strategic-management

238 JOHN AND SHERRY ROSS
Our approach to superior financial performance is straightforward–drive
shareholder value. By addressing social and environmental issues, we also
deliver on our purpose agenda, which consists of human, environmental, and talent
sustainability.
The final “Performance with Purpose” is part of PepsiCo’s 2008 restructuring plan to make
the company more efficient and profitable.
Additionally, PepsiCo has extensive statements on sustainability, the environment,
health and wellness, and diversity (see Web site, PepsiCo—Purpose). These topics are critical
to the long-term success of PepsiCo. The principal ingredient of its primary product is
water. Both nationally and globally, an adequate supply of fresh, clean water becomes
paramount, particularly in lesser developed countries. News of contamination (either real
or perceived) can quickly destroy consumers’ confidence in a company’s ability to provide
a safe, healthy product. 1 To help in this effort, PepsiCo has undertaken numerous projects
and alliances around the world, working with such groups as the Earth Institute at
Columbia University, the Chinese Woman’s Development Foundation, The Energy and
Resources Institute, Keep America Beautiful, Exnora, and UNICEF. Divisions within
PepsiCo have also initiated projects to increase use of recycled materials and reduce materials
used in packaging.
Industries
PepsiCo is a global company operating in the non-alcoholic beverage industry, the salty or
savory snack food industry, and the breakfast food industry. Although these industries may
be seen as concentrically related, they are analyzed separately.
Industry: Nonalcoholic Beverage
The global nonalcoholic beverage industry is composed of carbonated soft drinks,
fruit and vegetable juices, bottled water, sports and energy drinks, concentrates, and
ready-to-drink coffee and teas. These drinks make up a $395 billion world market with
carbonated drinks the largest share of the market at $150 billion (see Exhibit 6). World
demand has continued a slow but steady overall growth for the last five years of around
9 percent with sports drinks, bottled water, and energy drinks showing the largest
growth. However, in the United States, the carbonated soft drink market has shown a
decline of 0.4 percent in 2007 as consumers shifted from soft drinks to bottled
water and sports drinks. In the United States, the carbonated soft drink market shrank to
$63.4 billion in 2007 and is projected to continue to diminish to a value of $61.5 billion
by 2012, a decrease of 2.7 percent. Growth in the carbonated drink market was largest
in Asia and Europe.
Although there are many producers of nonalcoholic beverages, the industry is highly
concentrated, with Coca-Cola and PepsiCo holding the largest share of the U.S. market at
23 percent and 25 percent, respectively. Coca-Cola, however, holds the largest share of the
U.S. cola market at 41 percent with Pepsi second at 36.7 percent.
This industry continues to operate in the same general manor as it has for over
100 years. Both Pepsi and Coke manufacture the concentrates and syrups, which are then
sold to bottlers. Bottlers then distribute the finished product to grocery stores, convenience
stores, restaurants, vending machines, and so on. Pepsi and Coke spend heavily on
national advertising as well as provide large promotional incentives to the bottlers. The
market for these products depends on the changing taste of consumers and requires manufactures
to constantly develop new products to meet those changing demands. In recent
years we have seen the introduction of diet, free, and zero colas as well as flavored water
sports and energy drinks. These companies are also highly dependent on supplies of clean
water. The downturn in the economy has also affected the sale of colas and water as some
consumers have switched to store brands and tap water as cheaper alternatives to the
national brands. Additionally, a recent environmental campaign against plastic containers
has impacted the sale of bottled water and forced manufactures to develop more environmentally
friendly containers.