Pepsi Case Study Synopsis

SYNOPSIS

PEPSICO IN 2007: STRATEGIES TO INCREASE SHAREHOLDER VALUE

Submitted to:

Dr. Vithal Professor of Finance & Strategy

Submitted by :

Garvit Garg

INDIAN INSTITUTE OF PLANTATION MANAGEMENT, BANGALORE

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December 2nd, 2009

PepsiCo Inc. was established in 1965 when Pepsi-Cola and Frito-Lay shareholders agreed to merge. The roots can be traced to 1898 when Caleb Bradham, a pharmacist, created the formula for a carbonated beverage he named Pepsi-Cola. By 1971, PepsiCo had doubled more than its revenues revenues to reach $1 billion. billion. The years years 1977, 1978 and 1986 marked acquisitions acquisitions of Pizza Hut, Taco Bell and KFC and this paved way for a balanced three legged stool (snacks, soft drinks and fast food). By 1196, it had become clear to PepsiCo’s management that the potential strategic  benefits existing between restaurants and PepsiCo’s core beverage and snack businesses were difficult to capture. In 1997, CEO Roger Enrico spun off the company’s restaurants as an independent, publicly traded company to focus PepsiCo on food and beverages. The Quaker Oats acquisition at $13.9 billion brought Quaker’s most valuable asset Gatorade under PepsiCo. After  the completion of Quaker Oats acquisition in August 2001, PepsiCo made a number of small, tuck-in acquisitions. The combination of acquisitions coupled with PepsiCo’s core snacks and  beverage businesses allowed the revenues to increase from approximately $20 billion in 2000 to more than $35 billion in 2006. PepsiCo’s corporate strategy was diversification and a relatively new element of PepsiCo’s corporate strategy was product reformulations to make snack foods and beverages less unhealthy. This brought GFY and BFY products into limelight. In 2006, Frito-Lay brands accounted for 31 percent of PepsiCo’s total revenues and 51 percent of the company’s company’s profits. profits. In 2007, improving improving the performance performance of the division’s division’s core salty brands and further developing health and wellness products were key strategic initiatives. Revenues to PepsiCo’s beverage segment in North America had expanded because the company broadened its line of non carbonated beverages like Gatorade, Aquafina, Tropicana and Starbucks Cold Coffee. To compete with Coke, PepsiCo started coming up with new brands and strategies on improved local distributi distribution. on. Power of one strategy strategy proved of immense immense benefit to PepsiCo. PepsiCo. Developing an understanding of consumer taste preferences was a key to expanding into international markets. In 2006, 75 per cent of Quaker Oats international sales were that of $500 million. PepsiCo’s management was dedicated to capturing strategic benefits within the business line up throughout the value value chain. chain. PepsiCo PepsiCo’s ’s financ financial ial manager managerss expect expected ed the company company’s ’s line line up of snack, snack,

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strategies seemed to be firing in 2007. The company’s current growth rates were sustained. Dividends to shareholders had grown at a compound annual rate of 15 percent between 2001 and 2006 to reach $1.16 per share. In May 2006, the company’s board announced a new $8.5 billion share repurchase program that would expire on June 30, 2009.