INTERNATIONAL STRATEGIC MANAGEMENT
Clémentine BABONNEAU Alice BEZIRARD Léna BITTON Carole GUIMBART
How can PEPSICO improve its diversification strategy in 2008?
Strategic Diagnosis • External analysis • Internal company analysis
Alternatives
Recommendations
How can PEPSICO improve its diversification strategy in 2008?
Strategic Diagnosis • External analysis • Internal company analysis
Alternatives
Recommendations
EXTERNAL EXTE RNAL ANALYSIS ANALYSIS
-MARKET TRENDS -PESTEL -OPPORTUNITIES & THREATS -PORTER’S 5 FORCES
• Diet and reduced
• Great-tasting • Gourmet flavor • Styles
calories food • Non-carbonated beverages
Consumer health and wellness concern
Consumers want to reward themselves
Ready to eat and ready to drink consumption
Consumer desire to escape from the norm and taste snacks from a wider, often global palate
Political
Economic
High growth potential of emerging markets
But…strong competition to enter
Social
Healthier lifestyles promote different patterns of consumption and represent new product opportunities
But…less interest in sodas with high sugar content
Technological
Strong R&D departments to develop new products
Ecological
Protectionism in emerging markets
Environment friendly packaging solutions
Legal
More and more protected consumers Stricter legislation to defend against obesity
Consumer lifestyle: • “Better for you” – “Good for you” opportunities • Changing lifestyles of consumers • Taste preferences from country to country: adaptation to the local tastes
International Expansion • Emerging markets: developing countries China, India, Russia, Mexico,
Brazil • Developed countries: growing markets in healthy snacks outside US : new consumers needs and expectations: reduce saturated fats, cholesterols, trans fats, simple carbohydrates “ China and Brazil would be the 2 largest international markets for snacks ”
Potential growth of markets: • Increasing consumption of water bottles in US • Increasing consumption of savory snacks like Cheetos cheese (expectation:
+27% by 2013) • Broadening the products: Avoid the dependence on US markets by going abroad
Awareness for healthy, sugar and salt free meals Decline in Carbonated Drink Sales Potential Negative Impact of Government Regulations • Legal barriers to enter new markets : protectionism • Legislation involving environmental, health, and safety may force a
reorganization in the industry
Intense Competition • Fast-food industry: fierce price competition and low profit margins • High rivalry between powerful global companies (The Coca-Cola
Company, Nestlé, Danone, Kraft Foods...). Risk of influence on pricing pricing, advertising, sales promotion initiatives
Potential Disruption Due to Labor Unrest • In 2008 a strike in India shut down production for nearly an entire
month
Threat of new entrants
+/Medium bargaining power -Dependence on raw materials -But…a lot of suppliers available
Bargaining power of suppliers
+ High -All kind of food depending on the taste -Pay attention to healthy and wellness categories
Rivalry among existing competitors
Threat of substitute products
-Low power of new entrants Few multinational groups own the largest part of the market share Possible entrants for niche markets or local markets
Bargaining power of buyers
++ Very high bargaining power (retailers) -Power of brand recognition as an argument to attract the final customer who is loyal -Depends on the size of the retailer
++ Very high rivalry -High diversification from each competitor -Few strong groups control the market
Share information and be transparent regarding the stakeholders Be able to forecast the trends at a local and global level Adapt to customer lifestyle and needs Product innovation and diversification Be visible everywhere Good control over the manufacturing process to achieve economies of scale
INTERNAL ANALYSIS
-ORGANIZATIONAL STRUCTURE -CORE COMPETENCIES -COMPETITIVE ADVANTAGES
PepsiCo’s organizational structure & Net Revenues for each Business Segment
(in $ millions) in 2007:
$11,586 Frito-Lay North America
Salty Snacks brands
$15,798 Quaker Foods North America
Oat Food and Cereals brands
$10,230
$1,860
PepsiCo Beverages North America
Pepsi International
Non Alcoolics Beverages brands
Organizational profile: Diversification strategy = multi products & multi markets
• PepsiCo constantly improved its knowledge on the consumer
Market Research
behaviour by identifying trends such as healthier products: • New brand value: PepsiCo’s better -for-you & good-for-you products
R&D: Product Innovation
• Launch of less saturated fat and less salted products answering to
Efficient Information System
• Close relationships with suppliers & customers under the Power of
International expansion Strategic acquisitions
the trends found it by « Consumer Insight dept » • Introduction of Lay’s traditional flavour with 50% less saturated fat
One program that allow PepsiCo to have direct information from both retailers & customers
• PepsiCo has succeed in creating an international exposure
especially with Beverages & Salty snacks (increase of 22% in 2007)
• Those acquisitions allowed PepsiCo to gain synergy in its whole
business
Brand equity: -Awareness -Recognition -Perception
Brand equity
Differentiation: -High value products -Strong positioning
Differentation
Product diversity
Product diversity: - 3 Business Units - A wide and deep range of products
Competitive Advantages
Wide range of products Efficient identification of trends Reactive
Proactive instead of
International Exposure High profit margins Total control on the several steps of the supply chains (allow them to control & reduce the production and delivery costs)
Relatively unsuccessful in increasing the worldwide awareness of Quaker Foods Wide In 2006, only 6 countries represented 75% of Quaker Foods International sales out of US Difficulties to find a synergy between their restaurants & beverages they sold
Total Net revenues of PepsiCo Inc. from 1998 to 2007: increased by approximately 77%
Net revenues by activity (2004-2007): Frito-Lay North America=21%
PepsiCo beverages North America=23%
Pepsi International=60%
Quaker Foods North America=22%
Price in the stock exchange was about $33 in 1999 & about $64 in 2008 (+ 120%)
GOOD FINANCIAL HEALTH WHICH ALLOWS THEM TO SELF FINANCE THEIR GLOBAL EXPANSION
-MAIN STRATEGIC CHOICES -ACTUAL STRATEGY -PEPSICO DIVERSIFICATION -PEPSICO CHALLENGES
1997 Restructuration of PepsiCo Focus on snacks and beverages
Since 1997 Diversification and acquisition strategies
Result 2008 Strategic realignment in order to improve the PepsiCo Profits
Strategic International acquisitions
Strong presence in mature and emerging markets
Focus on snacks and beverages
Relevant innovations in R&D
Large diversification of PepsiCo’s
products
Make healthy and wellness products
Product differentiation to respond to health concerns (use of healthier oils, natural salty snacks) Research on new flavors and new recipes: in order to attract more customers With International acquisitions, PepsiCo offers a different kind of food and beverages
A GREAT SUCCESS
•China and Brazil would
•Understand local taste
be the two largest international markets for snack
To increase the market share in developing countries and continue the strong development in emerging countries
To manage efficiently the new six reporting segments •Frito lay North America,
Quaker Foods North America, Latin American Foods, PepsiCo Americas Beverages, UK and Europe, Middle East, Africa & Asia
To succeed in adapting to the customer tastes of customers worldwide
To innovate in order to improve the quality of their products while keeping going through the large diversification
•new flavors, health and
wellness products
Stock Price: in 2008 PepsiCo Drops his stock price in order to improve overall profitability Quaker brand: under distributed in international market Gatorade: only one brand in growing market, it‟s not enough!
Operating margin are not maximized
Industry Attractiveness Factor
Weight
Attractiveness Rating
Weighted Industry Rating
Market size and projected growth
0.15
7
1.5
Intensity of competition
0.20
8
1.6
Strategic fits and resource fits with other industries in portfolio
0.15
5
0.75
Resource requirement
0.15
6
0.90
Emerging industry opportunities and threats
0.10
4
0.4
Seasonal and cyclical influences
0.05
2
0.1
Social, political ,regulatory, and environmental factors
0.15
3
0.45
Industry uncertainty and business risk
0.05
4
0.20
Sum of weights
Industry attractiveness rating
1.00
5.9
According to the rating scale, a result of 5.9 industry attractiveness rating is a
•
•
•
We have defined 3 SBUs: Frito Lays Beverages Quaker
We considered both american and international markets
high
Question marks
Frito lays AMERICA
LEGEND
GREY : AMERICA BUSINESS Pink: INTERNATIONAL BUSINESS
e t a R h t w o r G t e k r a M
Low
Frito lays Int
Bever ages Int Quaker Int
Stars Quaker AMERICA
Beverages AMERICA
Garbage can dogs
Cash cows 1
Relative Market Share
-OBJECTIVES
Increase International Sales
Improve operating margin
Reinforce the international presence
Manage the stock price
Choice number 1:
• Adapt their products
to the local customers
Choice number 2:
• International
acquisitions
• Forecast new
Choice number 3:
trends: • Improve the healthy products or make ecological packaging for egs
Adapt their products to local customers Understand the consumer taste preference
Key
to expand into international market Taste are different in function of each country Follow the customer „s taste in order to attract them, in Mexico : spicy food, in Europe: healthy food with less saturated fat
International acquisitions Increase PepsiCo presence
Reinforce their presence on new markets = Internationalization Increase the relationship with local companies in order implement easier New target: emerging countries
Forecast the trends: Rely on marketing intelligence and research & development
New customers expectations
Nowadays, the
customer‟s taste is changing:
PepsiCo has to focus on healthy products in order to respond to consumer health and wellness (reduce the consumption of statured fats, cholesterol, trans fat, and simple carbohydrates). Improve the packaging in order to follow more and more environmental criteria Communication more about the sustainable efforts
Criteria
Weight
Alternative 1
Alternative 2
Alternative 3
COST
0,20
4
1
5
CONTROL
0,10
6
7
8
RISK
0,15
3
2
4
TIME
0,10
5
2
3
INTERNATIONALIZATION
0,20
9
10
5
BRAND EQUITY
0,05
8
9
10
FOLLOW CUSTOMERS‟
0,20
5
4
9
1
5,55/10
4,65/10
6,2/10
NEW NEEDS
TOTAL
ALTERNATIVE 1. Adaptation to local customers
ALTERNATIVE 3. Forecast the trends
ALTERNATIVE 2. International acquisitions
According to our analysis, the best choice for the company would be:
To try to forecast customer‟s trends and
to anticipate by providing new products through innovation How to do it ?
Rely on marketing research in order to detect new customer‟s needs
Rely on R&D to create new products suiting the needs
