Business Analysis of PepsiCo Inc - Example

Author’s Name Instructors’ Name Course Date Business Аnаlysis: PepsiCo Inc. Introduction The PepsiCo or Pepsi Company is a global firm that specializes in the manufacturing, distribution and marketing of beverages, snacks and other products (Bachmeier, 11). A closer look the net income of all of the actual food and beverage companies worldwide shows that PepsiCo is in the second position after Coca-Cola Company. However, after comparing the food and beverage companies found in the U.S.A, the PepsiCo is the leading company. For example in 2014 alone, PepsiCo's revenue on just 20 of its products brought in more than $1.5 billion each in revenue. Therefore, it is clear that by reviewing the revenue statement and reading the company’s mission statement, “a responsible corporate citizen is not only the right thing to do, but the right thing to do for the business”, one can realize that the company is not only applying the best business strategy but also caring about its global customers (Bachmeier, 17). The following report seeks to provide a SWOT analysis of Pepsi and to compare its financial aspects for 2013 and 2014. The paper recommends some measures for the PepsiCo to continue enjoying its competitive advantage. SWOT Analysis of Pepsi Company Strengths As indicated above one of the advantages that PepsiCo can boast of is that it is ranked number one in America among beverage and snacks companies, making it have the biggest share of the American market (Bachmeier, 14). On the other hand, over a period, the individual products offered by the company have been performing well thus easing the penetration in the emerging markets globally. On this note, more than twenty of the company’s products have been reporting net income of over one billion for the last five years. On retail sales alone, the company has been registering daily net revenue of over $400 million. Some products of the PepsiCo record annual retail sale of over $10 billion (Bachmeier, 23). For example “Banner Sun”, a PepsiCo potato chip, reports annual retail income of over $11 billion. Additionally, compared to other beverage companies such as Coca-Cola, PepsiCo provides many varieties of nationally and internationally known products ranging from snacks to drinks. This provides PepsiCo with a competitive advantage over other companies that mostly concentrate on only beverage category. Besides this, PepsiCo is the only food and beverage company that provides a wide variety of restaurants worldwide such as Pizza Hut, KFC, and Taco Bell. On the other hand, the company has a global network of distribution, which ensures that its products are accessible to customers (Bachmeier, 21). The distribution centers and the entire PepsiCo employ more than 300,000 employees globally. Therefore, with employees spreading across the globe, PepsiCo can provide products and services to customers at the right time. Additionally, senior managers of PepsiCo in different countries and branches are competitively vetted to ensure that quality services are delivered to consumers, which makes the company increase its annual revenue. The employees are also sourced from different parts of the world, which increase the talents within various areas of production, marketing, distribution and so on. Over the years, the PepsiCo Corporation has continually increased the growth rate by focusing on expanding the scope and scale of its products and merchandise (Bachmeier, 25). The expansion of the business has the PepsiCo Corporations marketing built a strong brand name, which has captured consumers across the globe bringing power as well as propelling the growth higher in each year. Weaknesses PepsiCo has for many years over depended on Wal-Mart where sales to Wal-Mart accounts for approximately 12% of total net revenue of PepsiCo (Bachmeier, 26). This makes Wal-Mart to be the largest customer of PepsiCo. Consequently, PepsiCo fortunes are based on the business strategy of Wal-Mart specifically when it comes to its emphasis on private-label sales that provides for produce a higher margin of profit compared to the national brands. Therefore, low price themes of Wal-Mart have been putting pressure on PepsiCo to hold down the prices. Further, PepsiCo has overly depended on the US Markets. In spite of its international presence, over 52% of PepsiCo’s revenues are generated within the US markets (Bachmeier, 36). The concentration on the American customers leaves PepsiCo somehow vulnerable to the effect of changing conditions, economy as well as labor strikes in the US. In such circumstances, large US customers could exploit lack of bargaining power of PepsiCo and thus negatively affecting the company’s revenues. Although it has been mentioned that PepsiCo has enjoyed growth trajectory over decades, in some instances, the company has been faced with low productivity. For instances in 2008 PepsiCo had around 198,000 employees (Bachmeier, 38). The company’s revenue per employee was estimated to be $219,439, which was slightly lower than that of its competitors. The low number of workers meant that PepsiCo was facing low productivity on the part of company’s employees. The company has since improved by increasing the employees and ensuring that customers get quality service delivery. As is the case with many multinational companies, in several instances, PepsiCo has been forced to strategize on how to improve its image to the public. In 2008, the contamination of Waffle mix and Aunt Jemima pancake by salmonella made PepsiCo recall the products from retail shelves (Bachmeier, 43). In the previous year, there were also incidents of exploding Diet Pepsi cans, which had as well harmed the PepsiCo’s reputation. Therefore, such events damage PepsiCo image thus reducing customer’s confidence in company products. Opportunities Although PepsiCo has tried to expand its scope of doing business, there is still exist opportunity of widening of its product base (Bachmeier, 37). Currently, the company is seeking to address one of its potential weaknesses of dependency on American markets. One of the key strategies is by the acquisition of V Water in the United Kingdom and Lebedyansky, which is the leading Juice Company in Russia. PepsiCo also continues to widen its product base through the introduction of TrueNorth Nut Snacks as well as increasing the Lipton Tea venture in conjunction with Unilever. Such strategies will go a long way in enabling PepsiCo to adjust to the changing lifestyles of its customers. Also, PepsiCo can as well expand more internationally. The company is in the process of making an investment worth $1, 000 million in China as well as $500 million investment in India (Bachmeier, 49). The initiatives are part of PepsiCo’s expansion into international markets. The projects are also expected to lessen PepsiCo’s dependence on US sales. Additionally, PepsiCo has also ventured into the major capital initiatives in Mexico and Brazil. This will be instrumental in ensuring that conditions of the American markets do not negatively affect its operation. PepsiCo can as well do more to develop Savory Snacks and venture into the bottled water markets in US (Bachmeier, 59). Although the company has positioned itself well in order to capitalize on the growing bottle water market, there is stillroom for improvement. For example, products such as Propel and Aquafina are well-established products in the market and projected to continue with the upward crest. close analysis shows that PepsiCo products such as Ruffles potato chips, Tostitos tortilla chips, Doritos tortilla chips, Fritos corn chips, Cheetos cheese flavored snacks, Sun Chips multigrain snacks, Santitas, Rold Gold pretzels are also benefiting from a high growth rate of savory snack market, which is projected to grow as much as 20% by 2020. This will represent an increase of about $42 million. Threats PepsiCo faces several threats in the market including a decline in carbonated drink sales. For instances despite the reduction of soft drink sales in 2012, their prices is still expected to either remain constant or decline further (Bachmeier, 52). Although PepsiCo has diversified its products, it is likely to feel the effect the projected decline as was the case in 2012. Further, the introduction of governments’’ regulations is also expected to potentially affect PepsiCo business and its operations. It is anticipated that government initiatives associated with health, environmental, and safety may negatively influence the performance of food and beverages companies. For example, PepsiCo is marketing, manufacturing, and distribution of products has been affected due to local, federal or state dictates (Bachmeier, 82). The pattern is expected to continue as more rules and regulations are introduced by various governments. Scientists argue that preliminary studies on acrylamide show that it can cause cancer in laboratory animals when used in large amounts. Therefore, if PepsiCo has to comply with any related law by adding warning labels or placing them in certain locations where its products are sold, PepsiCo is likely to be a negatively impacted. PepsiCo is likely to face threats of potential disruption due to the labor unrest. For example in the recent months, American employees have been advocating for the increase of minimum wage up to $15 per hour. Finally, intense competition is also a factor that should be considered by PepsiCo as more companies are joining the industry. Brief Financial Analysis of Pepsico and Coca Cola The following sections provide a brief overview of 2013 and 2014 financial analysis of PepsiCo and Coca-Cola companies. In 2013, total assets for Pepsico were $53,967 while total assets for Coca-Cola were $62,546. In 2014, PepsiCo's total assets were $64,565 while Coca-Cola’s total assets were $73, 125. Further, Pepsi’s cost of sales in 2013 is $32,674, which is a percentage of 45.3% base amount. In 2014, the cost of sales of Pepsi was at $34,157, which was 44.7% of the base amount. On the other hand, the Coca Cola’s cost of goods sold in 2013 was $27,654, which formed a percentage of 44.4% total assets. In 2014, the cost of goods sold of coca cola was $28,156, which is 27.8% of the base amount. This above data indicates a mere six percent difference in the PepsiCo’s cost of goods sold at, but an increase of around 3.4% for the Coca-Cola. Based on these figures, it should be noted that although an increase may be thought of as a good concept, some factors such as higher cost of sales may change. The net income of each company is another factor to consider. In 2013, net income PepsiCo was $134,512, which is 15.1% of the total assets. In 2014, the net income of PepsiCo was $133,278, which is 13.2% of the base amount. From 2013 to 2014, PepsiCo decreased the net income by 1.9% while at the same time decreasing its cost of sales. On the other hand, the net income of Coke was $144,647 in 2013, which was 15.4% of the base amount. In 2014, the net income of Coke was $146,572, which was 16.6% of the total assets. This meant that Coke reported an increase of 1.2% of total assets versus net income. Based on the recent figures it is clear that Coke benefits by increasing its net income. However, 3.4% increase in its cost of goods sold for only 1.2 % increase in the net income should be considered. The upward progression in the increase of net income for Pepsi indicates that it is safe for shareholders to either retain the stock or sell to gain profits. This however, depends on other market factors such as liquidity levels. Recommendations As a leading company in the food and beverage industry, the following recommendations will be instrumental in maintaining and asserting its competitive advantage. • Continuing to expand with their “Human Sustainability”, by considering the current issues such as environmental, social and health factors • Consider social benefits such as provision of water purification in developing nations to continue branding its image • Pepsi needs also to target also the old population, as there exist substantial market in that category such as breaking into the Baby Boomer demographic. Conclusion PepsiCo, as well as the Coca-Cola Company, has dominated the market for many years and continue to take the food and beverage industry to levels that cannot be surpassed. Although there are many imposters, Pepsi and Coke have brands that satisfy many households. However, both need to strategize for the future to maintain their competitive advantage. Works Cited Bachmeier, Kristina. Analysis of Marketing Strategies Used by Pepsico Based on Ansoff's Theory. S.l.: Grin Verlag, 2013. Print. Read More