INTERNATIONAL STRATEGIC MANAGEMENT

Clmentine BABONNEAU Alice BEZIRARD Lna BITTON Carole GUIMBART Maxime HUBIN

How can PEPSICO improve its diversification strategy in 2008?

Strategic Diagnosis External analysis Internal company analysis Alternatives Recommendations

EXTERNAL ANALYSIS

-MARKET TRENDS -PESTEL -OPPORTUNITIES & THREATS -PORTERS 5 FORCES -KEY SUCCESS FACTORS

Diet and reduced calories food Non-carbonated beverages

Great-tasting Gourmet flavor Styles

Consumer health and wellness concern

Consumers want to reward themselves

Ready to eat and ready to drink consumption

Consumer desire to escape from the norm and taste snacks from a wider, often global palate

Political

Protectionism in emerging markets High growth potential of emerging markets Butstrong competition to enter Healthier lifestyles promote different patterns of consumption and represent new product opportunities Butless interest in sodas with high sugar content Strong R&D departments to develop new products

Economic Social

Technological

Ecological

Environment friendly packaging solutions

More and more protected consumers Stricter legislation to defend against obesity

Legal

Source: Xerfi, and case study

Consumer lifestyle:

Better for you Good for you opportunities Changing lifestyles of consumers Taste preferences from country to country: adaptation to the local tastes
International Expansion Emerging markets: developing countries China, India, Russia, Mexico, Brazil Developed countries: growing markets in healthy snacks outside US : new consumers needs and expectations: reduce saturated fats, cholesterols, trans fats, simple carbohydrates China and Brazil would be the 2 largest international markets for snacks Potential growth of markets:

Increasing consumption of water bottles in US Increasing consumption of savory snacks like Cheetos cheese (expectation: +27% by 2013) Broadening the products: Avoid the dependence on US markets by going abroad

Awareness for healthy, sugar and salt free meals Decline in Carbonated Drink Sales
Potential Negative Impact of Government Regulations Legal barriers to enter new markets : protectionism Legislation involving environmental, health, and safety may force a reorganization in the industry Intense Competition Fast-food industry: fierce price competition and low profit margins High rivalry between powerful global companies (The Coca-Cola Company, Nestl, Danone, Kraft Foods...). Risk of influence on pricing pricing, advertising, sales promotion initiatives Potential Disruption Due to Labor Unrest In 2008 a strike in India shut down production for nearly an entire month

Threat of new entrants

-Low power of new entrants Few multinational groups own the largest part of the market share Possible entrants for niche markets or local markets ++ Very high bargaining power (retailers) -Power of brand recognition as an argument to attract the final customer who is loyal -Depends on the size of the retailer

+/Medium bargaining power -Dependence on raw materials -Buta lot of suppliers available

Bargaining power of suppliers

Rivalry among existing competitors

Bargaining power of buyers

+ High -All kind of food depending on the taste -Pay attention to healthy and wellness categories

Threat of substitute products

++ Very high rivalry -High diversification from each competitor -Few strong groups control the market

 Share

information and be transparent regarding the stakeholders Be able to forecast the trends at a local and global level Adapt to customer lifestyle and needs Product innovation and diversification Be visible everywhere Good control over the manufacturing process to achieve economies of scale

INTERNAL ANALYSIS

-ORGANIZATIONAL STRUCTURE -CORE COMPETENCIES -COMPETITIVE ADVANTAGES -STRENGHTS & WEAKNESSES

PepsiCos organizational structure & Net Revenues for each Business Segment (in $ millions) in 2007:

$11,586
Frito-Lay North America

$15,798
Quaker Foods North America

$10,230
PepsiCo Beverages North America

$1,860
Pepsi International

Salty Snacks brands

Oat Food and Cereals brands

Non Alcoolics Beverages brands

Organizational profile: Diversification strategy = multi products & multi markets

Market Research R&D: Product Innovation Efficient Information System International expansion Strategic acquisitions

PepsiCo constantly improved its knowledge on the consumer behaviour by identifying trends such as healthier products: New brand value: PepsiCos better-for-you & good-for-you products

Launch of less saturated fat and less salted products answering to the trends found it by Consumer Insight dept Introduction of Lays traditional flavour with 50% less saturated fat

Close relationships with suppliers & customers under the Power of One program that allow PepsiCo to have direct information from both retailers & customers

PepsiCo has succeed in creating an international exposure especially with Beverages & Salty snacks (increase of 22% in 2007)

Those acquisitions allowed PepsiCo to gain synergy in its whole business

Brand equity

Differentiation: -High value products -Strong positioning

Differentation

Brand equity: -Awareness -Recognition -Perception

Product diversity

Product diversity: - 3 Business Units - A wide and deep range of products

Competitive Advantages

Wide range of products Efficient identification of trends Proactive instead of Reactive International Exposure High profit margins Total control on the several steps of the supply chains (allow them to control & reduce the production and delivery costs)

Relatively unsuccessful in increasing the worldwide awareness of Quaker Foods Wide In 2006, only 6 countries represented 75% of Quaker Foods International sales out of US Difficulties to find a synergy between their restaurants & beverages they sold

Total Net revenues of PepsiCo Inc. from 1998 to 2007: increased by approximately 77%

Net revenues by activity (2004-2007):

Frito-Lay North America=21% PepsiCo beverages North America=23% Pepsi International=60% Quaker Foods North America=22%

Price in the stock exchange was about $33 in 1999 & about $64 in 2008 (+ 120%)

GOOD FINANCIAL HEALTH WHICH ALLOWS THEM TO SELF FINANCE THEIR GLOBAL EXPANSION

-MAIN STRATEGIC CHOICES -ACTUAL STRATEGY -PEPSICO DIVERSIFICATION -PEPSICO CHALLENGES -PEPSICO DIFFICULTIES

1997 Restructuration of PepsiCo Focus on snacks and beverages

Since 1997 Diversification and acquisition strategies

Result 2008 Strategic realignment in order to improve the PepsiCo Profits

Strategic International acquisitions

Strong presence in mature and emerging markets

Focus on snacks and beverages

Large diversification of PepsiCos products

Relevant innovations in R&D

Make healthy and wellness products

Product differentiation to respond to health concerns (use of healthier oils, natural salty snacks) Research on new flavors and new recipes: in order to attract more customers With International acquisitions, PepsiCo offers a different kind of food and beverages

A GREAT SUCCESS

China and Brazil would be the two largest international markets for snack

Understand local taste

To increase the market share in developing countries and continue the strong development in emerging countries

To succeed in adapting to the customer tastes of customers worldwide

To manage efficiently the new six reporting segments

Frito lay North America, Quaker Foods North America, Latin American Foods, PepsiCo Americas Beverages, UK and Europe, Middle East, Africa & Asia

To innovate in order to improve the quality of their products while keeping going through the large diversification

new flavors, health and wellness products

 Stock

Price: in 2008 PepsiCo Drops his stock price in order to improve overall profitability brand: under distributed in international market only one brand in growing market, its not enough! margin are not maximized

Quaker

Gatorade:

Operating

Industry Attractiveness Factor

Weight

Attractiveness Rating 7 8 5 6

Weighted Industry Rating 1.5 1.6 0.75 0.90

Market size and projected growth Intensity of competition Strategic fits and resource fits with other industries in portfolio Resource requirement

0.15 0.20 0.15 0.15

Emerging industry opportunities and threats Seasonal and cyclical influences

Social, political ,regulatory, and environmental factors Industry uncertainty and business risk Sum of weights

0.10 0.05
0.15 0.05 1.00

4 2
3 4

0.4 0.1
0.45 0.20

Industry attractiveness rating

5.9

According to the rating scale, a result of 5.9 industry attractiveness rating is a bit more than the average (all SBUs has been taken together).

 We

have defined 3 SBUs:

Frito Lays Beverages Quaker

We

considered both american and international markets

high
Frito lays AMERICA

Question marks

Market Growth Rate

LEGEND GREY : AMERICA BUSINESS Pink: INTERNATIONAL BUSINESS

Frito lays Int

Bever ages Int

Stars
Beverages AMERICA Quaker AMERICA

Quaker Int

Low

Cash cows 1

Garbage can dogs

Relative Market Share

-OBJECTIVES -OUR ALTERNATIVES

Increase International Sales

Improve operating margin

Reinforce the international presence

Manage the stock price

Choice number 1:

Adapt their products to the local customers

Choice number 2:

International acquisitions

Choice number 3:

Forecast new trends: Improve the healthy products or make ecological packaging for egs

 Adapt

their products to local customers Understand the consumer taste preference

Key to expand into international market Taste are different in function of each country Follow the customer s taste in order to attract them, in Mexico : spicy food, in Europe: healthy food with less saturated fat

 International

acquisitions Increase PepsiCo presence

Reinforce their presence on new markets = Internationalization Increase the relationship with local companies in order implement easier New target: emerging countries

 Forecast

the trends: Rely on marketing intelligence and research & development

New customers expectations Nowadays, the customers taste is changing:

PepsiCo has to focus on healthy products in order to respond to consumer health and wellness (reduce the consumption of statured fats, cholesterol, trans fat, and simple carbohydrates). Improve the packaging in order to follow more and more environmental criteria Communication more about the sustainable efforts

Criteria
COST CONTROL RISK TIME INTERNATIONALIZATION BRAND EQUITY FOLLOW CUSTOMERS NEW NEEDS

Weight

Alternative 1

Alternative 2

Alternative 3

0,20 0,10 0,15 0,10 0,20 0,05 0,20 1

4 6 3 5 9 8 5 5,55/10

1 7 2 2 10 9 4 4,65/10

5 8 4 3 5 10 9 6,2/10

TOTAL

ALTERNATIVE 1. Adaptation to local customers

ALTERNATIVE 3. Forecast the trends

ALTERNATIVE 2. International acquisitions

According to our analysis, the best choice for the company would be:

To try to forecast customers trends and to anticipate by providing new products through innovation How to do it ?

Rely on marketing research in order to detect new customers needs

Rely on R&D to create new products suiting the needs