|Founded||August 28, 1898|
|Geographic areas served||Worldwide (more than 200 countries)|
|Headquarters||Purchase, New York, U.S.|
|Current CEO||Indra Nooyi|
|Revenue (US$)||63.056 billion (2015) 5.4% decrease over 66.683 billion (2014)|
|Profit (US$)||5.452 billion (2015) 16.3% decrease over 6.516 billion (2014)|
|Main Competitors||The Coca-Cola Company, DPSG, Mondelēz International, Monster Beverage Corporation, Hansen Natural Corporation, National Beverage Corp., Kraft Foods Group, The Kellogg Company, ConAgra Foods., Nestlé S.A., Snyder’s-Lance and other beverage, food and snack companies.|
PepsiCo, Inc. is an American multinational company operating in food, snack and beverage businesses. PepsiCo is the 2nd largest world’s food and beverage company only behind Nestlé S.A.
PepsiCo sells a variety of food and beverage brands including Pepsi, Lay’s, Mountain Dew, Gatorade, Tropicana, Doritos and Quaker Oats among its 22 billion-dollar brands.
PepsiCo operates in over 200 countries but its main market is the U.S. where the company controls 24% of the beverage market.
1. 22 brands earning more than $1 billion a year
PepsiCo owns a huge portfolio of beverage, food and snack brands. The company produces, markets and distributes over 100 products, 22 of which, earn over US$1 billion in revenue each year.
Source: PepsiCo financial report 2011 
The company doesn’t have to rely on one or two of its products to generate the majority of the revenues. Instead, PepsiCo has 22 brands that contribute significantly to its income, serving different industries and satisfying various consumer tastes. Few of the companies’ rivals have such a diversified brand portfolio.
2. Competency in mergers and acquisitions
The key to PepsiCo growth is its successful mergers and acquisitions of beverage, bottling and snacks companies. In order to grow its sales, the company usually acquires other successfully performing brands or even the whole companies. While this strategy is costlier than developing own products inside the company, it pays off when the capital is cheap and the company has perfect skills in mergers and acquisitions.
Source: PepsiCo 
In the past PepsiCo acquired billion-dollar brands such as Gatorade, Tropicana, Doritos and Quaker Oats. The company’s skills in acquisitions allow it to grow faster and more successfully.
3. Sales of complementary products
PepsiCo offers a wide variety of snack and beverage choices that are complementary in nature. Many of the company’s customers who buy PepsiCo’s snack will most likely choose a beverage that is also offered by PepsiCo. This allows to cross-sell many products and benefit from additional sales that would not happen otherwise.
In one of its annual financial reports, PepsiCo revealed that about 30% of customers who buy its snacks also buy its beverages. PepsiCo’s decision to diversify product portfolio with complementary products is one of its key advantages over rivals such as The Coca Cola Company.
4. Sustainability policies and practices
From all the food and beverage companies, PepsiCo has one of the strongest commitments to accomplish its sustainability goals. When the company introduced its ‘Performance with Purpose’ vision in 2005, one of the company’s key goals was to integrate sustainability efforts into achieving its vision.
In 2015, after 10 years of successful efforts, PepsiCo has reaffirmed its commitment to sustainability programs, which include:
- Improving water-use efficiency among growers and company’s operations;
- Replenishing water within local watersheds;
- Sending no waste from direct operations to landfill;
- Improving farmers’ livelihoods, conditions for farm workers and crop yields while increasing environmentally responsible agricultural practices;
- Investing in initiatives to benefit at least 12.5 million women and girls, to help build sustainable communities near where PepsiCo works.
According to PepsiCo’s CEO Indra Nooyi, the company’s successful growth over the last 10 years was in part due to its sustainability programs, which did not only help the communities surrounding PepsiCo, but the company itself. PepsiCo’s sustainability efforts were also recognized with many awards, including naming the company one of the ‘World’s Most Ethical Companies’ for the last 10 years.
The cost savings and the positive publicity associated with PepsiCo’s sustainability efforts is a strength few competitors can match.
5. Huge advertising and marketing budgets
In 2015, PepsiCo spent US$3.9 billion on marketing activities, which included US$2.4 billion spent on advertising. PepsiCo’s advertising budget is the second highest among its rivals, only topped by The Coca Cola Company’s advertising budget.
Other smaller competitors, which do not have such huge budgets, find it hard to compete with PepsiCo when all the main events are sponsored by it or The Coca Cola Company. PepsiCo’s huge advertising and marketing budgets allow the company to gain better awareness for its products, increase brand recognition and ultimately sales.
1. Criticism over questionable practices
PepsiCo is one of the largest world’s food and beverages companies in the world. This attracts lots of attention, which often is a criticism over the company’s practices and policies.
Over the last few years PepsiCo was criticized for:
- Using tap water and labelling it as pure mountain water;
- Marketing unhealthy snacks and beverages for children;
- Depleting water sources in environments where water is scarce;
- Lobbying politicians.
Criticism over PepsiCo’s practices results in negative publicity, which damages company’s brand as well as decrease sales.
2. Overdependence on Wal-Mart
In 2015, sales to Wal-Mart Stores, Inc. (Wal-Mart), including Sam’s Club, represented approximately US$8.2 billion, or 13% of PepsiCo’s total net revenue.
Wal-Mart is the largest company’s customer and PepsiCo is very dependent on the sales from Wal-Mart Stores. Even a 5% decline in Wal-Mart sales would result in US$410 million of lost sales for PepsiCo. Such a reliance on one customer is risky, especially when PepsiCo has little control over it.
3. Much weaker brand awareness and market share in the world beverage market compared to Coca-Cola
According to PepsiCo’s financial report, in 2015, the company controlled 24% of the domestic U.S. beverage market, while The Coca Cola Company had 20% market share. The report also states that outside of the U.S. market PepsiCo had much lower market share than The Coca Cola Company. Some estimates indicate that The Coca Cola has around 40% market share of the world’s non-alcoholic beverage market, while PepsiCo controls only around 20% of the market.
Why is this a weakness? First, PepsiCo’s lower worldwide beverage market share results in poorer brand awareness. The company has to invest more in advertising and marketing to increase sales. Second, the company has less control over distributors’ and suppliers’ prices and as a result its margins are lower The Coca Cola Company’s.
4. Low net profit margin
In 2015, PepsiCo earned US$5.452 billion in profits or 8.6% of the total revenue, which is the lowest net profit margin among all the competitors.
|Revenue||Profit||Net profit margin|
|The Coca-Cola Company||44.294||7.351||16.6%|
|Dr Pepper Snapple Group, Inc.||6.282||0.764||12.2%|
Source: Respective companies’ financial reports (Nestlé revenues in euros)
PepsiCo’s low net profit margin shows that the company’s prices are either too small or the costs for selling the products are comparably higher than the rivals’ costs. Higher costs indicate poorer management capabilities, therefore, PepsiCo should work on reducing its costs to increase the profits.
1. Increasing demand for healthy food and beverages
Demand for healthy snacks, food and beverages is still growing fast due to the lifestyle and dietary changes from health-conscious consumers. Many governments also try to fight obesity in their countries by enacting laws to decrease consumption of fats, salts and sugars. Therefore, many more people opt for natural and nutritious foods and beverages.
This trend isn’t new and PepsiCo has even rearranged its portfolio to cater for the new health-conscious consumers by introducing ‘Good for You’ brands. Nonetheless, the company still relies on non-healthy products for the majority of the company’s revenues.
PepsiCo should aggressively strengthen its portfolio of ‘Good for You’ brands by introducing even more brands that are healthy, contain no sugar or saturated fats and offer lots of nutritional value for the consumers.
2. Further expansion through acquisitions
PepsiCo has a competency and skills in mergers and acquisitions and should further pursue this strategy to expand its brands’ portfolio. The current interest rates are low and the capital is cheap, therefore, PepsiCo can easily fund its acquisitions through borrowing. There are many smaller brands in the emerging food and beverage markets that can easily be acquired and would strengthen the company’s market position in those segments as well as would increase sales.
3. Growing ready-to-drink tea and coffee markets
Ready-to-drink (RTD) teas and coffees are some of the fastest growing beverage segments in the U.S. market. According to the Beverage Marketing Corporation, the RTD coffees grew by 16.5% and RTD teas grew by 4.5% in the U.S., while the whole beverage market grew by only 2.8% in 2015.
Source: Beverage Marketing Corporation
PepsiCo has successful partnerships with Starbucks and Lipton in both RTD coffee and tea segments, but has no brands of its own, which possibly could generate more revenues and higher profits that the current partnerships. If the current partnerships allow it, PepsiCo should acquire smaller brands in both markets as they are currently growing fast. This would allow for the company to increase its stagnant sales more easily.
4. Bottled water consumption growth
Bottled water is another beverage segment, which grows faster than the whole beverage market. Beverage Marketing Corporation reveals that the bottled water consumption grew by 7.3% and 7.9% in 2014 and 2015, accordingly. Bottled water is one of the largest beverage segments by volume sold and is one of the key PepsiCo’s products.
The company sells Aquafina and Lifewater bottled water brands both successfully performing in their respective markets. Nonetheless, while the bottled water market is still growing so fast, the company should strengthen its portfolio of bottled water by adding more brands, which target different consumer segments.
1. Water scarcity
Water is the main ingredient used in all of the beverage products. Usually to produce one liter of a beverage it needs more than twice of that amount in water. Water is a limited resource in many parts of the world and is becoming even scarcer due to overpopulation and climate change.
In the future, PepsiCo will find it hard to access clean and inexpensive water as there will be fewer areas with easily accessible resources of water.
2. The rising U.S. dollar exchange rate
Currency exchange rates affect every multinational company, including PepsiCo. The company currently earns 44% or US$27.745 billion of its revenue outside of the U.S. This means that the company generates a large share of its profits in currencies other than the U.S. dollar.
Current forecasts indicate that the U.S. dollar exchange rate is going to continue to rise against other currencies for the next few years. This means that PepsiCo’s revenue and its profits generated from outside the country are likely to decrease when translated into U.S. dollars.
3. Legal requirements to disclose negative information on product labels
Many researches show that sugars consumed in large quantities could cause diabetes and that some of artificial ingredients could even cause cancer. For this reason, many governments consider passing legislation that requires disclosing such information on product labels. Product labels containing information on how much sugars are inside the beverage or that the beverage includes harmful ingredients will be perceived negatively.
PepsiCo, which sells many unhealthy food and beverage products is at risk of losing many customers if it will have to disclose such an information on its labels.
4. Concerns over obesity may reduce demand for some of the company’s products
PepsiCo has already attempted to meet the consumer trend towards demanding healthier foods and beverages. It has transformed its product portfolio to include healthier options like juices, vitamin water and healthy snacks. Nonetheless, the company is still largely dependent on the sales of food and beverages that are rich in calories. PepsiCo emphasizes this threat in its financial report:
“Our success depends on: our ability to anticipate and effectively respond to shifts in consumer trends, including increased demand for products that meet the needs of consumers who are concerned with health and wellness; our ability to develop or acquire new products that are responsive to certain consumer preferences, including reducing sodium, added sugars and saturated fat.”
PepsiCo’s sales and reputation will suffer if the company isn’t able to properly respond to changing consumer tastes and their potential concerns over harmful ingredients in their foods and beverages.