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Objective:

Develop a three year strategic plan for PepsiCo to sustain a compound annual
growth rate (CAGR) in earning per share of 15% per year for the next five years.

History: (Upto 2004)


Pepsi-Cola formulated in 1898 by the pharmcist Caleb Bradham and
registered the trade mark in 1903.
After the decrease in sugar prices after world war I and Great depression
Bradham sold Pepsi-Cola to the Loft Cand Company, which operated as its
subsidary.
In 1933 company double the size of its bottles to 12 onces while keeping the
price at 5 cents.
Just before World War II Loft candy merged with its Pepsi-Cola subsidary and
changed its name to Pepsi-Cola Company.
Pepsi-Cola did not receive any assistence for United State Govt. during warld
war II and limited their distribution to U.S.
Pepsi-Cola stared growth in 1963 when Donald Kendall become CEO. Growth
is carried out in two ways.
o Appeal to young people to make them life long Pepsi drinkers, did this
by introducing Pepsi Generation theme.
o Growth through diversification. (Acquiring Mountain Dew in 1964 and
Frito-Lay in 1965)
PepsiCo become the major fast food company under the leadership of Andrall
Pearson (1971-1984) and Wayne Calloway (1984-1996) and acquired Pizza
Hut (1977), Taco Bell (1978), kentucky Fried Chicken (1986) and hotN Now
(1990).
PepsiCo was unsuccessful in unrelated diversification in 1968 and sell them in
1985.
In 1997, PepsiCo divested its restaurant operations by spinning them off to
shareholders as a new company.
In 1998, PepsiCo acquired Tropicana Orange juices from the Seagram
Company for $3.3 Billion.
In 2000, PepsiCo acquired South Beach Beverage Company for its line of
specialty beverages.
In 2001, PepsiCo acquired Quaker Oats (who also owned Gatorade sports
drink) for $13.4 billion.
PepsiCo have a sale of $29.3 billion and the net income of $4.0 billion in
2004.
PrpsiCo started as beverage company now become the third largest food and
beverage company in the world, behind only Nestle and Kraft foods.

Markets more than 500 varities of food and beverage products in more than
200 countries.
Sixteen of PepsiCos brands, including Pepsi, Mountian dew, Lays potato
chips, Gatorade and aquafina bottled water, annually produce more than $1
billion in sales.
PepsiCo become a market leader in snack foods and noncarbonated
beverages (tea, bottled water, chilled juices, and sports drinks).

Organizational Structure: PepsiCo organized into four divisions:


i)
ii)
iii)
iv)

Frito-Lay North America (FLNA)


PepsiCo Beverages North America (PBNA)
PepsiCo International (PI)
Quaker Foods North America (QFNA)

Pepsi Co North American Divisions operates in the United States and Canada.
International Division operates in all other countries.

Net Revenue for PepsiCo Divisions (In $ Millions)


FLNA
9560

PBNA

PI

QFNA

9862
9091

8313

8678
7733

8565
7749
7200

1526
1467
1464
Total 29,261 (2004)
Total 26,969 (2003)
Total 24,978 (2002)

Operating Profit for PepsiCo Division (In $ Million)


FLNA

PBNA

PI

QFNA

2389
2242

1911

2081

1690

1323

1485

1061
475
470

910
458

Total 6,098 (2004)


Total 5,463 (2003)
Total 4,934 (2002)

Frito Lay North America:


Worlds largest seller of snack foods.
PepsiCos largest division in term of operating profit.
Sell eight of the ten top super market snack chips brands and has the leading
share in all major snack categories.
Leader in the convience food market with 15% market share.
Products of Frito Lay:
o Lays
o Cheetos
o Doritos
o Tostitos

PepsiCo Beverage North America:

Include both carbonated and noncarbonated drinks.


One third share in carbonated beverage sales in united states.
Sale of carbonated drinks is flat and sale of noncarbonated drinks is growing.
Carbonated soft drinks products include: Pepsi, Diet Pepsi, Mountian dew
Noncarbonated drinks products include: Aquafina bottled water, Gatorade
sports drink, Dole and Tropicana juices, Sobe speaciality drinks.

PepsiCo International:
Become PepsiCos largest Division in term sales in 2004.
Sold in more than 200 countries and terriotires outside united states.
30% share in international soft drink market.
Develop powerful global brands featuring and comman name and apperance
with blue can.
Mexico and United Kingdom are the largest markets outside United States.
Growth rate in fastest in Asis-Pacific region for PepsiCo International beverage
and Snack foods.3
Concentrating on emerging markets like, China, Russia, India and Eastern
Europe.

PepsiCo Sales by Country (In $ Million)


United States

Mexico

Canada

All Other Countries

18329

17377

5207
2724
16921309
Total 29,261 (2004)

4295
2642
15101147
Total 26,971 (2003)

United Kingdom

16588

3766
2686
1106967
Total 25,112 (2002)

Quaker Foods North America:


Quaker has longstanding reputation for producing healthy food products.
Its products are often marketed with Tropicana orange juice, as both products
are used in breakfast.
Quaker well known products include:
o Quaker oatmeal
o Capn Crunch cereal
o Aunt jemima syrup and pancake mixes
o Rice-A-Roni

The U.S. Beverage Industry:


Divided into two categories:
I.
II.

Alcoholic beverage (beer, wine, distilled spirits)


Non-Alcholic beverage (carbonated soft drinks, water, milk, coffee)

Market Share
13%
Alcoholic beverage
Non-Alcholic beverage
87%

Top 10 Carbonated Soft Drink Comapnies. 2004


43.10%

31.70%

14.50%
5.50%

2.40%

0.40% 0.30% 0.20% 0.20% 0.10% 1.70%

Top three companies have about 90% of the total market share.

Top 10 Soft Drinks by Market Share, 2004


17.90%

Market Share (%)

11.50%
9.70%
6.30% 6.10% 5.70% 5.60%
1.70% 1.40% 1.40%

All top 10 selling carbonated drinks are made by top 3 companies.


Carbonated soft drinks shows less than 1% growth rate for the past few
years.
Sfot drinks market grew 2% to 4% annually through most of the 1990s
Pepsi bottling group is the worlds largest manufacturing and distributors of
pepsi beverages.
Account for over half of domestic and about one third of international pepsi
product shipments.

Competitors:
In beverages, its main compititors are Coca-Cola and Cadbury Schweppes.
In snacks and cereals, its main competitors are Karft Foods, Kelloggs and
General Mills.
In 2004, Coca-Cola had sales of $22.0 billion and net income of $5.0 billion. It
obtained about three-quarters of its sales and profits from operations outside
of North America.
Cadbury Schweppes is the third largest producer of soft drinks and its primary
market in beverages in North America and Western Europe.
In 2004, it had sales of $13.0 billion and net income of $1.1 billion. In 2004,
cadbury Schweppes acquired Snapple Beverages.
Kraft Foods is the largest food company in the United States and the main
compitiors of the Frito-Lay snack food division.

In 2004, Kraft Foods had a sales of $32.2 billion and net income of $2.6
billion.
PepsiCos Quaker Oats unit ranks fourth in the ready to eat cereal market
behind Kelloggs, General Mills and the post unit of Kraft Foods.
General Mills and Kelloggs each have about 30% of the ready to eat cereal
market.

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