CASE STUDY –PEPSICO PAKISTAN

PepsiCo is a leading global food and beverage company with brands that are respected
household names throughout the world. Through their operations, strategy of authorized
bottlers, contract manufacturers and other partners, PepsiCo market, sell and distribute a wide
variety of convenient and enjoyable foods and beverages, serving customers and consumers in
more than 200 countries and territories.

While Coca Cola have the global lead in terms of Cola beverages on a global scale but Pepsi are
undisputedly the market leader and the preferred brand in Pakistan market. Pepsi Cola was
launched in Pakistan in 1967 in a bigger bottle than Coke who was in the Pakistan market from
the decade of the 50’s. Right from the word go Pepsi was giving a tough time to Coke, the
market leader. The turnaround in their fortunes was the year 1982 when Pepsi changed their
promotional tactics and in a clever move they focused on Cricket and the Pakistan team.

Collaboration with Pakistan cricket team -

Pakistan cricket team in the 80’s under the captaincy of legendary Imran Khan was passing
through their peak and Cricket had become a passion for the entire nation and especially
amongst the teenagers and the young adults. Realizing the craze for cricket Pepsi focused their
advertisement campaign on cricket stars, their victories & achievements and the ads presented
the cricketing stars as if they were not only in love with Pepsi but rather they had developed a
never ending addiction for Pepsi. The ads were catchy, thrilling and exciting plus the glamour of
Imran Khan, Wasim Akram & other stars had a great psychological appeal for the young adults
and teens and from that point onward Pepsi took a big leap and they became the market
leaders in Pakistan market.

Localization strategy – In another smart move the management of Pepsi changed the taste of
Pepsi to an extent. They increased the content of sugar in its formulation making it sweeter in
taste as compared to Coke. This move was the conclusion of their research that People in
Pakistan do not prefer a bitter and strong taste as compared to western countries where
people in general have a preference for somewhat stronger and bitter taste. The sweeter taste
of Pepsi is the main factor that children have developed an instant liking for Pepsi.

Franchising policy of bottlers –

Concentrate manufacturing plant is owned by PepsiCo but its 14 bottling facilities are owned by
8 franchised bottlers throughout the country. PepsiCo produces the concentrate for its soft
drinks and ships it to bottlers. They add carbonated water, sweetener and do the packaging in
bottles of different sizes and cans. Packaged soft drinks are distributed to retailers by these
bottlers.
 This geographic dispersion of bottlers is the key to Pepsi’s success in Pakistan. It is not reliant
on long distance transportation of its products, unlike many other Multinationals and even local
food and beverages manufacturers face much higher logistic costs. Production of concentrate
requires little capital investment and generates high margins for PepsiCo while bottling and its
distribution is operationally complex and is considered to be capital intensive with low profit
margins. It is estimated by the industry experts that PepsiCo which supplies the concentrate
earns four times more than the bottlers.

The brand portfolio –

The soft drink brands of PepsiCo in Pakistan are:

- Pepsi Cola
- 7 up
- Miranda
- Mountain Dew
- Sting
- Aquafina

PepsiCo invests in marketing, brand building and product innovation while the manufacturing
and distribution is carried out by their bottlers. Overall the company and its affiliates employ
over 20,000 people in Pakistan directly, making it one of the largest private sector employers in
the country.

PepsiCo brought in Foreign Direct Investment in the shape of a concentrate plant set up in
HATTAR. By focusing on innovation and strong go-to-market excellence PepsiCo became the
market leader in 1982 and has since than sustained that position. Today, Pakistan is the 6th
largest market for PepsiCo international.

Success of Mountain Dew –

It was first launched in 1995 with the original taste of USA and it was a big flop. Mountain Dew
was re-launched by PepsiCo in 2003 after changing the taste and repackaging. Mountain Dew
new taste for the local market was especially developed by R&D team taking into account the
requirements of young Pakistani consumers evaluated through research. The taste of Mountain
Dew with a bit of citrus is amazing which nobody could think of – completely differentiated
from any other cola brand.
The ads were made in collaboration with Interflow communications. Consumers had never
seen such extreme action ads. “DEW NA PIYA TO PHIR KYA JIA” was a big hit with the youth of
the country.

Product diversification –

Besides soft drinks PepsiCo has invested in other areas as well. In 2006 they launched the
successful product by the brand name of Lays. PepsiCo invested in a manufacturing facility of
snack food in SUNDAR Industrial Estate in LAHORE which employees over 1000 people. PepsiCo
met with great success and within 5 years of operations LAYS has become the largest salty
snacks brand in Pakistan and it continues to grow at a high double digit rate. This plant was
constructed with 10 years sales forecast in mind but in 3 years’ time plant was running at 100%
capacity. Now major improvements and capacity enhancement has been carried out in the
factory to meet the existing demand. PepsiCo directly ship these products to its distributor
network spread all over Pakistan. The company has made strong investments in the agricultural
sector of Punjab by introducing latest technologies for potato growers. They are looking to
expand potato growing into the northern areas of Pakistan. This investment with the farmers
has been done to improve their capacity to grow better potatoes. PepsiCo also plan to export
potatoes to other countries around the world.

The snack portfolio consists of leading names like Lays, Cheetos, Kurkure, Wavy & Chat Street.

In 2009 a juice was introduced by the name of “SLICE”. This product has not been able to create
the market share the company was anticipating despite being promoted by the Bollywood
actress Katrina Kaif. The subliminal message in the ad didn’t match with the nature of the
product which is a juice and instead should have focused on health. Another reason for Slice
not being so successful is the strong presence of Nestle Pakistan.

Another well-known brand of PepsiCo is of course Aquafina the mineral water which was able
to break the dominance of Nestle.

PepsiCo enjoys a leading market share in potato chips market. Lays with its several flavors is the
most popular potato chips in Pakistan. Kurkure innovation of Pakistan has created a huge
market share and is growing every year at a fast pace. Kurkure has been launched in India with
lot of success and now PepsiCo intends to export Kurkure to Malaysia and on its success it will
be manufactured over there.

According to Qasim Khan, head of NASA region of PepsiCo International feels that Pakistan
market is full of opportunities. Following factors are making Pakistan a very attractive market
place.
 - Large market. 6th most populace country in the world with approximately 70%
population under the age of 30.
- Trained work force. A large trained and productive population represents a big
opportunity to Pakistan to benefit from its demographic dividends.
- Investment policies. Pakistan’s policy trends have been consistent with liberalization,
deregulation, privatization and facilitation being the cornerstones of its policy.
- Large Agro Base. The strong agriculture base presents a great opportunity for our food
business to expand in the future. We realize that Pakistan is the 11th largest wheat
producer, 12th largest rice producer and 5th largest milk producer in the world. Pakistan
being an agricultural country provides opportunity to make new innovative healthy food
products.
- Geo Strategic Location. It can be a gateway between the energy rich Central Asian
States, financially liquid Gulf States and technologically advanced Far Eastern states. This
alone makes Pakistan a market teeming with possibilities.
- Incomes on F & B. A significant amount of individual incomes as high as 40% are spent
on food and beverages, thus representing a huge opportunity for the industry.

However PepsiCo management is critical about weak intellectual property rights

implementation in Pakistan resulting in lot of fake PepsiCo products damaging reputation of the
company.

Raw material cost is continuously increasing and high taxation on beverage and food industry
by the government are some negative aspects which makes doing business in Pakistan more
challenging.

Major issues -

A dent in market share –

PepsiCo received a dent in their market share when Coca Cola started a musical program on TV
“COKE STUDIO” which was based on vintage film and folk music blended with modern and rock
music. This musical program was a big hit in domestic market; tremendous success of Coke
Studio resulted in significant sales growth for Coca Cola. PepsiCo answer to Coke Studio by the
name of “Smash” resulted in failure.

Health issues -

Despite PepsiCo’s presence in soft drink and snack food industry a very challenging climate is
building around sugary drinks and salty snacks. World health organization (WHO) has recently
linked the growing incidents of heart diseases, hypertension, stroke and obesity with the
consumption of PepsiCo products. Childhood obesity is a major issue all over the world and the
main cause is fast food, sugary drinks and salty snacks.

Now the main ambition of management is to make PepsiCo a good company with high moral
values and to make products which are considered to be healthy for the society. They are
considering introducing an artificial sweetener known as “STEVIA”, which is considered to be a
healthy alternative for sugar. But the real challenge is to retain the taste of Pepsi brands with
Stevia. The taste of Stevia is altogether different from real sugar and to like Stevia one has to
develop taste. Nobody has forgotten what happened to Coke when they tried to change the
taste in the 80’s.

PepsiCo operations in Pakistan are now required to be aligned with the new strategic mission
given by the chief of PepsiCo worldwide Indra Noori and that is “Performance with Purpose”.

What does this new mission means? It means delivering financial results in way that is good for
the world as well as good for the society.

Now the ambition of Indra Noori is to make PepsiCo a good company with high moral values
and to make products which are considered healthy by the consumers. It is striving to give
preference to people over profits.

As stated earlier PepsiCo is considering to use plant based sweetener STEVIA which is
considered to be healthy for people suffering from obesity and hypertension. They have also
reduced the percentage of saturated fat in their salty snacks by switching from palm oil to
sunflower oil.

One market analyst was of opinion that PepsiCo might use this strategic mission of
“performance with purpose” in developed countries where they are losing their market share
of soft drinks to healthy drinks and juices because of health concerns and their growth has
become stagnant. But in emerging economies like Pakistan the company is experiencing high
growth, high margins and high profitability. In Pakistan masses are struggling with grave
problems, health issues linked with these American brands have very low awareness. Changing
the taste of Pepsi Cola and other brands by using Stevia which tastes altogether different is a
big risk which PepsiCo cannot afford.

The company has added juices, bottled water and Quaker oats (DALIA for breakfast) to its
portfolio to give consumers a choice of healthy and wholesome products in Pakistan. Aqua Fina
bottled water has been a big success in Pakistan and has broken the dominance of PURE LIFE of
Nestle.
PepsiCo is doing lot of CSR activities in Pakistan. Total of 17 schools have been reconstructed in
the most impoverished areas with a special emphasis on girls education. PepsiCo is providing
drinking water and irrigation systems in SWAT that is providing relief to the people and have
not only helped in managing water related diseases but have also developed irrigation
infrastructure for farmers.

One market analyst was of the opinion that innovations by PepsiCo have been successful in the
market like KURKURE and CHAT STREET CHIPS but whether they are in line with their strategic
svision of performance with purpose is questionable.

The Public Relations department of PepsiCo denied that KURKURE has any plastic in its
ingredients as claimed by somebody on you tube and the video had become viral in India and
Pakistan. The company claimed the product is made of rice, corn and edible oil and they would
not even think of using any substance which is against their new vision.

The dilemma for PepsiCo is to maintain high growth in future with products that are good for
their consumer’s health and wellbeing and at the same time generating substantial profitability.