Strategic Analysis of PepsiCo. Inc
SWOT analysis of PepsiCo Inc.
v Strengths:
PepsiCo brand has a strong presence all over the world. Their food, snacks and beverages are consumed 1 billion times a day in 200 countries. In 2011, three brands of PepsiCo grew to more than $1 billion in annual retail sales, expanding their billion dollar brand portfolio to 22 brands.
PepsiCo boosted their investment in research and development to build long-term, differentiated platforms and significantly expand their healthier offerings within their snack and beverage portfolios.
PepsiCo has an impressive and well placed advertisement and marketing strategy which plays a huge part in their brand presence and success. PepsiCo will be increasing their spending on it by $500m to $600m in 2012. (Annual Report 2011)
Studies show that 85% of the time, when a person eats a snack or they also reach for a beverage, it is from a brand owned by PepsiCo. PepsiCo is well placed in both the beverages and snacks market and this is one of their major strengths. In 2011 their food business accounted for 49% of their revenues and beverages for 51% (Annual Report 2011).c
PepsiCo has a remarkable supply chain which includes which also includes its owned and independent bottling partners. “PepsiCo was ranked among the top two suppliers in customer (retail partner) surveys where third-party measures exist in U.S. in 2010”. (PepsiCo Annual Report 2010)
v Weaknesses:
50% of PepsiCo’s revenue is generated from the US alone. They are also exposed to a concentration of credit risk by their customers. In 2011, Wal-Mart represented approximately 11% of their total net revenue. Even though they have never had any problems with payments, if they did PepsiCo’s business would be adversely affected.
The more health consciousness people become can have an impact in lower sales of their beverages, especially their carbonated soft drinks which contain more sugar than is advised by health guidelines.
Their arch-rival Coca-Cola Company is a more popular and well recognised brand all over the world. It has topped the interbrandranking of 100 best global brands for 12 consecutive years with a brand value of $71.9 billion in 2011. PepsiCo was ranked 22nd with brand value of $14.6 billion (Interbrand, Best Global Brands). Compared to PepsiCo, Coca-Cola Company also possess a larger volume of market shares outside the US.
v Opportunities:
Due to an increasingly on-the-go lifestyle and a rapidly growing middle class in emerging and developing markets, their snacks, beverages and nutritional products have vast and attractive market for growth.
The global market for health and wellness within consumer packaged goods exceeds $500 billion and is expected to grow in the high-single-digits. PepsiCo is already competing in this market and three of their well-developed brands, Quaker, Tropicana and Gatorade are also part of it. Building from these brands they can expand in to this section of market. Their expected target is to increase their nutrition portfolio to $30 billion by 2020 (Annual Report 2011).
Their presence in the bottled water industry through their billion dollar brand Aquafina is going to increase profit, as clean water is becoming scarce, consumers will be consuming more of clean bottled water.
PepsiCo is an undisputed leader in the world snack market with their brands such as Lays, Doritos, Cheetos and SunChips, but there is still the opportunity to grow into adjacent categories such as whole grain snacks, fruits, seeds, nuts or develop new flavours according to local tastes.
v Threats:
Scarcity of clean water in some parts of the world is one of the biggest threat any beverages making company is facing in recent times. PepsiCo improved their overall water use efficiency by 22.1% in 2011 (Annual Report 2011). It is a good step forward but needs more consideration as it could have a huge impact on their beverages division.
PepsiCo operates in a very competitive market where they compete against global, local, regional and private label manufacturers. The threat of competition and rivals is significant. Coca-Cola Company is their biggest rival in the beverages industry, as they have a higher share of carbonated soft drink sales in, and outside of, the US.
If consumer lifestyles, preferences or tastes changes and PepsiCo is unable to innovate according to that, it will affect adversely on their results, for example, the rapidly changing healthy lifestyle of consumers.
Many countries they operate in, including the US and European countries, are facing unfavourable economic conditions. Unfavourable economic conditions including any increases in interest rate or tax rates may also have an adverse impact on their business results or financial condition.
4.0 Future Prospects and Strategy:
We are performing today to deliver top-tier financial performance, while investing to ensure that our performance levels can be sustained in the long term. (Indra K. Nooyi, Chairman and Chief Executive Officer, 2010)
Their vision is to focus on environmental stewardship, activities to benefit society and a commitment to build shareholder value by making PepsiCo a truly sustainable company.
“PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social, economic – creating a better tomorrow than today.” (Our Mission and Vision, www.pepsico.com)
They need to build on their current portfolio and expand into new brands. As for their snack business they can expand into healthier snacks with less salt. For their beverage business they can expand their zero or less sugar brands as people are getting more health conscious.
The most important expansion of their portfolio is to be done in their nutrition range. As it is a $500 billion industry and increasing rapidly every year, PepsiCo can increase their range vastly which will help them gain market share and increase revenue.
In 2011 50% of their revenue was from countries outside the US, including 34% from developing and emerging markets. (Annual Report 2011)
Recently PepsiCo has seen growth in countries like China, India and Saudi Arabia, where the sales of foods and beverages have grown in double digits in recent years. Still, there are a lot of opportunities to avail by distributing and selling products in Asian and South American countries.
Their acquisition of WBD in 2011, Russia’s leading branded food and beverage company, will provide them with increased sales volume and revenue growth of their other brands too in Russia.
PepsiCo Inc. future looks bright and prosperous due to the strategies in place and the strengths of their global portfolio and opportunities they have.
5.0 Conclusion:
The challenge to renew a successful company is one that we embrace. (Indra K. Nooyi, Chairman and CEO)
PepsiCo is the second largest foods and beverages business in the world and the largest food and beverages business in the US. PepsiCo revenues from the US and outside US were equal 50% in 2011. Its foods division accounted for 48% sales revenue and beverages accounted for 52% in 2011.
Its over dependence on US sales could be harmful in future if the economic downturn continues and consumer spending keeps on shrinking.
With the inclusion of three new brands in 2011, its portfolio includes 22 $1billion retail sale brands. PepsiCo’s brand was worth $14.6 billion in 2011 by Interbrand’s best global brands (Interbrand, Best global brands 2011).
In 2011 its core net revenues increased by 14% to $66 billion, in 2010 it increased by 33% on constant currency basis and by 5% in 2009 on constant currency basis.
Core division operating profits rose by 7% in 2011, 23% in 2010 and 6% in 2009. The increase in 2009 and 2010 were on constant currency basis.
In 2011 core earnings per share grew by 7%, 12% in 2010 and 6% in 2009. The increase in 2009 and 2010 were on constant currency basis.
In 2011 on core basis, net return on capital invested capital was 17% and return on equity was 31%.
Dividend per share has increased for 39th consecutive year. It was $1.77 in 2009 to $1.89 in 2010 and $2.02 in 2011. In 2009 it increased by 8%, in 2010 it increased by 9% and in 2011 it grew by 12%.
Since 2007 PepsiCo has returned $30 billion to their shareholders through share repurchase and dividends, of which $5.6 billion was in 2011.
They intend to grow their snack business through developing healthy products and new localised flavours. PepsiCo also wants to take advantage of their cross-category presence and grow their sales of beverages along snacks too.
Their presence in a $500 billion nutrition food industry is an opportunity for further future growth of their nutrition brands such as Quakers and Tropicana. PepsiCo’s target is to increase their nutrition portfolio to $30 billion by 2020.
Their increased spending and budget for research and development and advertising and marketing is a step forward in creating more healthy products and increasing their brand image and its power and sales through it.
“The Power of PepsiCo has always been our beloved, iconic brands that drive our sustainable financial performance. Our strength and versatility derive from the consumer appeal of our brands and position us to perform in a world that is rapidly changing.
In an uncertain global economy, we believe we need to control the things we can control — while managing through turbulence. It means building on our strengths, while anticipating and planning for challenges.” (Indra K. Nooyi, 2011
Investors Prospective:
PepsiCo has delivered strong performances over the last three years. Revenues have increased along with profit margin and return on capital employed.
PepsiCo has shown all this progress at the time of economic downturn, which has been ongoing for almost four years. The effect of which is so severe that a lot of companies acquired government help, some even went into liquidation. Worse even some countries are on the brink of bankruptcy.
In 2011 there was the 39th consecutive increased dividend pay-out. This increased payment is the most important factor which affects the potential investor’s decision to invest in the company or not. As they have done several acquisitions and mergers in last few years it means continuous prospect of growth.
All these factors point to the fact that PepsiCo is an attractive investment.