strategic-management

24
PepsiCo — 2009
John and Sherry Ross
Texas State University–San Marcos
PEP
http://www.pepsico.com
The “cola wars” refers to the all-out battle between Coke and Pepsi for world cola domination.
Stop now and think of the PepsiCo brand products you might consume in a typical
day. For breakfast you might have a bowl of Quaker Oats, or perhaps Cap’N Crunch cereal,
or perhaps pancakes with Aunt Jemima syrup and a Tropicana juice. As you left for class
you might have grabbed an Aquarian bottled water, or a bottle of Gatorade, or Propel fitness
water. For lunch, a sandwich with a bag of Fritos or some baked Doritos chips makes
a fast and enjoyable choice. Later in the afternoon a SunChips multigrain snack with an
AMP energy drink will hold you over until dinner, when a Rice-A-Roni product accompanies
your main course. You may be much more familiar with PepsiCo than you think.
First quarter 2009 PepsiCo’s net revenues of $8,263 million were down $70 million
from the same quarter in 2008. However, PepsiCo controlled costs by decreasing cost of goods
sold by $90 million. This resulted in a net profit of $1,141 million, which is $90 million less
than last year’s first quarter. PepsiCo may need to further adjust costs to reflect continuing economic
troubles as consumers shift to less costly drinks and snacks. There is also a shift away
from bottled water and back to the tap. Second quarter PepsiCo results continued the downward
trend with beverage volume down 6 percent, Frito-Lay down 3 percent and Quaker down
4 percent. However, international volume was up 1 percent snacks and 6 percent in beverages.
PepsiCo opened a new factory in Shanghai in June 2009 and plans to open another
five plants in China over the next two year. PepsiCo’s total investment over the 2009–2012
period is $1 billion to bolster manufacturing and its sales force throughout China. Some of
PepsiCo’s potato chip brands in China are Beijing Duck, Cool Lemon, and Lychee. The
new plant will manufacture Pepsi-Cola, Mountain Dew, Gatorade, Tropicana juices, and
bottled water. The new PepsiCo plant uses 22 percent less water and 23 percent less energy
than the average Pepsi plant in China.
PepsiCo’s strategy in China is to overtake Coke, which has a 47.3 percent market
share in the country’s cola market versus Pepsi’ 44.5 percent, according to Euromonitor
International. In overall beverage sales, Coke has a 15.3 percent market share in China versus
Pepsi’s 6.2 percent. PepsiCo has pledged to invest $1 billion in Russia over the next
three years, bringing its total investment to $4 billion over a ten-year time span. PepsiCo
will also invest over $1 billion in China over the next 4 years. This is in addition to continued
investments in Japan, India, Europe, Mexico, and Latin America.
PepsiCo recently offered $6 billion to retake ownership of its two largest bottlers,
Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). Non-carbonated products are
today about 40 percent of Pepsi-Cola volume, versus less than 15 percent 10 years ago.
Pepsi’s desire to own its own bottlers is to spur its non-carbonated health and wellness
products, which are often smaller-volume, slower-moving products. PBG and PAS distribute
nearly 75 percent of Pepsi drinks in the United States, excluding Gatorade.
History
Pepsi-Cola was invented by Caleb Bradham in New Bern, North Carolina, in 1898 and
quickly became a popular drink with some 300 bottlers by the start of World War I.