Group work - MSC

1. INTERNATIONAL STRATEGIC
MANAGEMENT
Clémentine BABONNEAU
Alice BEZIRARD
Léna BITTON
Carole GUIMBART
Maxime HUBIN

2. How can PEPSICO improve its diversification strategy in 2008?
Strategic Diagnosis
• External analysis
• Internal company analysis
Alternatives
Recommendations

3. EXTERNAL ANALYSIS
-MARKET TRENDS
-PESTEL
-OPPORTUNITIES & THREATS
-PORTER’S 5 FORCES
-KEY SUCCESS FACTORS

4. •Diet and reduced •Great-tasting
calories food •Gourmet flavor
•Non-carbonated •Styles
beverages
Consumer health Consumers want
and wellness to reward
concern themselves
Consumer desire
to escape from
Ready to eat and the norm and
ready to drink taste snacks
consumption from a wider,
often global
palate

5.  Political
 Protectionism in emerging markets
 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
 Environment friendly packaging solutions
 Legal
 More and more protected consumers
 Stricter legislation to defend against obesity
Source: Xerfi, and case study

6. 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

7. 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

8. --
Low power of new entrants
Few multinational groups own
the largest part of the market
share
Threat of Possible entrants for niche
new
entrants markets or local markets
++
Very high
bargaining power
+/-
(retailers)
Medium Rivalry -Power of brand
bargaining power Bargaining among Bargaining
power of power of recognition as an
-Dependence on existing
suppliers buyers argument to attract
raw materials competitors the final customer
-But…a lot of
who is loyal
suppliers available
-Depends on the size
of the retailer
+ Threat of ++
substitute
High products Very high rivalry
-All kind of food depending on -High diversification from each
the taste competitor
-Pay attention to healthy and -Few strong groups control the
wellness categories market

9.  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

10. INTERNAL ANALYSIS
-ORGANIZATIONAL
STRUCTURE
-CORE COMPETENCIES
-COMPETITIVE ADVANTAGES
-STRENGHTS & WEAKNESSES

11.  PepsiCo’s organizational structure & Net Revenues for each Business Segment
(in $ millions) in 2007:
$11,586 $15,798 $10,230 $1,860
PepsiCo
Frito-Lay North Quaker Foods Pepsi
Beverages
America North America International
North America
Salty Snacks brands Oat Food and Cereals brands Non Alcoolics Beverages brands
Organizational profile:
Diversification strategy = multi products & multi markets

12. • PepsiCo constantly improved its knowledge on the consumer
behaviour by identifying trends such as healthier products:
Market Research • New brand value: PepsiCo’s better-for-you & good-for-you
products
• Launch of less saturated fat and less salted products answering to
R&D: Product the trends found it by « Consumer Insight dept »
Innovation • Introduction of Lay’s traditional flavour with 50% less saturated
fat
Efficient • Close relationships with suppliers & customers under the Power of
One program that allow PepsiCo to have direct information from
Information System both retailers & customers
International • PepsiCo has succeed in creating an international exposure
expansion especially with Beverages & Salty snacks (increase of 22% in 2007)
Strategic • Those acquisitions allowed PepsiCo to gain synergy in its whole
acquisitions business

13. Brand equity:
-Awareness
Brand equity -Recognition
-Perception
Differentation
Differentiation:
-High value products
-Strong positioning
Product
diversity
Product diversity:
- 3 Business Units
- A wide and deep range of
products
Competitive Advantages

14. Wide range of products
Efficient identification of trends  Proactive instead of
Reactive
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)

15. 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

16. Total Net revenues of PepsiCo Inc. from 1998 to 2007: increased by
approximately 77%
Net revenues by activity (2004-2007):
Frito-Lay North PepsiCo beverages Pepsi Quaker Foods North
America=21% North America=23% International=60% 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

17. -MAIN STRATEGIC CHOICES
-ACTUAL STRATEGY
-PEPSICO DIVERSIFICATION
-PEPSICO CHALLENGES
-PEPSICO DIFFICULTIES

18. 1997 Result 2008
Since 1997 Strategic
Restructuration
Diversification realignment in
of PepsiCo
and acquisition order to improve
Focus on snacks strategies the PepsiCo
and beverages Profits

19. Strategic
International
acquisitions
Strong
Large
Focus on
presence in
diversification
mature and
of PepsiCo’s
emerging
products
snacks
markets
and
beverages
Make healthy
Relevant and wellness
innovations in products
R&D

20.  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

21. •China and Brazil would •Understand local taste
be the two largest
international markets for
snack
To increase the
market share in
developing To succeed in
countries and adapting to the
continue the strong customer tastes of
development in customers
emerging countries worldwide
To innovate in order
to improve the
To manage
quality of their
efficiently the new
products while
six reporting
keeping going
segments
through the large
diversification
•Frito lay North America, •new flavors, health and
Quaker Foods North wellness products
America, Latin American
Foods, PepsiCo Americas
Beverages, UK and
Europe, Middle East,
Africa & Asia

22.  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

23. Industry Attractiveness Factor Weight Attractiveness Weighted
Rating 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 0.15 5 0.75
industries in portfolio
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 0.15 3 0.45
factors
Industry uncertainty and business risk 0.05 4 0.20
Sum of weights 1.00
Industry attractiveness rating 5.9
According to the rating scale, a result of 5.9 industry attractiveness rating is a
bit more than the average (all SBUs has been taken together).

24.  We have defined 3 SBUs:
• Frito Lays
• Beverages
• Quaker
 We considered both american and
international markets

25. high
Frito
lays
Question marks
AMERICA
Bever
LEGEND
Market Growth Rate
ages
Frito Int
GREY : lays
Int Quaker Int
AMERICA Stars
BUSINESS
Pink: Quaker AMERICA
INTERNATIONAL Beverages
AMERICA
BUSINESS
Garbage can dogs
Low Cash cows
1 Relative Market Share

26. -OBJECTIVES
-OUR ALTERNATIVES

27. Increase Improve
International operating
Sales margin
Reinforce
the Manage the
international stock price
presence

28. Choice • Adapt their products
number to the local
1: customers
Choice
• International
number acquisitions
2:
• Forecast new
Choice trends:
• Improve the
number healthy products
3: or make ecological
packaging for egs

29.  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

30.  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

31.  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

33. 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
NEW NEEDS
TOTAL 1 5,55/10 4,65/10 6,2/10

34. ALTERNATIVE 1. ALTERNATIVE 3.
ALTERNATIVE 2.
Adaptation to local Forecast the
International
customers trends
acquisitions

35. 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
Rely on R&D to
marketing
create new
research in order
products suiting
to detect new
the needs
customer‟s needs