Diversification Strategy in 2008

Presented by: Eric Bricker, Traci Jancasz,

Salma Majeed, Rahim Shivji, Marina Zilic
 Corporate Strategy
Product innovation/diversification
 New product introduction- Funyuns, Doritos etc
 Diversification into salty snacks, orange juice, bottled
water, isotonic beverages

Close relationship with distributors

 Helped distribution of newly launched snacks and
isotonic drinks

Strategic Acquisitions and International Expansion

 Quaker Oats in 2001
 Duyvis Nuts (Netherlands), Lucky Snacks (Brazil)

Salma
Business Strategies
“ Better For You”
Diet Pepsi, Pepsi
Max, and Baked “ Good For You”
Quaker, Tropicana,
“Fun For You” Lays, SoBe life Naked juice, and
Pepsi, Doritos,
Mountain Dew and Water, Propel Gatorade
80 % Fun for You
Lays
Power of One Retailer and Better for You
Alliance Strategy Combined 20 %
•Product formulation based on Good for You
consumer demand
•How to get Consumers buy
more than one Pepsi product
per visit
•New product introduction
based on recommendations by
retailers.

Salma
 I ndustry Attra ctiveness

PepsiCo PepsiCo
Measure Weight Frito-Lay Quaker Oats
North America International
Market Size and
growth rate
.1 10 10 8 8
Intensity of
Competition
.25 7 5 5 6
Emerging
Opportunities and .1 7 5 5 6
Threats
Cross-Industry
Strategic fits
.2 7 8 7 7
Resource
Requirements
.1 8 7 6 6
Seasonal and
Cyclical Influences
.05 10 9 5 5
Societal, Political,
Regulatory, and
Environmental
.05 4 5 6 5
Factors
Industry
Profitability
.1 9 9 7 8
Industry Uncertainty
and Business Risk
.05 7 7 6 7

Overall Attractiveness Score 7.6 7 6.1 6.55

Eric
 Competitive Strength of PepsiCo’s

 Marketing – advertising approach and further

segmenting the drink sector
 Product diversity – Frito Lay snacks, Pepsi
products, Quaker healthy snacks
 Brand loyalty – consumers loyalty

Marina
 Competitive Strength Scores
for each SBU
Importance Pepsi Co PepsiCo
Competitive Strength/Market Position Weight Frito Lay Intl NA Quaker

1. Relative market share 0.15 9 9 7 4

2. Cost relative to competitor cost 0.20 5 8 4 3

3. Ability to match or beat rivals on key
attributes 0.05 6 8 6 4
4. Ability to benefit from strategic fit from
sister business 0.20 9 9 9 8
5. Bargaining leverage with suppliers and
buyers 0.05 7 6 7 7

6. Brand image reputation 0.10 8 7 9 10

7. Competitive valuable capabilities 0.15 7 7 8 8

8. Profitability relative to competitors 0.10 8 7 8 10

Overall Competitive Strength Scores 1.00 7.45 7.9 7.2 6.55

Marina
 9 Cell Matrix
9 Cell Matrix
PepsiCo North
America
Pepsi International

Quaker
Frito Lay
Industry Attractiveness

6.6

4.3

2
6.6 4.3 2

Competitive Strength

Marina
 PepsiCo’s Strategic Fit &
Value Chain Match Up
• PepsiCo portfolio does exhibit good strategic fit
• The greater the strategic fit the greater the
competitive advantage

• 3- ways to convert Strategic Fits into CA

• Cross business skills transfer
• Cost savings along value chain
• Cross business use of well respected name

Rahim
 Strategic Fits & Value Chain Match Ups

• Skills transfer
• Routinely shared valuable expertise for instance when
Pepsi Co acquired Quaker foods
• Technical and technological know how was shared
among 230 plants, 3600 distribution systems, and 120,
000 service routes
• Shared market research information during power of
one retailer strategy

Rahim
 Strategic Fits &Value Chain Match Ups

• Cost savings
 Achieved economies of scale by combining related
activities among the divisions.
 Quaker Oats integration – $160 mill in cost savings
by sharing product ingredients and packaging
materials.
 $40 mill. in cost saving by joint distribution of
Quaker snacks and Frito Lay products.

Rahim
 Strategic Fits & Value Chain Match Ups

• Brand Sharing
• Global name brand recognition of PepsiCo helped
introduced its snacks business around the world
• Combination of Gatorade and Tropicana distribution
saved $ 120 million by 2005

Rahim
 PepsiCo’s Portfolio:
Good Resource Fit
Resource Fit PepsiCo’s Characteristics

 Good Resource Fit  Strong Balance Sheet

◦ Businesses add to
company’s overall  Continuous increases in
resource strengths dividends to shareholders
 Ability to fund an $8
◦ Adequate resources to
support its entire group billion share buyback plan
of businesses without  Ability to pursue future
spreading itself too thin
acquisitions
Traci
 Cash Flow Characteristics

Traci
 Strongest Contributor’s to PepsiCo’s Free
Cash Flows
●
36% company operating

Frito Lay profit Sales

+70% of salty snack food
Frito Lay
●

industry sales (US)

NA
4%
PepsiCo
29% Bev NA
42% PepsiCo
Carbonate 31.1% MS (US, 2007)
●

●
“Power of One” strategy Internt.
d Beverage ●
Soft drink innovation
25% Quaker
Foods NA

Gatorade(76%), Propel(40%),  Revenues per Segment

●

Noncarbonat ●
Aquafina(15%)- MS
Tropicana #1 brand (2007)
ed Beverage ●
“Better for You” & “Good for You” bev.
=70% division revenue
(PepsiCo’s 2008 10K Report)

Traci
 Strategic Issue #1
Issue:
 Low profitability in International Markets

Recommendations:
 Pursue structural and organizational changes
 Divest businesses with low growth potential and

poor strategic fit with Pepsi Co.

Salma
 Strategic Issue #2
Issue:
 How to reverse the recent downward trend in the

PepsiCo Inc. stock price.

Recommendations:
 Restructure the lineup of snack and beverage

businesses to improve overall profitability i.e.

discontinue similar product offering.
 Pursue aggressive cost cutting companywide

campaign

Rahim
 Strategic Issue #3
Issue:
 PepsiCo’s overdependence on US market revenues

Recommendation:
 Focus on more international market
 Asia Pacific region GDP (China-9% & India-6.1%)
 Lends to a rise in disposable income
 FCF should be distributed sufficiently to increase

market share, with expansion internationally

Traci
 Strategic Actions
 Make strategic acquisitions in global markets that
enhance profitability.

 Pay higher dividends to share holders

 Emphasize Environmental Sustainability in all

divisions i.e. “Performance with a Purpose”
(Indra Nooyi)

Eric