Xi) PepsiCo

Most investors were happy with PepsiCo's strategic moves and steady reliable growth. The share price has more than doubled since 2003.

Much of Pepsi's success is based upon the merging of the 2 cultures into one company in 1965; the 2 cultures comprised:

i) the "get-things-done" expertise of Frito-Lay

ii) the "never-take-anything-for-granted" underdog mentality of Pepsi-Cola, which has successfully beaten Coke

"...result was a contrarian, risk taking big company that prided itself on acting like a small company and had posted an eye-popping compound annual growth rates of 13% over the past 42 years. Since 2000 the company's revenue has nearly double..."

Betsy Morris, 2008

There has been a changing emphasis on increasing health food products and less focus on "junk food" and 'soda pop" products, ie

"...new Pepsi"getting beyond soda pop and into healthier, faster-growing noncarbonated beverages (bottled water, sports drinks, and teas) that it commands half the U.S. market, about twice Coke's share, according to Beverage Digest. Not that PepsiCo is anywhere near becoming purely a health food company"the bulk of its products (upwards of 70%) are still in what is euphemistically called "fun for you" foods, as opposed into 2 other internal categories, "better for you" and "good for you". But its acquisitions and product reformulations, even in the fried-food-loving markets like Mexico, indicate the strategic shift is more than just show..."

Betsy Morris, 2008

Other changes include

- recruiting PepsiCo's first chief scientific officer from the pharmaceutical industry

- in 2007 either purchase or partnered with "healthy food" firms, such as a Bulgarian nut package, an Israeli hummus maker and Naked Juice (which makes additional beverages like smoothies)

- using the motto of "Performance with Purpose" as a means of getting the organisation to work together and of presenting PepsiCo globally, ie less monolithic and more receptive to local needs, such as in Russia, around 50% of its beverage business is noncarbonated drinks (juice, water, tea, energy drinks, etc)

At times in this journey, speed bumps have occurred. For example, in the mid 1990's PepsoCo's recipe for growth suddenly wasn't working anymore. Its restaurant operations (Pizza Hut, Taco Bell and KFC) stalled. Also, attempts to increased sales outside America and compete with Coke on the international market failed. This was the time when the U.S. fast-food marketplace was saturated and the real estate was a hard investment to maximize. So PepsiCo sold the restaurant business in 1997 which shrunk the company by a third. At this time PepsiCo conducted a scenario planning exercise which led to their assessment that the health movement was a trend and not just a fad, and demanded attention. Thus, they purchased organisitions and/or brand names like

- Quaker, maker of Gatorade and introduces Propel Calcuim, the first calcium-enhanced fitness drink

- Tropicana, the world's largest branded-juice producer

- SoBe, makers of noncarbonated drinks

- Izze, a Colorado-based maker of sparkling juice drinks

- Naked Juice, a Californian maker of bottled smoothies and other fruit drinks

Furthermore, it reduced 'trans-fats' from products like Doritos, Tostitos and Cheetos.

All this helped change its reputation and to increase the sales percentage of "better for you" and "good for you" from 30 to 50% and adding to product portfolio grains, nuts and fruits.

 

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