Strategic Audit Report: PepsiCo

EXECUTIVE SUMMARY

This strategic audit report analyzes PepsiCo Inc. a food and soft drink company whose main operations are in North America and Latin America. The company’s history dates back in the 1890s when Pepsi-Cola was founded and started selling Pepsi-Cola. A key strategic move for the company was in 1965 when the company formed a merger with Frito-Lay to form the now PepsiCo Inc. that sells beverages, food and snacks. 

The company’s mission is: “To provide consumers around the world with delicious, affordable, convenient and complementary foods and beverages from wholesome breakfasts to healthy and fun daytime snacks and beverages to evening treats.” The vision of PepsiCo is: “To deliver top-tier financial performance over the long term by integrating sustainability into our business strategy, leaving a positive imprint on society and the environment.”

PepsiCo’s board of directors is made up of thirteen directors: one executive director and twelve independent (external) directors. Key strengths of the company as seen in this strategic audit include strong brand image, strong financial strength, product diversity and research and development while key weaknesses include unhealthy products and heavy reliance on the American market. 

A key opportunity that the company ought to take advantage of is expanding into the emerging markets of Asia and Africa. This audit recommends the company to use its strengths to penetrate the most promising emerging markets that include China, India, Vietnam, Thailand and Pakistan.

HISTORY OF THE STRATEGIC AUDIT FIRM

PepsiCo Inc. is a soft drink and snacks company with very humble beginning that has grown to become one of the world’s leading soft drinks and snacks companies. PepsiCo Inc. is an American firm that was founded in 1965 as a result of a merger between Pepsi-Cola and Frito-Lay. Pepsi-Cola was founded in the late 1890s in North Carolina, and started by selling a popular beverage that was known as “Brad’s drink” that was made up of sugar, water, caramel, among other additives. The company marketed the beverage under the brand name Pepsi Cola, which was in pharmacies and other food stores and was selling the product in 24 states by 1910. However, the company went bankrupt in 1924 following fluctuating sugar prices in the World War 1. 

After several investors came to bail out Pepsi, the company rose again and was a favorite drink among Baby Boomers generation back in 1960s. In 1965, Pepsi-Cola acquired Frito-Lay through a merger and has diversified its products to not only include soft drinks but also snacks and fruit juices. Currently, the most popular products sold under the Pepsi brand name include Pepsi Cola, Diet Pepsi and Mountain Dew. Frito-Lay was founded in 1932 and its popular brands included Fritos corn chips, Lay’s potato chips, Cheetos cheese, Ruffles potato chips and Rold Gold pretzels. Currently, PepsiCo boasts of over 22 billion dollar brans with thousands of products that are sold worldwide. The company records sales worth over $510 million each year and by December 2017, the company had over 19,000 employees (PepsiCo, 2018). The company’s main current competitor is the Coca Cola Company that mainly sells soft drinks. In 2015, the company celebrated its 50th anniversary as a food and beverage company and recorded over $6.3 billion in net revenue in the 2017 financial year.

ANALYSIS OF STRATEGIC FACTORS- SWOT MATRIX

Some of the strategic factors of PepsiCo are summarized in the following SWOT matrix:

Strengths 

  • Strong brand image that is reputable all over the world and a brand valuation of over $19 billion. 
  • Broad product portfolio as the company currently produces, markets and sells over 100 brands in the beverage, snack and food sectors.
  • Focus on innovation as the company has invested in several research centers dedicated to product development and innovation. 
  • Strong distribution network globally to facilitate fast and reliable transfer of PepsiCo products.
Opportunities 

  • The company could take advantage of the business diversification opportunity by producing and selling more healthy beverages and snacks to meet the needs of the health conscious consumers.
  • PepsiCo could consider expanding to the emerging economies in Asia and Africa to grow its global presence and revenue streams
  • The company could consider forming global alliances with similar smaller companies in Asia and Africa to produce and sell that appeal the Asian and African consumers.
Weaknesses 

  • Many PepsiCo products such as soft drinks are considered to be unhealthy.
  • The low market penetration outside the North America and Latin America regions limits the company’s sales and revenue.
  • Some of the failed products reflect negatively on the brand.
  • The main product of the company is soda and with global declining sales and demand for soft drinks, the company’s revenue could decline.
  • The limited business portfolio for the company limits its revenue and growth.
Threats 

  • PepsiCo faces aggressive competition from its leading competitors such as the Coca Cola Company, Kraft’s Foods and Nestle. The company will need to be more innovative and creative to remain competitive.
  • Consumers are increasingly becoming health conscious and soda will no longer be a favorite product. Pepsi should develop and market more healthy products.
  • The economic slowdown in the US, Europe and Asia limits the growth prospects for PepsiCo in these regions. However, the company could expand to the emerging economies.

 

IMPLEMENTATION OF RECOMMENDED STRATEGY

The recommended strategy for PepsiCo is to use the available financial muscle, strong brand image and technology to penetrate the markets in Middle East and Africa. The company could do this by distributing, selling and marketing its popular brands to these regions.  Some of the growing and most markets for food and beverages in Asia include China, India, Vietnam, Thailand and Pakistan. 

The first thing that PepsiCo will need to do is to conduct  vigorous market research to identify the actual consumer needs in these markets and what products would be the most accepted in these markets. In addition, the company should consider the local cultures including popular foods and beverages to identify what existing products would meet these needs. According to research, most consumers in these regions are health conscious and PepsiCo should consider this in its expansion strategy (Arthur, 2016). Instead of marketing and selling soft drinks and other unhealthy foods, PepsiCo could identify specific products that would appeal to these markets. Consequently, PepsiCo could consider marketing and selling some of its healthy products such as bottled water, fruit and vegetable juices and foods and snacks in these regions. 

The company could also use its research and development resources to develop products that will specifically meet the needs of these markets. After identifying the products to sell, the company could then choose a market entry strategy in which to enter these markets. The best strategy would be exporting the products while using its established distribution network to supply the region. As the market demand for these products grow, the company could then consider setting up foreign subsidiaries in these countries to manufacture the products. This entry strategy would give the company more control of its operations and better understand consumer needs in these countries (Belu & Caragin, 2008).

 

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