Pepsi Co’s Strategy

SWOT ANALYSIS OF PEPSI CO

STRENGTHS

• Strength in size and financial clout: Pepsi co has the second largest market share in the soft drinks industry after The Coca Cola Company. It wields great financial muscles, and the ability to quickly expand by acquisitions. Aside that, Pepsi co also engages in aggressive marketing as a result of their financial capability. This indicates that Pepsi co has what it takes to successfully expand and retain customer loyalty during a period of difficult market conditions.

• Product diversity: from inception to the late 90’s, Pepsi co maintained purely carbonated soft drinks and convenience snacks; but from the 90’s till the 2000s, diversification ensued. This was as a result of the acquisition and development of what its CEO deemed as “good for you products”, including Quaker Oats, Naked Juice and Tropicana orange juice. Sales of such healthier-oriented PepsiCo brands totaled $10 billion in 2009, representing 18 percent of the company’s total revenue in that year.

• Global strength from geographical spread: Pepsi co has a very strong geographical mix, with large volume of sales made outside the core developed markets. With this, Pepsi co’s profitability is hedged against regional economic downturn.

• Extensive distribution channel: Pepsi co’s products are distributed in more than 200 countries, with customer base of over 10 million. Pepsi co  operates three main types of distribution channels which are the direct store delivery (DSD), Vending and Food service system (VF &S ) and Broker Warehouse  Distribution (BWD). The Direct delivery system is a manual process, employees of Pepsi co take direct orders and deliver the previous order. The broker warehouse distribution employs third party distributors. The vending and food service system involves distributing Pepsi co’s products through third party V&FS and bottling companies; they make products available in schools, colleges, canteens, stadiums, offices and restaurants.

• 22 brands earning more than $1billion a year: In the comparison of billion dollar brands, Pepsi co slightly hedges Coca Cola. The latter (coca Cola) has 20 brands that generate $1billion or more a year in sales while the former (PepsiCo) has 22 brands that generates $1 billion dollars or more a year in sales. The 22 brands earning a billion dollars or more for Pepsi Co can be categorized into Sparkling brands, still brands and food brands. Products in the Sparking brands category are Pepsi, Diet Pepsi, Pepsi Max, Mountain Dew, Diet Mountain Dew, 7Up, Sierra Mist, and Mirinda. Products in the still brands category are Gatorade, Tropicana, Aquafina, Lipton, Brisk, Starbucks RTD Beverages. Products in food brands category are Lay’s, walkers, Doritos, Ruffles, Fritos, Cheetos, Tositos and Quaker.

• Complementary product sales: Pepsi Co’s snacks go hand in hand with their beverages. It has been revealed that about 32% of customers who buy Pepsi Co’s snacks end up buying their beverages too.

Weaknesses

• Low pricing or higher quantity: Like the Pepsi Co long throat bottle in Nigeria, Pepsi co is fond of either lowing prices or increasing the quantity at the same price. This may be associated to lack of confidence in their products and low quality products. Due to the lower prices of Pepsi Co’s products are often seen to be of inferior quality.

• Market Share and Brand Awareness: In market share, Pepsi co is still second to Coca Cola in the Carbonated soft drink industry . Coca cola has a market share of about 48.6% and Pepsi co having less than half of Coca Cola’s market share at 20.5%. Also Coca Cola has much stronger brand awareness than Pepsi.

• Overdependence on a single retailer: About 13% of total revenue of Pepsi co emanates from walmart only. Considering how big Pepsi co is, and the amount of revenue it makes yearly, it is disappointing to know that there is a certain overdependence on walmart by Pepsi co. This could be at the Detriment of Pepsi because Walmart has a significant buying power and can command lower prices. Also there is a risk of losing 13% of revenues if Walmart decides not to sell their products; which would put Pepsi co at a competitive disadvantage.

• Low net profit margin: Even though Pepsi made revenues of $66.7 billion, 45 % more than the total revenue of Coca Cola, Pepsi co ends up getting a lower net income than Coca Cola; with the former getting a net income 6.5 billion dollars and the latter a net income of 7.12 billion dollars. The reduced net income is due to high cost of sales and selling, general and administration expenses of Pepsi Co.  Pepsi Co’s cost of sales is 46.17% of its total revenue while Coca Cola’s cost of sales is 36.14% of its total revenue. Also, Pepsi co has a larger percentage of total revenue as its Selling general and admin expenses. On the analysis of the 2014 FY financial statements of Coca Cola and Pepsi co, SG&A for Coca Cola was 37.46% of total revenues and 39.187% of total revenues for Pepsi. The resultant effect was a lower net profit margin, with Pepsi Co’s net profit margin at 9.7% and Coca Cola’s net profit margin at 18.55%.