Introduction
PepsiCo is a non-alcoholic beverage producing company and the second largest beverage distributor after Coca-Cola. The company’s establishment in 1965 started with a merger of Pepsi-Cola and Frito-Lay. Throughout the world, PepsiCo provides complimentary food and beverage collection that incorporates 22 brands. In 2015, the company reported over $1 billion annual sales revenue with its products being sold in over 200 nations across the world. Some of its brands include Mountain Dew, Sierra Mist, AMP Energy, Naked Juice, and Aquafina among others. The purpose of this paper is to conduct a strategic management analysis of PepsiCo. By developing a SWOT analysis, the article shows how the company manages to grow despite the increased market saturation. The framework notes both the strengths and opportunities that the firm can harness to mend its weakness and environmental threats (Piercy & Giles, 1989).
Research and Analysis
Internal
Strengths
PepsiCo’s continued growth and global dominance illustrate the presence of paramount strengths in its internal strategy. These internal strategic factors enable the entity to accomplish its business objectives. First, the company possesses a strong brand image. As a dominant company, PepsiCo is among the strongest brands in the market. Through the advantage, it can attract more customers to consume its new products. Additionally, the company incorporates a broad product mix that portrays its capability to access different markets and segments. Some of these include Frito-Lay commodities, Quaker, and Pepsi products.
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Another major strength of the entity is its wide-range global production network. This plays a significant role in enhancing its international growth and developing its expansion strategies (Morrison, 2008). Effective leadership has also been a paramount contributor to the company’s increased growth. In this case, PepsiCo’s CEO Indra Nooyi has been the subject of many business case studies. For this reason, the company has acquired the advantage of a charismatic and inspirational leadership style. Through this power, the company recorded an organic growth of 5% accompanied by over $8.1 billion in cash flow in 2015. Notably, this is just a continuation of the entity’s solid financial performance in the past few years, a clear indication of Nooyi’s effectiveness as the company’s CEO.
Besides, deep experience in amalgamation and acquisitions is a notable strength that PepsiCo possesses. Though there are other instances where mergers and acquisitions have failed because of cultural differences, PepsiCo has managed to contain 22 brands via the strategy. Evident competency in M&A is a major strength that can highly benefit the organization in the long-term. Pepsi implements an integrated supply chain and distribution models throughout its brands.
Even after conducting mergers and acquisitions, the company possesses the ability to enhance efficiency through various strategies. For instance, the organization implements the advanced outbound logistics practices in three different forms including direct-store-delivery. The latter involves delivery of goods to consumer warehouses and implementing distributor networks. The establishment of the Pepsi Logistics Company, Inc. (PLCI) as a distinct transportation segment of the PepsiCo decreases the dependency of business operations on external parties hence enhancing flexibility, which is a major strength.
Weaknesses
PepsiCo has various weaknesses that challenge its international growth mission. These internal strategic factors hinder organizational development. Limited accessibility outside the American continents is among the primary weaknesses experienced by PepsiCo. Approximately, the company acquires 70% of its annual revenues from North and South America. The notion means that it has not fully exploited the potential revenues outside America. This makes it susceptible to defeat from larder companies like Coca-Cola. Furthermore, PepsiCo offers limited business portfolio because it only majors in the food and beverage industry. This is a major weakness because it increases the organization’s susceptibility to risks present in this market (Morrison, 2008).
Besides, the company implements an insufficient marketing strategy to the health-conscious consumers. According to the company’s 2015 annual report, most of its sales emanated from a few of its major retail customers. Such overdependence on large supermarkets and outlets is a major weakness for the company. PepsiCo needs to address these weaknesses by making certain changes in its growth strategy (Lewis, Goodman, Fandt, & Michlitsch, 2006).
External
Opportunities
Evidently, PepsiCo has various opportunities that it can seize to enhance its continued global growth. These entail the external strategic factors that offer options for business improvement. Business diversification is the most vital opportunity for the company. The move can be achieved through purchasing a balancing entity that is not in the food and beverage industry. This will be appropriate because it will increase its business portfolio by offering diversified commodities.
Another essential opportunity is market penetration in the developing countries. It is easier for the company to access these markets because of the fewer production costs for establishment and operations (Morrison, 2008). The move will enable the company to increase its annual sales revenues especially from markets outside America. While seeking to increase its competitive edge against its rival Coca-Cola, PepsiCo can develop alliances with other complementary entities to enhance its market presence. The exploitation of these opportunities can enable Pepsi to strengthen its business resilience and global growth.
Threats
Notably, the food and beverage industry suffer certain threats that risk the well-being of the market players. Threats entail the external strategic factors that could reduce business performance. PepsiCo suffers from an aggressive competition that threatens its market share and future growth. Coca-Cola exerts a major force especially against Pepsi with the aim of increasing its market share. The urge for healthy lifestyles and trends is a major threat to the beverage producers including PepsiCo. In this case, its products will lose market because consumers will consider them unhealthy because of the sugar, salt, and fat content. The issue of environmentalism is also a major threat to the company. The latter negatively affects the company’s brand image especially through how consumers react to product waste and lifecycle matters. Thus, PepsiCo must reform its strategies to overcome these threats to its future growth and performance (Lewis, Goodman, Fandt, & Michlitsch, 2006).
While seeking to boost its growth, Pepsi has to increase its performance through smooth operations by analyzing its internal and external environments. The legal environment is a major concern in the beverage industry (Morrison, 2008). It involves the legal implications governing the industry in the production water, chemicals, process as well as the impact on the environment and consumer health. This environment presents limitations in equity by FEMA and FERA. The social environment reflects the social factors that influence the entity. By understanding this environment, PepsiCo will effectively communicate its image as a global brand.
The company needs to represent itself throughout the global market for consumers to identify themselves with a brand that binds the world together. To incorporate itself with the social environment, it has to launch marketing campaigns that go in line with the local social events (Lewis, Goodman, Fandt, & Michlitsch, 2006). For instance, there are certain nations that exercise certain religious festivals. Therefore, Pepsico must always be updated with such events, understand the market boom, and seize the opportunity. More so, the economic environment entails an essential set of external factors. These economic conditions influence business activities. For instance, continued economic downturns made the company restructure both its sales and marketing strategies. Because of economic drawbacks, PepsiCo had to downsize internally and modify its strategies to access the market (Pickton, & Wright 1998)
Strategy Recommendations
PepsiCo’s generic competitive strategy is founded on the necessity to deal with the market pressure that emanates from its biggest rival Coca-Cola Company. Notably, a firm’s generic strategy describes the basic strategy implemented to maintain a competitive advantage. Besides, PepsiCo’s intensive growth strategies involve a response to the transforming global food and beverage market circumstances. They are meant to plan how firms provide for their growth. Notably, PepsiCo’s generic strategy for a better competitive edge coincides with its intensive strategy to enhance long-term growth. Notably, PepsiCo’s success is an indicator of the suitability of these strategic choices, especially how the generic strategy contributes to the competitiveness. (PepsiCo Inc., 2012)
Pepsi implements various generic competitive strategies especially due to its extensive array of products. However, cost leadership and wide differentiation are the primary generic techniques it implements. Through cost leadership, the company focuses on minimizing its operating costs as a mechanism to facilitate its financial performance as well as overall competitiveness. Occasionally, it can offer special promotions through discounted prices on its products.
The company can also adopt the extensive differentiation strategy to boost its command in the industry. The technique fosters the competitive business advantage by drawing consumers to enticing features of the organization’s products (Morrison, 2008). For instance, the company’s Lay’s potato chips are advertised as healthful snack product because of the minimized saturated fat content. The major strategic goal for the cost leadership technique is to automate the production processes with the aim of minimizing its overall operating costs. In connection, PepsiCo’s planned goal for the broad differentiation generic strategy is to develop products and address all their health concerns.
PepsiCo’s Intensive Strategies
Market penetration is the primary intensive growth strategy. This supports the business growth through increased sales from a bigger market share. For instance, it utilizes an aggressive marketing mechanism to attract more customers. The strategic objective connected to this intensive growth strategy will reduce both costs and prices to entice more consumers regardless of the extensive market saturation (Lewis, Goodman, Fandt, & Michlitsch, 2006).
Product development is also a pertinent intensive growth strategy utilized by PepsiCo. The technique entails the providence of new and diversified products to attract more consumers. As a result, the company continues to develop to create commodities and variants of the existing products. For instance, it has developed food and beverage products with reduced salt and low saturated fats. The basic strategic objective linked to this intensive growth methodology is to enhance R&D investments for commodity innovation and development. The entity’s generic competitive strategy of broad differentiation supports this intensive strategy by providing unique commodities to attract more customers and enlarge the business (Morrison, 2008).
Market development can work well in boosting the company’s intensive growth strategy. This intensive technique supports business growth through acquiring new markets and segments. For instance, PepsiCo continues to extend its distribution network to capture the remnant markets, especially in the developing regions. The strategic objective associated with this intensive strategy is to expand PepsiCo’s supply chain to support the development of its distribution network. Although there are additional investments because of venturing into new markets, the cost leadership generic competitive strategy allows PepsiCo to implement this intensive growth strategy effectively through cost minimization (Lewis, Goodman, Fandt, & Michlitsch, 2006).
Conclusion
Conclusively, the company can implement its strengths to address all the issue it faces. Through the strengths possessed by PepsiCo, the management can solve the threats and weaknesses. Realistically, the entity could decide to improve its competitiveness and international growth by various actions. First, it should diversify its business portfolio to minimize the market risks. It should also seek to increase its penetration in developing countries to increase sales revenues. Improving the product health and environmental conservation would also play a significant role in improving PepsiCo’s competitive advantage (Leigh & Pershing, 2006).
References
Leigh, D., & Pershing, A. J. (2006). SWOT analysis. The Handbook of Human Performance Technology, 1089-1108.
Lewis, P., Goodman, S., Fandt, P. & Michlitsch, J. (2006). Management: Challenges for Tomorrow's Leaders . New York: Cengage Learning
Morrison, J. (2008). Inter national Business: Challenges in a Changing World . New York: Palgrave Macmillan
PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth .
Pickton, D. W., & Wright, S. (1998). What’s SWOT in the strategic analysis? Strategic Change , 7(2), 101-109.
Piercy, N., & Giles, W. (1989). Making SWOT analysis work. Marketing Intelligence & Planning , 7(5/6), 5-7.
Valentin, E. K. (2001). SWOT analysis from a resource-based view. Journal of Marketing
