strategic-management

Bradham followed the example of Coca-Cola and used the bottling franchise system in
which he produced the syrup and others bottled and distributed. This business model
allowed for quick expansion and market penetration. However, Bradham went bankrupt
after World War I when the price of sugar plummeted and his stockpiles became worthless.
Pepsi floundered under various owners until 1932 when, in the midst of the
Depression, it was purchased by Loft Candy. In 1933, to improve sales and gain market,
Loft doubled the size of its bottle to 12 ounces, charging one nickel, when the standard was
6 ounces. This low-cost differentiation strategy proved very successful and allowed the
renamed Pepsi-Cola company to expand and become a major player in the cola industry.
Since that time, Pepsi and Coke have battled to become the largest worldwide
producer of nonalcoholic beverages. However, where as Coca-Cola has kept a fairly
narrow focus, Pepsi has ventured into conglomerate diversification from van moving lines
to sporting goods to fast foods. PepsiCo of late has a more focused strategy in the snack,
breakfast food, and nonalcoholic beverage markets. After all, what goes better with a cola
than a salty or sweet snack? Pepsi seems to be developing synergy between product
categories with breakfast foods and juices, colas and salty snacks, and at the same time
moving into the water and sport beverage market. This strategy has developed over an
extended period of time and seems to be working successfully, as shown by revenue
growth and profitability. However, consumer taste continues to change, and Pepsi must
also continue to change.
Today
Although you might have thought of Pepsi as a bottler of soft drinks, the company
produces Mountain Dew, Mug Root Beer, Sierra Mist, Slice, Aquafina, Dole juices, and
SoBe. But these are just under the Pepsi-Cola brands. You also need to add Lay’s potato
chips, Doritos, Tostitos, Fritos, and Cheetos under the Frito-Lay brand. In addition,
PepsiCo includes the brands of Quaker (the oats company), Tropicana, and Gatorade. And
this is just a partial list of the branded products sold by Pepsi.
PepsiCo, Inc. is indeed a large company and is defined in the 10K as “a leading global
beverage, snack and food company.” Additionally it “manufacture(s) or use(s) contract
manufacturers, (to) market and sell a variety of salty, convenient, sweet and grain-based
snacks, carbonated and non-carbonated beverages and foods in approximately 200 countries,
with our largest operations in North America (United States and Canada), Mexico and
the United Kingdom” (10K, 2008). Globally, PepsiCo operates in Canada, Latin America,
Europe, Middle East, Asia, Northern Asia, Australia, and the Asian Pacific.
With total revenues over $43 billion (up from $39 billion in 2007) and net profits
over $5 billion in 2008, Pepsi continues to expand its markets in both the beverage and
snack food industries through market penetration, mergers, and acquisitions.
Organizational Structure
PepsiCo is organized using three strategic business units of PepsiCo Americas Foods,
PepsiCo Americas Beverages, and PepsiCo International as indicated in Exhibit 1. This
structure shows divisions along both product categories and geographical locations.
PepsiCo Americas Beverages is a separate division that reflects its importance to the organization.
At a time when many companies give only lip service to inclusion and diversity,
PepsiCo has promoted to the position of CEO (October 1, 2006) and chairman (May 2,
2007) Indra K. Nooyi. Beginning her career in India, Nooyi has held many positions
including vice president (VP) corporate strategy for Motorola, senior VP of strategy and
strategic marketing for Asea Brown Boveri, and senior VP and CFO of PepsiCo, and president
and CFO of PepsiCo. She holds a BS from Madras Christian College, an MBA from
the Indian Institute of Management in Calcutta, and a master’s of public and private management
from Yale University.
Marketing
Nooyi is leading a worldwide consumer goods manufacturing company that primarily uses
differentiation to attract and hold customers. Although its major customers are large retailers
CASE 24 • PEPSICO — 2009 233