The Real Reason Why Pepsi Is Beating Coke, Essay Example

Vision and Mission

PepsiCo is an international brand with a significant presence in the beverage world. The organization takes pride in its diverse product lines and its primary focus on corporate responsibility and other factors that play a role in supporting its continued expansion and growth (PepsiCo, 2014). The organizational vision supports new forms of action in order to achieve significant financial rewards and collaborative efforts with partners and key stakeholders that are fair, honest, and based on integrity (PepsiCo, 2014). This multinational organization supports a vision of action that supports the needs of society and local communities, in addition to environmental and financial sustainability on many levels (PepsiCo, 2014). This mission and vision is relatively standard for a multinational company of its size; therefore, there is not much surprising or inventive regarding the company’s mission statement and vision for the future.

Strategic Goals

In recent years, PepsiCo has strived to remain one of the top global brands in the world, with a greater focus on marketing and advertising in its North American sector, along with increased operational efficiencies, a tightened organizational structure, and a workforce reduction of approximately three percent, or 8,700 employees (PepsiCo, 2012). Furthermore, the company has sought to increase its dividends to shareholders at a level of four percent (PepsiCo, 2012). Since the company achieved its financial goals and objectives in the year 2013, it is on target for continued growth and development (PepsiCo, 2014). Furthermore, the company recently announced a productivity plan that will occur over a five-year period beginning in 2015, and this program will support annual productivity savings of one billion per year (PepsiCo, 2014). This program is designed to minimize and streamline resources across its global divisions and to recognize the importance of developing new strategies that will improve the organization’s bottom line over the long term.

Strategies

Based upon Porter’s model of five forces, PepsiCo’s current strategy addresses these considerations in the following manner:

1)Threat of new entrants: there is always room for competition in any industry. Therefore, PepsiCo has a responsibility to its shareholders to manage its competitive advantage in an efficient manner through its actions and its ability to diversify through new product development and expansion into new markets in a thoughtful and careful manner.

2)Bargaining power of buyers: PepsiCo’s network of buyers, the companies that distribute its products to retailers throughout the world, represent an opportunity to bargain for improved strategic pricing and distribution with Pepsi at its current level of growth.

3.Bargaining power of suppliers: Suppliers possess the opportunity to increase their prices, which may lead to changes in the suppliers that Pepsi use over time if these prices become too high. Therefore, supplier behavior must be closely monitored in order to improve outcomes and to address the

4.Threat of substitutes: With the highly competitive nature of the soft drink industry, it is not surprising that Pepsi possess a serious threat in its ability to achieve significant sales growth as a result of its competition with its largest competitor, Coke. This is an important reminder of Pepsi’s need to be successful in sustaining its competitive advantage for the foreseeable future.

Based upon the level of sales growth and global recognition of the firm, PepsiCo is in a position to improve its current strategy and to expand its level of growth on a global scale. This process is instrumental in shaping the future of the organization and in supporting its long-term focus and approach to doing business. This ensures that the business has the appropriate focus and long-term objectives in order to achieve sustainable growth for the future.

External Assessment

PepsiCo operates in an international environment that has been the primary focus of its long-term strategy and approach to doing business. The organization supports a global approach that has had a significant impact on its overall growth and wellbeing as a viable organization with a long-term focus on the future. For example, PepsiCo operates a significant business in China, whereby it performs the following: “One of the strategies for PepsiCo’s success in China lies in developing products that cater to the tastes and preferences of local consumers… Endeavoring to develop more new products for China, a new food and beverage innovation center was strategically opened in Shanghai in November last year, PepsiCo’s largest research and development center and innovation hub outside of North America” (Ho, 2013). This and other examples demonstrate that PepsiCo is largely focused on its effort to achieve great success, both now and in the future, and in supporting the development of new strategies for growth in other countries where expansion is appropriate.

The General Environment

The surrounding environment represents an opportunity to explore the different dimensions of PepsiCo’s boundaries as a company with a continued level of growth and development in new markets. However, PepsiCo faces critical challenges in those nations where current operations might not be successful due to poor economic conditions and other factors that impact economic growth and wellbeing in some nations (PepsiCo, 2010). Furthermore, the organization is challenged by such factors as consumer preferences and product innovation, both of which could shift the direction of the organization in order to accommodate these challenges (PepsiCo, 2010). It is imperative that organizational leaders are well aware of the changes that are taking place in the market so that all possible concepts are explored to improve visibility, to attract new sales, to expand into new markets, and to be creative in its level of product innovation (PepsiCo, 2010).

Social drivers of change also play a role in organizational performance, such as consumer preferences for products that are not related to soft drinks, as well as other factors that demonstrate limited growth potential in new and existing markets (PepsiCo, 2010). Furthermore, demographic factors also demonstrate the importance of new target markets, as the focus must be shifted from markets where sales are poor or are not growing to emerging markets where there could be increased sales growth on many levels (PepsiCo, 2010). Also, political, legal, and regulatory forces also contribute to PepsiCo’s current status and overall financial health, as the ever-increasing focus on improved health has had a significant impact on how the organization operates, both now and in the future.

Regulatory organizations such as the Food and Drug Administration and the Centers for Disease Control also influence the company’s North American operations with respect to the safety and quality of its product lines, particularly its soft drinks. The company must also address its environmental sustainability and its operations in this area, because green initiatives are instrumental to the success of modern organizations. Also the manner in which its operations are conducted must emphasize less waste and an improved focus on recyclable materials and other environmental considerations. Finally, the organization must remain at the forefront of technology in many areas, from production design and manufacturing to social media, all of which contribute to the firm’s longevity in the modern era. These environmental considerations must be taken seriously in an effort to produce effective outcomes and to develop new strategies for growth that emphasize opportunities to grow the business on an international scale.

The Specific Environment

For PepsiCo, its customers are located in areas throughout the world who have a preference for its products and their level of quality. Based on the level of observation, PepsiCo’s customers range from big-box stores such as Wal-Mart to smaller retailers such as mom-and-pop stores (Lomax, 2013). PepsiCo’s individual customers, however, are its most favorable commodity, with a considerable focus on attracting sales growth in different markets. However, it is known that “consumers are becoming increasingly aware of health concerns associated with some foods and beverages, resulting in different choices. PepsiCo’s offerings for junk food junkies could still taint its reputation despite efforts to offer healthier products with healthier ingredients. Beyond consumer awareness and critics’ opinions, government regulations could change, and studies have been trying to assess the health effects of drinking carbonated soft drinks,, for example. Rising rates of obesity and illnesses like diabetes have put sugary snacks and drinks on the radar as part of an American health epidemic” (Lomax, 2013). Under these circumstances, therefore, PepsiCo has much work to do to maintain its high level of customer loyalty and to sustain its overall brand image (Lomax, 2013). The organization must continue to manufacture high quality products in order to sustain its high level of sales growth, and also to demonstrate the importance of achieving new perspectives that will be effective in supporting the growth of the organization and its level of customer loyalty (Lomax, 2013). These factors support the continued growth and expansion of PepsiCo as a result of how it interacts with its customers through its overall focus on brand imaging and long-term success on an international scale (Lomax, 2013).

PepsiCo’s suppliers represent a significant contributor to its overall level of growth and how the organization responds to the surrounding environment. Therefore, it is important for the firm to focus on its suppliers as a means of expanding its sales growth, and also in demonstrating the importance of new strategies to maintain sound and effective supplier relationships over the long term. In general, the organization has significant opportunities to promote itself through professional expertise and knowledge that has an impact on its overall success and achievement. Its labor force is also highly qualified and possess the appropriate level of expertise in order to achieve the desired objectives at both the domestic and international levels.

The organization faces strong competition from its biggest rival, Coca-Cola. Both brands are well-recognized throughout the world and are well-represented in the international marketplace. For many years, Coca-Cola has been largely successful in maintaining a market share lead over PepsiCo, due in large part to consumer preferences; however, in 2013, PepsiCo reversed that trend with a 19 percent return on investment, which was much higher than Coca-Cola’s 9 percent return (Lewitinn, 2013). One of the key differences in the strategy for PepsiCo is that it is not focused exclusively on soft drinks, as this actually only represents 25 percent of the business (Lewitinn, 2013). In contrast to Coca-Cola, PepsiCo earns 75 percent of its revenues from the sale of its food brands, such as Frito-Lay, Doritos, Quaker, and Cap n’ Crunch (Lewitinn, 2013). This difference in product focus and distribution has given PepsiCo a significant advantage in its return on investment, as well as in other areas (Lewitinn, 2013). Therefore, PepsiCo, in spite of its name and focus on its soft drink, is a food organization with a diverse strategic approach (Lewitinn, 2013). These factors represent an opportunity to explore the different dimensions of PepsiCo as a multi-dimensional brand rather than having a singular focus on soft drinks (Lewitinn, 2013).

SWOT Analysis

Strengths: PepsiCo possesses numerous strengths in its current portfolio and level of performance, such as its primary focus on multiple products, including a significant food business that includes Frito-Lay products (Lewitinn, 2013). PepsiCo is also one of the two premier soft drink competitors on the planet and has achieved tremendous success in this area. The company is also globally visible and is represented in many different circles for its commitment to growth and sustainability in many different markets. The company also continues to increase its dividends to shareholders on a regular basis, thereby demonstrating its achievement of its primary financial objectives (PepsiCo, 2013). Furthermore, the company increased its level of advertising revenue in response to product demand and success in many areas (PepsiCo, 2013).

Weaknesses: PepsiCo remains in a heated competition for a large share of the soft drink market with Coca-Cola, its largest competitor in this segment. Furthermore, the company has not reached its full potential in some of its international markets, which requires further investigation and evaluation in order to achieve these target objectives. Finally, the organization has streamlined some of its global operations, which led to a reduction in the workforce and a loss of jobs (PepsiCo, 2013).

Opportunities: PepsiCo possesses the emergence of new talent in the form of human capital, which has enabled the organization to achieve greater than anticipated success with its technological development and operational efficiencies (PepsiCo, 2013). Furthermore, the company possesses an opportunity to expand even further into its food business, particularly in countries such as China, where the firm has had a significant influence on food products and branding (PepsiCo, 2013). This is one of many opportunities that are available to the company to increase its presence and to secure its brand image on many levels.

Threats: PepsiCo’s soft drink business faces ever-growing threats of regulation by federal agencies as a result of its ingredients, as well as a growing level of health consciousness throughout the world, particularly in the United States. These considerations must lead to analysis of current product lines and possible means of improving products so that they are healthier for consumption (PepsiCo, 2013).

Organizational Culture

The organizational culture at PepsiCo emphasizes inclusion, diversity, and sustainability, given the organization’s primary focus on global expansion and brand awareness. The company also focuses heavily on its corporate responsibility to local communities and in its efforts to provide high quality products under safe and effective working conditions for all persons, from leadership to manufacturing and delivery (PepsiCo, 2013). The company also supports the recruitment of a highly diverse workforce, who possess the knowledge, skills, and experience that are necessary to drive the company to an even higher level for the foreseeable future (PepsiCo, 2013). These cultural factors support the continued growth and expansion of the firm and its viability over the long term.

Resources and Capabilities

Due to the division of the company’s core focus between its food and beverage segments, PepsiCo possesses considerable opportunity in many areas to ensure its continued growth and sustainability. For example, the company has a strong foundation in marketing and advertising, both of which have generated significant revenue in recent years (PepsiCo, 2013). Furthermore, the company has witness an ever-increasing level of commitment to its international business and has employed knowledgeable and experienced personnel in these areas in order to achieve these outcomes (PepsiCo, 2013). The company has also demonstrated its strong ability to be effective in expanding its focus on technology in order to improve operational efficiencies and a tighter focus on manufacturing in its facilities throughout the world (PepsiCo, 2013). These resources have been largely instrumental in supporting the continued growth that the organization has observed over the past decade (PepsiCo, 2013).

Core Competencies

PepsiCo has a number of strong core competencies, including product diversity, with a successful focus in two primary areas: food and beverage. In addition, the company has been able to be successful in its efforts to expand globally on a consistent basis by employing key knowledge experts in many areas who recognize the needs of other countries and how PepsiCo might fill these needs effectively. In addition, the company possesses considerable advanced manufacturing capabilities in its facilities throughout the world, which supports its long-term vision and focus. Also, the company possesses much credibility in its marketing and advertising efforts, as well as its focus on corporate responsibility in the communities that are served. These products are important in developing new perspectives that have a positive impact on the organization’s reputation and its continued wave of growth.

Financial Analysis

From a financial perspective, PepsiCo represents a strong focus on its core business and on delivering value to its customers. From 2012 to 2013, the company witnessed a one percent increase in revenues, a ten percent increase in free cash flow, a three percent increase in capital spending, and a four percent increase in total operating profit (PepsiCo, 2013). The revenues were almost evenly divided between food (52 percent) and beverage (48 percent), along with an almost even division in business between the United States (51 percent) and other countries (49 percent) (PepsiCo, 2013). These factors are critical because they support a greater understanding of the level of growth that PepsiCo is currently experiencing, while also considering the challenges that are likely to occur in the future. The company must continue to seek new sources of revenue and to be wise in its strategic choices so that growth continues to occur. The financial picture for PepsiCo is bright; however, this requires smart spending and intelligent strategic decision-making in order to achieve effective outcomes over the long term.

Data Analysis

Based upon the information that has been provided thus far, the organization is a positive state of growth that is likely to continue for the foreseeable future. However, this process also requires a greater understanding of the challenges of operating a multi-national business in a tumultuous economic climate where growth is slow and regulation is on the rise. One of the key threats to PepsiCo’s future is the health conscious consumer, an individual who is less likely to purchase a soft drink and is more likely to purchase a bottled water. This evidence suggests that there are significant factors to consider that may have a long-term impact on PepsiCo’s future, given the increased interest in health and wellbeing. The organization faces considerable challenges in this area because if attempts to make its products healthier, there is likely to be pushback from the segment of the population that does not support healthier living. This is a difficult situation to consider because it has a significant impact on growth, as well as the opportunities that are available to the organization to improve its bottom line. In addition, the company must focus on its international expansion strategy in a careful manner so that the risks of expansion are recognized, as well as the benefits, so that the firm is able to sustain its competitive advantage.

Recommendations

PepsiCo must continue to explore its options with respect to its current product lines. Some decisions should be made regarding the efficacy of some products and their ability to sell over the long term. In addition, the firm should also recognize the importance of its international market and the steps that are required to achieve greater growth within this area. It is inevitable that the organization will continue to growth and thrive in these areas; however, this requires an effective understanding of the challenges and considerations of global expansion and success on an international scale. It is expected that a future strategy should focus on objectives that include the development of new perspectives to facilitate growth, such as the following: “We continue to refine our food and beverage portfolio to meet changing consumer needs by developing a broader portfolio of product choices. We also made investments to minimize our impact on the environment, including innovation in our packaging to make it increasingly sustainable, and developed and implemented new technologies to enhance the quality and value of our current and future products, as well as made investments to incorporate into our operations best practices and technology to support sustainable agriculture and to reduce our impact on the environment” (PepsiCo, 2013, p. 25). This process is likely to enable the organization to achieve greater than anticipated success with its products, both now and in the future (PepsiCo, 2013).

Strategy Implementation

PepsiCo requires a strong understanding of its current portfolio, including its strengths and weaknesses, as a means of developing successful outcomes for the future. These practice settings represent a means of exploring new insights that will capture the essence of the food and beverage market and in attracting new customers and markets throughout the world. Implementing a growth strategy must be a gradual process and it should consider the role of product development as a means of expansion in order to achieve greater growth and change. The organization must continue to examine its potential in new markets and to recognize the importance of establishing a greater understanding of product diversity in its future plans. At the same time, the organization must also focus on its efforts to remain sustainable and environmentally friendly as much as possible, using different techniques in order to accomplish these objectives. The organization must thrive on its ability to be successful in its efforts in future settings, and to recognize its value to consumers throughout the world.

Strategy Evaluation

Finally, the implementation of the aforementioned strategies requires the organization to be efficient in all areas of operations and in its efforts to be successful in recruiting leadership and employees that will actively contribute to the company’s mission and vision. This process is essential to the discovery of new areas of focus that will capitalize on organizational strengths, both now and in the future. These efforts will demonstrate the importance of achieving new directions for the organization and in supporting a strategic plan that will bring value and profitability to the firm. This process requires strong and effective leaders on a global scale that will lead the organization in the desired direction, and who will also provide a strong level of knowledge, expertise, and achievement in many areas of the business. This approach will facilitate long-term success and support for the organizational mission and vision. It will also demonstrate a viable opportunity to examine the resources that are available to support organizational expansion and focus on the areas where there is the greatest level of potential for growth.

References

Ho, L. (2014). PepsiCo’s strategy wins market share. Retrieved from http://www.globaltimes.cn/content/829870.shtml#.U12DHFe0S1M

Lewitinn, L. (2013). The real reason why Pepsi is beating Coke. Retrieved from http://finance.yahoo.com/blogs/talking-numbers/real-reason-why-pepsi-beating-coke-143021474.html

Lomax, A. (2013). What makes PepsiCo one of America’s best companies. The Motley Fool, retrieved from http://www.fool.com/investing/general/2013/02/27/what-makes-pepsico-one-of-americas-best-companies.aspx

PepsiCo (2013). 2013 Annual Report. Pp. 1-164.

PepsiCo (2010). Our business risks. Retrieved from http://www.pepsico.com/annual10/financials/mda/our-business-risks.html

PepsiCo (2014). Our mission and values. Retrieved from http://www.pepsico.com/Purpose/Our-Mission-and-Values

PepsiCo (2012). PepsiCo announces strategic investments to drive growth. Retrieved from http://www.pepsico.com/PressRelease/PepsiCo-Announces-Strategic-Investments-to-Drive-Growth02092012.html