Strategic Analysis of Pepsico - Tutors Avenue Center

Table of Contents

Executive Summary
Introduction
Five Forces Analysis
Pest Analysis
SWOT Analysis
Recommendations
Conclusion
References

Executive Summary

The present paper provides a situational analysis of Pepsico, Inc., the second-largest food and beverage company in the world. As of late, Pepsico has been going through some difficulties due to political, economic, and social volatility and its apparent unpreparedness for changes. This essay investigates the situation using several commonly recognized frameworks: The Five Forces Model, SWOT, and PEST analysis. The analytical part describes the inner strengths and weaknesses of Pepsico as well as the threats and opportunities of the external environment: political trends, public sentiment, and competitive rivalry. Based on the findings, the paper gives sound recommendations as to how Pepsico could prevent the situation from becoming critical.

Introduction

Pepsico, Inc., commonly referred to as Pepsico, is an international US-based company that was founded in 1898. At present, it specializes in FMCG (fast-moving consumer goods): beverages (represented by such brands as Pepsi, Mountain Dew, Gatorade, and Sierra Mist), food (Quaker Oats, WBD, and Rold Gold), and snack (Lays, Doritos, Cheetos). Pepsico operates worldwide in more than 200 countries and is one of the most recognizable brands in the world.

Despite the overall success of the company, recent statistics have demonstrated concerning tendencies. While Pepsicos revenue slightly increased between the years 2016 and 2017 from $63.5 billion to $62.79 billion, the actual profit dropped by 30% (Statista, 2019). The present paper provides Five Forces, Pest, and SWOT analysis in regards to Pepsicos current situation and recommendations on improving it.

Five Forces Analysis

When it comes to rivalry, Pepsico faces a multitude of strong competitors: both big and medium-sized corporations. The majority of players in the food and beverage industry develop, innovate, and market their products aggressively. For example, one of Pepsicos primary rivals, the Coca-Cola company, invests large amounts of money in research and development (Coca Cola Invests 19 Million Euros, 2019). Aside from that, consumers enjoy low switching costs due to generally low prices for snacks and beverages and a variety of options.

The second force, which is the bargaining power of Pepsicos customers, is characterized by low switching costs, high access to product information, and high availability of substitutes. In other words, consumers do not risk a lot when choosing another supplier. Besides, they tend to make well-informed decisions due to the availability of information on the Internet. The bargaining power of Pepsicos suppliers is a weak force in the Five Forces model.

Firstly, there is an abundance of suppliers willing to provide raw materials for Pepsico. Secondly, they are barely integrated to consolidate efforts and influence Pepsico. In contrast, the threat of substitution is a force to be reckoned with: the current situation is characterized by the high performance of substitutes and their high availability of substitutes. Lastly, Pepsico is somewhat protected from the new entrants on the market due to the fact that it consolidated over 90 brands and may as well create or acquire more.

Pest Analysis

PEST analysis helps to explore a companys current standing from different standpoints: namely, political, economic, social, and technological. Politically, Pepsico might be affected by US legal initiatives promoting health and wellness. For instance, several cities in the United States have introduced the so-called soda tax or sugary drink tax. The tax was designed to discourage people from leading unhealthy lifestyles and offset the global burden of disease caused by obesity (Bentley, 2019). In the US, the initiative is supported by the American Medical Association and the American Heart Association; globally it is backed up by the World Health Organization.

Essentially, the soda tax increases the price of sweetened drinks: for example, in Philadelphia, it is three cents per ounce. Coca Cola and Pepsico have been outspoken about the new trend and were explicitly against it. Bentley (2019) explains that in reality, the soda tax is rarely effective: the writer reports that in none of the pilot cities have the obesity rates dropped significantly. McKinsey Institute has recognized the legal initiative to be one of the least efficient measures to fight overweight. Yet, the trend does not seem to even start declining as more cities are adopting the policy. The FMCG industry known for its products that are way far from being healthy has invested in lobbying, but to no avail.

Just like many other big corporations, economically, Pepsico is vulnerable to inflation, economic instability, and changes in tax legislation. However, the weakest economic points for Pepsico are the strength of the dollar and consumer opinion. As of now, the companys production is represented in more than 200 countries, many of which use their own local currencies. The latter makes product prices contingent on the local currency rates as the foreign-exchange rate can sometimes be disadvantageous for the producer.

For example, in 2016, the dollar was strong and stable, but despite it being positive news, it led to the troubles of exchanging the quickly inflating Venezuelan peso amid the national crisis. Consumer opinion is also a decisive factor in how much profit Pepsico is making. With more people taking up a healthier lifestyle, soda drinks sales are likely to sag in the absence of a better alternative.

Socially, Pepsico is struggling with the reputation of being a typical FMCG corporation that only produces goods high on fat, sugar, and salt. At present, more consumers than ever are concerned with their health: L.E.K. (2018) report has demonstrated that they are not only actively seeking products that would offer some health benefits but are also ready to pay more for it. Besides, with the availability of the Internet, the purchasing cycle has undergone significant changes. The search for alternatives and background check in between the realization of the need and the actual purchase is now enhanced by the ability to access large amounts of information. Therefore, consumers can easily locate data on the harmful effects of consuming Pepsicos production and form a negative opinion.

For all its issues, it is undeniable that Pepsico is thriving technologically. Marr (2019) writes that the US company has been actively using machine learning (ML) and artificial intelligence (AI) to achieve its goals. For example, a machine learning algorithm has been employed to assure the quality of chips at Frito-Lay, one of Pepsicos brands. Lasers hit chips to make them make a sound that is then analyzed to determine the texture. Pepsico is already benefiting from its abundant resources and qualified cadres in the field of AI and ML and looking forward to developing more solutions.

SWOT Analysis

Despite occasional aberrations, Pepsico remains the second biggest food and beverage company in the world, only surpassed by Nestle S.A. Pepsicos obvious strength is its diversified portfolio with almost 100 brands covering every niche in the FMCG industries: food, beverage, and snacks. Meanwhile, Pepsicos competitors do not manage nearly as many brands: the closest metrics are 82 for Nestle S. A. and 55 for Mondelez.

Out of 99 brands under Pepsico, Inc., 22 are generating more than $1 billion in revenue per year, and 10 between $0.5 and 1 billion annually (Statista, 2019). Having a diversified, comprehensive portfolio protects the company from fluctuations in customers preferences. For example, if a customer is looking for a snack, Pepsico offers a wide variety of options: Lays, Cheetos, Doritos, and others. The presence of many popular and recognizable brands accounts for Pepsicos strong brand image.

One of Pepsicos weaknesses is its low penetration of markets outside North and South America. As Team (2019) reports, the company generates more than 70% of its revenue in the US and South American countries. This means that in those countries where Pepsicos production is underrepresented, the brands are vulnerable to local competitors. Another weakness is the companys limited business portfolio: while Pepsico has a plethora of brands under it, they are all operating within the FMCG.

This characteristic makes the company more sensitive to FMCG market changes. Lastly, Pepsico makes little to no effort to market their goods to health-conscious customers. L.E.K.s (2018) report has shown that 63% of consumers want to eat healthily most of the time. Essentially, L.E.K. (2018) has discovered that consumers purposefully look for nuanced claims regarding a products attributes and make decisions based on how it impacts their health and wellness. As of late, they have been increasingly interested in the health benefits that a product can offer. By ignoring these trends, Pepsico loses an opportunity to make a connection to the entire market segment of health-conscious customers.

Some of the opportunities that Pepsico might want to consider include business diversification, market penetration in developing countries, and global alliances with complementary businesses. For example, Pepsico might try to branch out and look outside the familiar FMCG industry. The company may buy a complementary firm that has nothing to do neither with food or beverages. Another opportunity is to strengthen its presence in countries outside the North and South Americas.

A feasible strategy would be to glocalize its product by keeping the original properties that made it popular but striking a chord with the local customer base. Lastly, Pepsico might enter mutually beneficial alliances with other companies to promote its products.

As for the threats, two rising global trends might undermine Pepsicos popularity: healthy eating and environmentalism. As it has been mentioned before, Pepsico has not yet been investing in developing fast-moving consumer goods that would be appropriate for people who are committed to maintaining a healthy lifestyle. As of now, the companys products are not considered exactly healthy due to fat, salt, and sugar content. Another issue is Pepsicos waste management: Danigelis (2017) states that while the corporation has been making an effort to reduce waste, it is far from achieving its goals. Therefore, new market entrants who offer healthy alternatives to beloved not-so-healthy snacks and also use green technologies might pose a threat to Pepsico.

Recommendations

Based on the findings, it becomes apparent that Pepsico is confronted with some temporary issues that have the potential of becoming permanent. Firstly, the company has been excessively prioritizing North and South America and ignoring the opportunities presented by foreign markets. One way to go about it would be to glocalize its marketing strategy and adapt its production to fit with foreign customers needs and preferences.

Another serious issue that Pepsico needs to overcome is its misalignment with the rising social trend of choosing healthy products. As of now, Pepsicos production is far from healthy: it has been criticized for the excessive use of sweeteners, fat, and salt contents. While it is not exactly feasible to reinvent every single product and make it appropriate for clean eating, Pepsico might want to try and launch products for this particular health-conscious market segment. This decision would be a long-term investment since the trend is here to stay, and in the future, even more people will be making choices based on a products health threats and benefits.

Conclusion

Pepsico is operating on a highly competitive market, contending with the industrys giants such as The Coca-Cola Company, DPSG, Mondelz International, Monster Beverage Corporation, Hansen Natural Corporation, and others. Overcoming the companys challenges calls for a thorough analysis of its strengths and weaknesses. Overall, Pepsico enjoys a strong presence in North America and a diversified portfolio of brands that cover almost every niche in the FMCG industry.

At the same time, the company is susceptible to new legislation such as the soda tax and the changing public sentiment. In order to protect itself from social, political, and economic fluctuations, Pepsico might want to strengthen its presence on the markets outside North and South America. Another way to overcome temporary difficulties and prevent them from turning into a permanent issue is to find ways to fit into the new social trends.