-home channels. Pepsi could emphasize its focus on promoting it. Second, an opportunity for Pepsi is continuing to target youth. While older people are more loyal to their brands, Pepsi could continue to target its market towards the younger generation. Mountain Dew, available in the market at the beginning of 1998, known rapidly among the teens, has had a significant impact on the company's sales. It has led Sprite and Dr. Pepper and claims the fourth place among all soft drinks. Pepsi also used celebrity endorsers like Michael Jackson, Britney Spears, and now Shakira to win over the younger generation's heart. Finally, Pepsi Bottling Group, the largest manufacturer, seller and distributor of Pepsi-Cola beverages in the world, prevents the company from backward integration by buyers and forward integration of suppliers. It strengthens the company's bargaining power and increases the distribution channels. It could also increase the opportunity of bottled water to access to the market.
Coca-Cola’s Promotions
Beginning in the 1950s, Coca-cola began using advertising that finally recognized the existence of competitors, as evidenced by slogans such as “American’s Preferred Taste” (1955), “Be Really Refreshed” (1958), and “No Wonder Coke Refreshes Best” (1960). In the 1960’s Coke along with Pepsi began experiment with new cola and noncola flavors packaging options, and advertising campaigns. They pursued market segmentation strategies, leading to new products introductions such as Pepsi’s Teem and Mountain Dew and Coke’s Fanta, Sprite, and Tab. New packages included nonreturnable glass bottles and 12-ounce cans.
In 1982, for the first time ever, the Coca-Cola company used the “Coke” brand as a line extension when it introduced Diet Coke. As the years went on, the battle for shelf space in supermarkets and other food stores became fierce. While coke targeted the general public from 20 – 40 years old, Pepsi targeted the young generation. One of Pepsi’s most visible responses to Coke was an advertising blitz, featuring rock star Michael Jackson. Now days, Coke has used Christina Aguilera in its newest promotions and the Harry Potter movies as a way to reach out to the newer generations.
From a marketing standpoint, two more perfectly-suited partners would be hard to find. Harry Potter has a universal appeal, enchanting families and individuals across age groups and cultures — much like Coca-Cola. Few other companies have a global reach to match the worldwide popularity of the young wizard. Yet as exciting as such opportunities are, the real magic of this partnership goes beyond marketing and promotions. Coca-Cola is undertaking a comprehensive campaign to bring joy and imagination through reading to youngsters and adults around the world. Over the next three years, coinciding with the release of the first two Harry Potter movies and, later, videos and DVDs, Coca-Cola will develop programs in local communities that will engage and encourage readers at all skill levels.
And Coke is also using innovative technologies to strengthen relationships between consumers and the carbonated soft-drink brands — for instance, connecting consumers with their favorite soft drink using their cellular phone and an intelligent vending machine.
Branding
One of the fronts of the cola war was on brand recognition. To be the top two businesses of its industry, brand recognition was a competitive advantage that differentiated the soft drinks among consumers. Coke and Pepsi invested heavily in their trademark over time, with the marketing campaigns of Coke and Pepsi recognized as among the most innovative, sophisticated, and aggressive of all major advertisers. Coke and Pepsi sold only their flagship brand, until Coke introduced in 1961 and Tab in 1963. the next move was Pepsi’s, with the introduction of Diet Pepsi and Mountain Dew in 1964. Coke overall introduced 21 new brands and Pepsi introduced 24 new brands in the U.S.
Pepsi
PepsiCo has developed and measured the brand equity development model across countries based on the EquitrakTM brand equity model. This model developed by PepsiCo to track global brand equity is employed in 14 countries and the focus of this model is on PepsiCo’s three businesses:
Soft drinks (Pepsi Cola)
Snack foods (Frito-Lay)
The primary goal of this model is to focus on cross-category 'generalisability' at the brand level and then on a product level. The benefit of such an approach permits PepsiCo to make comparisons with key competitors like Coca-Cola in the soft drinks sector.
Pepsi-Cola Logo Timeline
1898: New Bern, N.C., pharmacist Caleb Bradham renames "Brad's Drink," his carbonated fountain cola concoction, Pepsi-Cola.
1903: The Pepsi-Cola trademark is registered.
1906: Modified script logo is created along with the slogan, "The Original Pure Food Drink."
1933: After giant candy company Loft, Inc. buys the company in 1931, Pepsi-Cola sells for 10 cents in a 12-ounce bottle instead of the standard six-ounce package size. The tagline "Refreshing & Healthful" is added to the Pepsi bottle logo. When the price of a "twelve full ounce" bottle is slashed to 5 cents, the tagline is dropped.
1940: New CEO Walter Mack adopts standardized embossed 12-oz. bottle, which debuts with the "Pepsi-Cola" label blown and baked into the glass.
1941: To support the war effort, Pepsi's bottle crown colors change to red, white and blue.
1943: The logo incorporates a "bottle cap" look. The bottle cap logo includes the tag, "Bigger Drink, Better Taste." In 1958, Pepsi's swirl bottle bows with the "Be Sociable" advertising campaign.
1962: A "serrated" bottle cap logo debuts, accompanying the brand's groundbreaking "Pepsi Generation" ad campaign.
1965: The "Bottle Cap" look is replaced with two bulls-eye swish marks surrounding "Pepsi."
1973: The logo evolves into a boxed look with minor typeface changes occurring throughout the decade.
1991: To foster the earlier scripted logo's sense of movement, "Pepsi," now in italic capital typeface, is removed from a smaller blue and red Pepsi swirl and runs vertically up the package.
1998: In celebration of the company's centennial, Pepsi unveils a new look -- a three-dimensional globe against an ice blue background, which becomes a universal symbol for one Pepsi family -- poised for innovation and world leadership as it enters the new millennium.
Coke International Brands
Coke’s global brands, Coca-Cola, diet Coke/Coca-Cola light, Fanta and Sprite are supported by local carbonated soft drinks like Kuat, Lift Apple, Barq's root beer, Quatro grapefruit, Thums Up and Limca.
Pricing (Coke, Pepsi, President’s Choice, and others)
Pepsi, Coke, and Canada Dry products $7.99 per case of 24, 12 oz. cans
President’s Choice Cola $5.99 per case of 24, 12 oz. cans
Pepsi, Coke, and Canada Dry products 12 pack 24 oz cans - $3.99
President’s Choice Cola 2L – 1.19
Coke 2L - $1.29
Pepsi 2L - $1.20
Aquafina (Pepsi) 1.5L – 1.$29
Dasani Water (Coca-Cola) 1.5 L - $1.29
Naya 500 mL - $.39
President’s Choice Iceberg Water 30 Pack 500 mL – $5.99 ($0.20each)
Montclair Water 1.5L – $0.77
Aberfoyle 30 Pack 500 mL – 5.97 ($.20 each)
Pepsi 6*710mL - $2.99
Aquafina Water 6 * 710 mL - $2.99
Pepsi
Providing quality products at the lowest possible price has always been one of Pepsi's main concerns. For example, in some parts of the country a two-liter bottle of Pepsi cost 99 cents (U.S.) a decade ago and still does today. One of the ways they have been able to assist this effort is by expanding the use of inexpensive and recyclable plastic bottles.
The soft drink industry today is confronted with a bewildering array of price increases. Their expenditures for labor, ingredients, transportation and more all continue to rise. The cost of aluminum alone has increased dramatically since last year. Across the entire system however, they have been cutting overhead and re-engineering the manufacturing process in order to keep the prices competitive. It is a policy to limit any price increases to the retail trade to the lowest possible extent.
Overview
Being the top of the industry doesn’t mean the drinks are cheap. As you can see from the list of prices given from above, both Coke and Pepsi products are of the same price. However, other less popular and no name brands are much more cheaper, but the tastes are not the same.
Quality
Pepsi
At every level of Pepsi-Cola Company, great care is taken to ensure that the highest standards are met in everything that is done. In all products, packaging, marketing and advertising, Pepsi strive for excellence because the consumers expect and deserve nothing less. Pepsi promise to work toward continuous improvement in all areas of their organization.
At every step of the manufacturing and bottling process, strict quality controls are followed to ensure that Pepsi-Cola products meet the same high standards of quality that consumers have come to expect and value. It also follows strict quality control procedures during the manufacturing and filling of the packages. Each bottle and can undergoes a thorough inspection and testing process. Containers are then rinsed and quickly filled through a high-speed, state-of-the-art process that helps prevent any foreign material from entering the product. Additional quality control measures help to ensure the integrity of Pepsi-Cola products throughout the distribution process, from warehouse to store shelf.
Regular 8 fl oz. Pepsi
Contains: Carbonated water, high fructose corn syrup and/or sugar, caramel color, phosphoric acid, caffeine, citric acid and natural flavors.
Coke
As you can see, both Coke and Pepsi products are mostly made of the same ingredients and have the same nutritional factors. Like Pepsi, when Coke products are manufactured they are under strict surveillance and strict quality control to ensure the best of quality. That’s why these two companies have been competing at such a rate and for more than thirty years.
Regular 8 fl oz. Coke
Contains: Carbonated Water, high fructose corn syrup, caramel color, phosphoric acid, natural flavors, caffeine
Packaging
Pepsi
Providing the consumers with easy-to-use, a convenient and innovative container is one of Pepsi’s top priorities. Package introductions that have been made over the years include the industry's first two-liter bottle; the first company to respond to consumer preference with lightweight, recyclable, plastic bottles; The Cube, an easy-to-store 24-pack; Big Slam, the wide-mouth one-liter bottle; as well as the three-liter bottle, designed to provide consumers with extra value (not all products and packaging is available in all markets).
The local bottlers, many of which are privately owned, franchise operations, make all packaging decisions. Most of the bottlers are following the industry-wide trend to use plastic packaging due to environmental considerations. The industry is now making greater use of fully recyclable aluminum cans and PET plastic bottles.
The "CUBE" is Pepsi's new innovative 24-can multipack. It was dubbed the "CUBE" by consumer focus groups, which are a small test market population that's invited by Pepsi-Cola to give the company feedback before the introduction of a new package or product. The consumer focus groups Pepsi used for this product coined the name the "CUBE" and it stuck!
Polyethylene terephthalate, or "PET plastic," is a form of polyester used to make strong, lightweight, shatter-resistant bottles for soft drinks, water, juice and other non-food products. Bottles made from PET plastic, which are marked with the number one code on the or near the bottle of the bottle, are recyclable into products including new containers, fiberfill for sleeping bags and coats, fabric, carpet, auto parts, film and more. (For packaging history, look at Pepsi’s logo history)
Coke
Packaging History
1916 … Birth of the Contour Bottle
Bottlers worried that Coca-Cola's straight-sided bottle was easily confused with imitators. A group representing the Company and bottlers asked glass manufacturers to offer ideas for a distinctive bottle. A design from the Root Glass Company of Terre Haute, Indiana won enthusiastic approval. The Contour Bottle became one of the few packages ever granted trademark status by the U.S. Patent Office. Today, it's one of the most recognized icons in the world - even in the dark!
1920s … Bottling overtakes fountain sales
As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in the U.S. Their ideas and zeal fueled steady growth. Six-bottle cartons were a huge hit starting in 1923. A few years later, open-top metal coolers became the forerunners of automated vending machines. By the end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales.
1950s … Packaging innovations
For the first time, consumers had choices of Coca-Cola package size and type-the traditional 6.5 ounce Contour Bottle, or larger servings including 10-, 12- and 26-ounce versions. Cans were also introduced, becoming generally available in 1960
1960s … New brands introduced
Sprite®, Fanta®, Fresca® and TAB® joined brand Coca-Cola in the 1960s. Mr. Pibb® and Mello Yello® were added in the 1970s. The 1980s brought diet Coke® and Cherry Coke®, followed by POWERaDE® and Fruitopia® in the 1990s. Today scores of other brands are offered to meet consumer preferences in local markets around the world.
1970s and '80s … Consolidation to serve customers
As technology led to a global economy, retail customers of The Coca-Cola Company merged and evolved into international mega-chains. Such customers required a new approach. In response, many small and medium-size bottlers consolidated to better serve giant international customers. The Company encouraged and invested in a number of bottler consolidations to assure that its largest bottling partners would have capacity to lead the system in working with global retailers.
21st Century … Think local, act local
The Coca-Cola bottling system grew up with roots deeply planted in local communities. This heritage serves the Company well today as consumers seek brands that honor local identity and the distinctiveness of local markets. As was true a century ago, strong locally based relationships between Coca-Cola bottlers, customers and communities are the foundation on which the entire business grows. Now there are the 24-can pack, 12-can pack, the 2L, and the 710mL bottle for almost all Coke products.
One of Coke’s great strengths is its ability to conduct business on a worldwide scale while maintaining a local approach. At the heart of this approach is its bottling system.
Before any one of the brands is consumed by anybody around the world, it has to be produced, packaged and distributed. Since they reach six billion consumers in nearly 200 countries, the bottling system has to be the best.
Coke’s bottling partners are local companies - some independently owned, some partially owned by The Coca-Cola Company - so they are rooted in their communities, thinking and acting locally. They are employers, purchasers of local goods and services, good neighbors, and, of course, producers of the world's most popular beverages
It's a big job, and sometimes it's done quite creatively. In Indonesia, for instance, boats transport Coca-Cola® and other brands between the many hundreds of islands that make up that nation. In the Amazon, where the main road is often the river itself, water-borne distribution is also common. In some of the higher elevations of the Andes, Coca-Cola is sometimes transported by four-legged power. Across much of Africa, bottlers deliver to thousands of family-run kiosks and home-based stores on which local economies depend
- Costumer service between Coca-Cola, Nestle, PepsiCo, and President’s Choice.
The five aspects of competition in the service sector are different in the costumer service sector. It depends on convenience, degree, selection, reputation, and price.
Convenience
Some of the major competitors of PepsiCo are Coca-Cola, Nestle, PepsiCo, and President’s choice. Each of the companies has web-pages, costumer service phone numbers, and their products are all found in local grocery stores all across Canada, Ontario, and Kingston.
PepsiCo has its own delivery service which goes to grocery stores, gas stations, and other locations. This service attracts many businesses to buy their products. PepsiCo’s website is , which you can reach any time of any day. Its customer service phone call is 1-800-387-8400, however that number is hard to find unless you call 905-212-7377 in New York. This part of their business is not as well planned as some of its competitors. Coca-Cola has its own website, . It has a virtual representative that answers your questions. Again, its costumer service phone number is no found on the web-site, but it can be obtained from Coca-Cola products. Both PepsiCo and Coca-Cola products can be obtained from any large grocery stores.
Nestle is the largest beverage and snack provider world wide. Its website is , Its customer service numbers and e-mail address are all given on their website. The customer service number is 0041-21-924-4153, and the e-mail can be send on their website. Its products are also very convenient for all consumers since they are offered in every major grocery chain. President Choice’s website address is , and its customer service number is 416-967-2501 and it runs from Monday - Friday 8:30 (4:30 EST). However, President’s choice products are only carried in Canadian stores and some might not carry the products available at one store depends on the size of a store and the number of departments in that store.
Degree of Service
Business also competes with each other by offering more services. Nestle, Coca-Cola, President’s choice, and PepsiCo’s costumer service all cost money. Their 1-800 numbers, if they have one, are not easily found. For most Kingston customers, calling each service means, that you have to call long distance. E-mailing is a good way to reach the costumer service but it does take quite a long time for anyone to answer back. However, when something is found wrong with the product, they will replace it very quickly so it doesn’t ruin the brands’ reputations.
Selection
PepsiCo and Nestle both offer a much larger selection of different products than Coca-Cola. Even President’s choice has a wide selection with cookies, chips, colas, etc. However, PepsiCo has the largest selections of well-known products. Nestle would come second with its beverages, chocolate, and other assortment of snacks. Coca-Cola is best known for its beverages and only carry a few snack brands outside of North America. President’s Choice probably has the largest selection with organic food, vegetables, snacks, beverages, etc.
Reputation
Reputations are very important to each brand. PepsiCo, Nestle, and Coca-Cola are the more recognizable brands, while President’s Choice to some is a cheap genetic version of that product. PepsiCo’s reputation is somewhat on the line with its factories running in the controversial Burma, and a report that says Pepsi’s products carry a large amount of aspartame. Nestle has been the largest snack and beverage provider of the world. Coca-Cola’s beverages are still more popular than PepsiCo, but it doesn’t carry many snack foods to compete with Frito-Lays or Quakers. When a customer receives a good service, they will tell others about it. Therefore, each of these business has to have a good customer service to back up the quality and reputations of their products.
Price
PepsiCo and Coca-Cola offer the second most expensive beverages. Nestle does not offer soft-drinks, but it does offer other beverages such as its ice teas which do cost more than the soft drinks. President’s choice has the cheapest snacks and beverages and PepsiCo’s Frito-Lays offers the most bought chips and snacks in the world. Its prices are not overly expensive and the consumers can afford them. Nestle offers other snacks which are more expensive.
- The Role and Effectiveness of PepsiCo’s promotion and distribution methods in marketing their products.
PepsiCo’s promotions:
Major recent developments in the soft drink industry are Pepsi's increased pressure on Coca-Cola and Pepsi's new promotions. Pepsi's greatest marketing advantage is its attractiveness to the youth, especially over Coca-Cola. Pepsi targets "Generation X," composed of consumers ages 19-34. If the company spends more on advertisement, it should have no problem becoming a leader in this region. One of Pepsi's products, Mountain Dew, has grown rapidly from a regional to national drink, primarily due its appeal to the younger generation. Pepsi began 60-second advertisements for Mountain Dew on last January's Super Bowl. According to USA Today's Ad Track, 29% of viewers between 20s and 30s responded especially favorably. Among the 18 to 24 year-olds, 37% liked the advertisement (Farrell, 2000).
Additionally, Pepsi began a nationwide program called "Takin' It to the Fields." It offers ice chests and 12-packs of Pepsi to coaches, along with scorekeeping books if the coaches happen to have baseball and soccer teams that composed of children between the ages of six and thirteen. The coach is supposed to distribute the drinks at the end of the games. Pepsi is trying to win new consumers by appealing to them while they are playing sports (Hays, 2000).
Pepsi also began "Choose Your Music" promotion with Warner Music. Consumers of Pepsi products can collect the points and can make their own ten-song CD. Warner has helped to make the list of artist that cover music, which attract young people (Pepsi Press Release, 2000). As the success of Mountain Dew grows, Pepsi sees this as a way to gain market share over Coca-Cola. While Coca-Cola targets every generation, Pepsi targets only the youth, which are the future consumers. Pepsi uses a variety of advertisements and promotions to earn brand loyalty from the youth.
However, with the increase of the demands on health drinks such as bottled water, which is the third most popular nonalcoholic beverage in the U.S., Pepsi has the greatest opportunity. Aquafina is the number one water in take-home channels. Pepsi could emphasize its focus on promoting it. Second, an opportunity for Pepsi is continuing to target youth. While older people are more loyal to their brands, Pepsi could continue to target its market towards the younger generation. Mountain Dew, available in the market at the beginning of 1998, known rapidly among the teens, has had a significant impact on the company's sales. It has led Sprite and Dr. Pepper and claims the fourth place among all soft drinks. Pepsi also used celebrity endorsers like Michael Jackson, Britney Spears, and now Shakira to win over the younger generation's heart. Finally, Pepsi Bottling Group, the largest manufacturer, seller and distributor of Pepsi-Cola beverages in the world, prevents the company from backward integration by buyers and forward integration of suppliers. It strengthens the company's bargaining power and increases the distribution channels. It could also increase the opportunity of bottled water to access to the market.
Using the Image
One of the largest subsidiaries is Pepsi-Cola International. This subsidiary uses their image the as the beverage for the new generation to promote and distribute their products in the competitive market. Its brand name of Pepsi is quite simple and very well known internationally. The trademark of Pepsi is a visual symbol. It is simple and eye catching and when it is in combination with a well-chosen brand name, their trademark can communicate a great deal about the product. Pepsi has used the slogan “Generation X” for many years. This slogan communicates that Pepsi is for the young people and all “cool” people drinks it.
Brand identification is also very important, for example Pepsi’s name is written in a distinctive style and it is always written that way. Its colors are also associated with the brand, and it always appears on everything associated with the product. Pepsi also develop distinctive design for the packages such as the 6*710mL, and that design becomes the part of the brand recognition. Therefore, promoting the brand allows the product to stay on store shelves which is an advantage when there is such fierce competition between the beverage companies.
Each advertisement Pepsi distributes emphasizes the product’s image. The brand name and slogan are always incorporated into the jingle such as the new one by Britney Spears, “each generation has found, they’ve got their own sound, come and shout it out… joy of Pepsi… Pepsi, for those who think young”. All public relations material, such as catalogues, brochures, price lists, sales literature, letters and annual reports all carry the name, slogan, and trademark of the company. Sales promotion materials also include signs, banners, coupons, giveaways such as t-shirts, pens, etc all have Pepsi’s trademark to make sure the consumers know thee product and remember it when they make a purchase.
Pepsi also use distribution methods called brand extension. Pepsi calls its one-calorie cola “Pepsi One”, its diet cola “Diet Pepsi”, its wild cherry cola “Wild Cherry Pepsi”, its cola with a twist of lemon “Pepsi Twist”. Therefore, consumes who like which ever kind of Pepsi transfer the image of the one they like to the other kinds. Pepsi uses the same logo and brand identification to help convey the same impressions that the original product established. Each of PepsiCo’s products have their own brands, logos, and trademarks which is always placed on each product.
- Business Issues affecting PepsiCo
One of the most important business issues affecting PepsiCo is it’s merger in December 200 with Quaker Oats for 12.4 billion in cash and Stock. Pepsi likely acquired Quaker Oats for its valuable Gatorade business which could become good complimentary business to its strong beverage business. The acquisition could allow the expansion of the Gatorade brand into mom-and-pop stores where Pepsi has strong distribution of its soda business. Pepsi usually targets businesses for acquisition where there’s a potential to be No. 1 player in the market, and since it has no past experience with the cereal business and Quaker is No. 3in the cereal business, PepsiCo will mostly likely sell Quaker to another company.
Merger of PepsiCo and The Quaker Oats Company
Under the Quaker merger agreement dated December 2, 2000, Quaker shareholders received 2.3 shares of PepsiCo common stock in exchange for each share of Quaker common stock, including a cash payment for fractional shares. PepsiCo issued approximately 306 million shares of their common stock in exchange for all the outstanding common stock of Quaker.
In connection with the merger transaction, PepsiCo sold the global rights in the All Sport beverage brand to The Monarch Company, Inc. of Atlanta. As part of the terms of the sale, PepsiCo agreed that, for 10 years after the Quaker transaction closing date, they would not distribute Gatorade sports drink through their bottling system in the United States and would not include Gatorade with Pepsi-Cola products in certain marketing or promotional arrangements covering specific distribution channels.
The merger was accounted for as a tax-free transaction and as a pooling-of-interests. As a result, all prior period consolidated financial statements presented have been restated to include the results of operations, financial position and cash flows of both companies as if they had always been combined. Certain reclassifications were made to conform the presentation of the financial statements, and the fiscal calendar and certain interim reporting policies were also conformed. There were no material transactions between pre-merger PepsiCo and Quaker.
Transaction costs were incurred to complete the merger and consist primarily of fees and expenses for investment bankers, attorneys and accountants, SEC filing fees, stock exchange listing fees and financial printing and other related charges. Integration costs represent incremental one-time merger- related costs. Such costs include consulting fees and expenses, expenses for accelerated vesting under change-in-control provisions, information system integration costs and employee-related costs.
The restructuring charges primarily reflect termination costs for approximately 580 corporate, sales, distribution, manufacturing, research and marketing employees. Employee termination costs include retirement benefit costs, severance costs and expenses associated with change-in-control provisions of pre-merger employment contracts. As of December 29, 2001, approximately 380 of the terminations have occurred. The terminations are expected to be completed during 2002.
Additional merger-related actions are expected to bring the total integration costs and restructuring charges to between $450 million and $550 million. Ongoing merger-related cost savings and revenue enhancement opportunities are expected to reach $400 million a year by 2005. PepsiCo expect to achieve up to $175 million of the synergies by the end of 2002.
The Food and Beverage industry and its affect on PepsiCo
The food and beverage industry should continue to grow particularly in international markets. The domestic market should grow only about 2% a year through the next five years. Expenditures outside the home increased more than in –home food purchases. Many consumers, however, responded to unsettle economic times no only by spending less overall, but also by increasing their purchases of less costly, private-label foods and beverages. In addition, increasing numbers of shoppers have begun trading at “warehouse club” outlets, which stock extra large items at attractive items.
The growth for the beverage industry is in noncarbonated beverages. Pepsi has purchased Tropicana orange juice brands from Seagrams and acquired Gatorade brand from its acquisition of Quaker Oats, Inc. These segments are growing much faster than their traditional soft drink business. This products have caused Coca-Cola to scramble to play catch up to Pepsi in new beverage segments. Domestic soft drink volume growth has been flat for several years and its expected to remain this way for the future.
In August 2000, Whitman and Pepsi Americas, the 2nd and 3rd largest Pepsi bottlers announced plans to merge. The merger makes Whitman a greater market power and assists Pepsi consolidate its bottling companies.
Bottling Transactions
During 1999, Pepsi completed a series of transactions creating an anchor bottlers. In April 1999, certain wholly-owned bottling businesses, referred to as The Pepsi Bottling Group (PBG), completed an initial public offering with PepsiCo retaining a direct noncontrolling ownership interest of 35.5%. In May, they combined certain other bottling operations with Whitman Corporation retaining a noncontrolling ownership interest of approximately 38%. In July, PepsiCo combined certain other bottling operations with PepCom Industries, Inc. retaining a noncontrolling interest of 35% in the combined entity renamed Pepsi Bottling Ventures, LLC. In October, it formed a business venture with Pohlad Companies, a Pepsi-Cola franchisee, retaining a noncontrolling ownership interest of approximately 24% in the venture's principal operating subsidiary, PepsiAmericas, Inc.
In December 2000, Whitman merged with PepsiAmericas. PepsiCo now own approximately 37% of the combined company, which has since changed its name to PepsiAmericas. As part of the merger, the company has participated in an earn-out option whereby they may receive additional shares when certain performance targets are met.
The three anchor bottlers now distribute approximately three-fourths of our beverage products in North America.
Market and Other Risk Factors
Market Risks
The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which PepsiCo is exposed are: commodity prices, affecting the cost of our raw materials and fuel; foreign exchange risks;
interest rates on our debt and short-term investment portfolios; and
the stock price. In the normal course of business, PepsiCo manages these risks through a variety of strategies, including the use of hedging transactions, executed in accordance with our policies.
The hedging transactions include, but are not limited to, the use of various derivative instruments. As a matter of policy, PepsiCo do not use derivative instruments unless there is an underlying exposure and, therefore, they do not use derivative instruments for trading or speculative purposes. Any change in the value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items.
Commodity Prices
PepsiCo is subject to market risk with respect to the cost of commodities because their ability to recover increased costs through higher pricing may be limited by the competitive environment in which they operate. PepsiCo manage this risk primarily through the use of fixed-price purchase orders, pricing agreements, geographic diversity and derivative instruments. Derivative instruments, including futures, options and swaps, are used to hedge fluctuations in prices of a portion of anticipated commodity purchases, primarily corn, oats, natural gas, heating oil, vegetable oil and packaging materials. Their use of derivative instruments is not significant to PepsiCo’s commodity purchases.
The commodity derivative positions pf PepsiCo were $252 million at December 29, 2001 and $52 million at December 30, 2000. Their commodity derivative positions resulted in a net unrealized loss of $16 million at December 29, 2001 and a net unrealized gain of $3 million at December 30, 2000. It is estimate that a 10% decline in commodity prices would have increased the loss by $18 million in 2001 and reduced the gain by $6 million resulting in a loss in 2000.
Foreign Exchange
International operations constitute about one-fifth of the annual business segment operating profit. Operating in international markets involves exposure to movements in foreign exchange rates, primarily the Mexican peso, British pound, Canadian dollar, euro and Brazilian real, which principally impacts the translation of PepsiCo’s international operating profit into U.S. dollars. On occasion, they may enter into derivative instruments, as necessary, to reduce the effect of foreign exchange rate changes. PepsiCo manage the use of foreign exchange derivatives centrally.
The foreign currency derivative positions had an aggregate notional value of $355 million, with $223 million relating to contracts to exchange British pounds for U.S. dollars, at December 29, 2001 and $344 million, with $336 million relating to contracts to exchange British pounds to U.S. dollars, at December 30, 2000. These forward contracts had a net gain of $4 million at December 29, 2001 and losses of $9 million at December 30, 2000. It estimate that an unfavorable 10% change in the exchange rates would have decreased the 2001 gain by $35 million resulting in a loss and increased the 2000 losses by $35 million.
Interest Rates
PepsiCo centrally manages their debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. They use interest rate and currency swaps to effectively change the interest rate and currency of specific debt issuances, with the objective of reducing their overall borrowing costs. These swaps are entered into concurrently with the issuance of the debt that they are intended to modify. The notional amount, interest payment and maturity date of the swaps match the principal, interest payment and maturity date of the related debt. The credit risk related to interest rate and currency swaps is considered low because such swaps are entered into only with strong creditworthy counter parties, are generally settled on a net basis and are of relatively short duration.
Assuming year-end 2001 and 2000 variable rate debt and investment levels, a one-point increase in interest rates would have increased net interest expense by $3 million in 2001 and $7 million in 2000. The change in this impact from 2000 resulted from decreased variable debt levels and increased investment levels at year-end 2001. This sensitivity analysis includes the impact of existing interest rate and currency swaps.
Stock Price
The portion of PepsiCo’s deferred compensation liability which is based on their stock price is subject to market risk. Prepaid forward contracts with financial institutions with an aggregate notional amount of $52 million at year-end 2001 were used to hedge this risk and are accounted for as natural hedges. The change in fair value of these equity derivative contracts resulted in $1 million of expense in 2001, $19 million of income in 2000 and $6 million of expense in 1999. PepsiCo estimate that a 10% unfavorable change in the year-end stock price would have increased the 2001 loss by $6 million and reduced the 2000 gain by $7 million.
Euro Conversion
The operating subsidiaries affected by the euro conversion successfully addressed the issues raised by the euro currency conversion including, among others, adapting computer and financial systems, business processes and equipment, such as vending machines, to accommodate euro-denominated transactions and took actions to reduce the impact of one common currency on cross-border pricing. It has experienced no business interruption as a result of the issuance and circulation of euro-denominated bills and coins and the withdrawal of legacy currencies. The system and equipment conversion costs were not material. Due to numerous uncertainties, PepsiCo cannot reasonably estimate the long-term effects one common currency may have on pricing and the resulting impact, if any, on financial condition or results of operations.
- Pepsi’s hierarchy/functions of the employees.
PepsiCo Subsidiaries
The role of each employee
The Board of Directors – The group of individuals that run PepsiCo. Inc and make decisions on behalf of the shareholders.
President and Chief Executive Officer - the executive with the chief decision-making authority in an organization
Human Resources – people who work to produce goods and services in PepsiCo
Corporate Communications – manager that deals with communications between different departments and employees to make sure all plans and ideas are said clearly and effectively
General Counsel – made up of lawyers and executives which gives advice, set up policies, etc.
Mergers and Acquisitions – deals with the process of a merger, sets up contract with the lawyer, and also takes part in making decisions for PepsiCo’s merges
Finance – the manager of the financial department, an accountant who is responsible for keeping records of the company’s financial transaction and controlling the company’s money and also sets budgets for each department along with the department manager
Treasurer – takes care of all the money and helps to set the budgets for each department and controls the amount of cash flow within PepsiCo
Controller – basically manages all areas of PepsiCo including the number of employees in a department, the amount of money the department receives, and the extent of its physical supplies, the controller sets goals and budgets for each department to follow
Merger Integration – to incorporate the mergers such as Quaker Oats into a larger unit, deals with the functions of the merger companies
Global Diversity and Community Affairs – deals with the social responsibility of PepsiCo such as issues dealing with the environment, setting up fund raisers, make changes in PepsiCo’s diversity initiatives for employees, etc
- The management style and/or approach of PepsiCo
The PepsiCo Corporation
PepsiCo has adopted a policy of diversification by structuring itself into three major divisions: beverages, snack foods and restaurants. The following looks at PepsiCo’s corporate strategy (i.e. strategies across all business unites) and the business strategies of individual business units.
PepsiCo’s Corporate Strategy
PepsiCo’s three divisions, although in separate markets, operate in the same industry – leisure-food (i.e. a related diversification strategy). PepsiCo have chosen this approach in order to allow for overlap between the value chains of its divisions. This is advantageous in that it can be used to bring down costs or even increase customer loyalty across product lines.
Focus on the leisure-food market means that PepsiCo is in a position to take advantage of similar activities across business units. Take food production, all restaurants have to produce food from raw materials, as do the snack food producers; businesses within PepsiCo’s portfolio are in a position to create competitive advantage by realizing greater economies of scale and cross-utilization of technologies. PepsiCo has adopted approaches where synergies amongst its divisions are exploited, an example of this is the moving of management amongst business divisions. This allows cross-pollination of skills & experiences amongst the various business divisions. Another example of this is the sharing of brand names
PepsiCo’s Business Strategies
The Beverage Industry
Pepsi-Cola (and associated mineral products) has been at the core of PepsiCo’s strategy and continues to be. Pepsi is an established brand at the mature stage of its product life cycle. In the carbonated beverage sector the focus has been on closing the gap between Pepsi’s sales and the sales of Coca-Cola. Creative marketing has been the cornerstone of Pepsi’s business strategy.
It is worth noting that Pepsi’s biggest rival (Coca-Cola) business strategy focused on improving production and distribution methods. Pepsi has focused on using its brand name as its competitive strength. Celebrity tie-ins and packaging changes indicate that Pepsi is using market awareness to create competitive advantage. Although it is important to identify promotion as only one element of a marketing strategy (the others being place, price and product).
Pepsi seems to be lacking in “place” as an element of its strategy. PepsiCo seems to be lacking control over bottlers and the bottling process. Bottlers are, to a greater extent, owned and operated by the greater PepsiCo corporation; it would appear as if this part of the process is being overlooked by PepsiCo management. This could result in quality problems and poor delivery and/or vendor service.
The Restaurant Industry (now a separate branch from PepsiCo)
PepsiCo’s approach in the restaurant industry has shifted in the early 1990’s. Prior to this, PepsiCo’s investment in the restaurant industry was in traditional and established outlets (Pizza Hut, KFC and Taco Bell). In the early 1990’s PepsiCo began to acquire (or found) smaller, more focused players (Hot-n-Now, D’Angelo’s etc). This could be as a result of the maturity of the industry and the lack of large established outlets available as investment opportunities. This shows a strategy of further diversification into established markets where PepsiCo already has related and successful offerings aimed at
different market sectors.
In the 1990’s PepsiCo began to take advantage of its large restaurant holdings (e.g. dual-branded restaurants - a KFC and a Taco Bell under one roof) and cost-sharing activities such as centralized administration. This shows a synergistic approach to use of diversified holdings. PepsiCo seems to have been slow to take opportunities of its investment in smaller restaurants. One would have expected there to be management and product crossover however this does not seem to be the case. Both Hot-n-Now and Chevy’s ran at operating losses during 1995. The strategic focus of this division is to use (and build) credible brand names (KFC, Taco-Bell & Pizza Hut) to introduce new product lines.
PepsiCo undertook to promote and enhance the already established brand names (e.g. the overhaul of Kentucky Fried Chicken into KFC). Product innovation has also been part of the strategic focus of this division. This was highlighted by the incorporation of D’Angelo’s into Pizza Hut. Additions to menus are another example of this. A lesser element of the strategy of any chain restaurant is the provision of familiar products, at known prices, in known environments at every location. Customers can go into an “x” restaurant anywhere and know exactly what to expect. This would be considered mastery of the “place” element of a marketing strategy.
The acquisition of smaller, lesser-known chains do not correlate with the overall strategy of this business unit. The results of these smaller restaurants indicate that they are not aligned with the greater strategic focus of the restaurant division.
The Snack Foods Industry
The focus of PepsiCo’s activities in the snack foods industry is under the brand Frito-Lay. Frito-Lay has focused on leading the potato chip industry, becoming the “Coca-Cola” of the industry with a market share of over 50 percent in 1996. Frito-Lay also produces numerous other snack foods (such as salsas).
Frito-Lay has focused on product innovation and outbound logistics to achieve this success. Frito-Lay’s global strategy has been one of market expansion, creating international brand awareness and utilizing this to market local brands designed for specific markets. Frito-Lay has created competitive advantage by focusing on two key
elements of Kotler’s four marketing principles: product and place. In terms of product, Frito-Lay undertook market analysis, determined product shortcomings and corrected them. Another example would be their involvement in the development of a genetically engineered potato. As part of their product improvement process, Frito-Lay also the “white box” approach to their production facility. They analyzed the production process and improved it (instead of ignoring its workings and merely improving the inputs – a black box approach) Another source of Frito-Lay’s competitive advantage is their distribution policies; attention is continuously placed on improving distribution – a
Total Quality Management Approach [TQM] albeit unstated.
Management Style
For a company like PepsiCo, the management tries to achieve a company’s goals by deciding how best to use business’s human, financial, and material resources through planning, organizing, directing, controlling, and staffing.
PepsiCo has many top executives to decide both short-term and long-term goals and how to best achieve them. These goals are social and always economic. As for its long term goal PepsiCo has made the comment “... we'll some day sell a variety of products on a daily basis to every living person on Earth - all five billion of them!”. Even though this to some people might sound a bit absurd, but it is achievable. Its short term goals are to increase its stock value which for the past three years has been around the same area. To be able to achieve a goal like this, all of its managers have to work to meet this goal. For example, the marketing manager creates a promotional plan, the sales manages arranges new contracts with companies who will distribute the beverages, and the production manager arranges the necessary resources to produce an increased amount of the product.
PepsiCo’s executive, Steve Reinemund, and the board of directors organize the department managers. These executives are called vice presidents. As the upper-level managers, they set policy, determine corporate objectives, and decide on the best way fro a company’s directors to communicate with the various department heads. The manager for each department determines tasks and duties for the department and establishes relationship with other departments to help achieve the company’s goals. The managers make sure that each employee is aware of his or her role for everything to run smoothly.
PepsiCo is directed by democratic leaders which provide opportunities for employees to contribute to the decision-making process. Many times, the management motivates the employees for them to work harder through compensation. PepsiCo knows how to motivate different employees with scholarship programs, child care, long paid vacations, etc. A good leader also communicates directions, urgency, corporate values, planes, and goals clearly and effectively. Therefore, each task is completed, which does not damage the company’s reputation. PepsiCo also practices decision ownership in which people affected by the decision get to make the decision. Therefore, the employees result in better decisions and improve staff motivation.
PepsiCo also controls their employees when a task is needed to be completed. The managers use this method to increase, maintain, or even decrease the resources that they allocated. PepsiCo also has an entire department devoted to staffing and other areas of human resources. All of these management style help build the PepsiCo that it is today. It achieves its plans, attacks its competitions, and is a leading company in the industry of leisure foods.
- The factors that influence employee’s attitudes and the quality of their work for PepsiCo, and its comparison to Coca-Cola.
One of the most important factors in the employee’s attitude is the directing of the employers. PepsiCo has democratic leaders which provide opportunities for employees to contribute to the decision-making process. Many times, motivating an employees is very important. If they’re motivated, their quality of work is at a higher level. Compensation (mentioned in employee satisfaction of question #1) is a strong motivating factor. Employees work harder to receive a pay increase. Others work hard so that they will be moved to a well-decorated office. There are also longer paid vacations which many others are interested. A skillful manager discovers how to best motivate each employee, and uses these factors to increase employee productivity.
Another factor is communication, managers at PepsiCo are good leaders which communicates, directions and goals clearly and effectively. Therefore, there can be no failure due to unclear directions and labor is not wasted. PepsiCo also encourage participation. In PepsiCo, managers practice decision ownership in which employees contribute to decisions such as hiring people and ownership. Employee participation improves staff motivation and many employees enjoy the sense of purpose that comes from being involved in making decisions.
- Financial Statements of PepsiCo
Financial statement summarizes the financial performance of a business for each fiscal year. Corporations like PepsiCo. Inc releases four quarterly financial statements year, which include balance sheet, income statement, and cash-flow statement. Financial statement indicates the business’s economic health to interested parties such as the stakeholders; management, owners, investors, and shareholders, and the government.
Annual report 2001 RATIOS:
(all numbers are in millions except for ratios, percentages, and per share amounts)
The Balance Sheet:
The current ratio shows how many dollars of liquid assets (cash) a business has for every dollar of short-term debt. PepsiCo has clearly used its borrowed funds much more heavily to finance assets. Its current ratio of 1.17 dollars of liquid assets for every dollar of short-term debt demonstrates PepsiCo's ability to utilize debt.
Current ratio: Total Current Assets / Total Current Liability
$5,853 / $4,998 = 1.17
The working capital indicates a business’s ability to pay its short term debts. Banks consider this mount of working capital a strong indication that the business can repay a short-term loan. For PepsiCo, it is obvious with good profit, most banks would consider them reliable for the short-term loans.
Working Capital: Current Assets – Current Liabilities
$5,853 – $4,998 = $855
PepsiCo’s 15% of rate of return on net sales indicates the portion of the business sales that are kept in profit. 15% is a good amount.
Rate of return on net sales: (Net Profit / Total Revenue) * 100%
Net Profit = Gross Profit – Operating Expenses
$26,935 – $22,914 = $4,012
($4,012/$26,935) * 100% = 15%
A business like PepsiCo has high gross profit percentage which means the business is earning a high margin on its sales. Margin which means the difference between the cost of the product and the selling price of the product. Therefore, the business’s net profit will rise, when the managing expenses are dealt with.
Gross profit percentage: (Gross Profit / Total Revenue) * 100%
Gross Profit = Revenue – Cost of Goods
$26,035 – $10,754 = $15,281
($15,281/26,935) * 100% = 57%
The Rate of Return on average owner’s also determines their success.
Rate of return on average owner’s equity (shareholder’s equity):
(Net Profit/Average Owner’s Equity) * 100%
($4,012/ $8,126) * 100% = 49%
The average owner’s equity measures how much money the stakeholders’ are getting back from their investment in PepsiCo. $8,126 million is a very high amount for the stakeholders of the company.
Average owner’s equity:
(Total Owners’ Equity for 2001 + Total Owners’ Equity for 2000)/ 2
($8,648 + $7,604)/2 = $8,126
