Introduction
Among the many techniques used to determine the market position of a business organization is SWOT analysis. SWOT analysis is used by to keep a close watch of the progress of a company and take remedial actions in case there is a need. This paper will carry out a detailed SWOT analysis of PepsiCo.
Background of the Company
Pepsi is the second largest food and beverage company in the world in market share; it was founded in the year 1965. The company is headquartered in the city of New York. The company deals with the manufacturing and marketing of several products, these products are salt, sweet and grain based snacks and carbonated and non-carbonated beverages.
The company aims at achieving growth and long term value in its operations by seeking to create competitive advantages which can be realized through product innovation. The company’s mainstream and trade mark product is Pepsi which is a carbonated soft drink manufactured by the Pepsi company. The company’s revenue is more than 39 million and it employs approximately 200, 000 employees.
The company is made up of Pepsi Company Americas Foods, Pepsi Co Americas Beverages and Pepsi Company International.
Pepsi Company Americas Foods is based in Latin America and encompasses food and snacks business including its operations in Mexico; Pepsi Company Beverages is based in North America and its beverage subsidiaries in Latin America beverages businesses while the Pepsi Company International includes all the operations in Asia, Europe, and Middle East.
The strategic and business affairs of the Pepsi Company are overseen by a Board of directors.
The company has been in existence for a very long time after being pioneered by Caleb Bradham, pharmacists who began to experiment with various soft drinks.
Pepsi cola developed as a soft drink in 1898 and since then the company has grown to be one of the most recognized in the world. Since then the company has had a positive growth strategy due to its impressive presence in USA and across the globe leading to health profits and an increased market share.
The company is broken into four major branches namely: Frito-lay North America, PepsiCo Beverages North America, PepsiCo International and the Quaker Foods North America. Using these markets, PepsiCo has had the largest foothold on the market.
The financial position of PepsiCo is a strong. It has boasted of impressive results in the net revenue, total operating profits, return on investment and return to the shareholders. The cash flow from the operations was approximately $6.1 billion and increased earnings per share.
The strong financial position is largely due to intense marketing undertaken by the company, product diversification and their unmatched strong presence in the USA which by itself is a large market. The company employs approximately 71, 000 employees in its international ventures and it engages in manufacturing, distribution, and the marketing of non–alcoholic beverages all over the world (PepsiCo 1).
SWOT Analysis of PepsiCo
SWOT stands for the strengths, weaknesses, opportunities and threats. It is one of the powerful ways of analyzing a current situation of a company. SWOT analysis examines the strong and weak areas of a company.
The strengths are those factors that serve to enhance the company’s competitive advantage while the weaknesses are those factors that may hinder it. Through SWOT analysis, a firm can utilize leverage from its strengths, learn from its weaknesses and correct them, utilize the opportunities and prevent devastating threats (PepsiCo 1).
Strengths of the Company
Pepsi Company has several strategies which has enhanced its growth to being the third largest food and beverage company in the world. Among its strengths are discussed below.
Diversification
Pepsi runs different lines of products; this diversification has enabled it to earn a lot of revenue, in this scenario, when one line of product fails in the market to gain some revenue, it can be balanced by the other divisions of the company. Pepsi has also realized a large market share as a result of its diversification and this is to the advantage of the company.
This was realized as strength when PepsiCo in the North America decreased in market share, still due to other operations in other countries its revenue still increased. The diversification of PepsiCo is evident from its 18 range of brands which when combined generate a volume of sales up to $1,000 million.
Their products include “ready to drink teas, juice drinks and bottled water; other products are breakfast cereals, cakes and cake mixes” (Craw, Merchan and Feng 12). The many products that the company has give it a big advantage because of diversification of risks.
Distribution Network
PepsiCo has a strong distribution network. This is strength since it enables customers to easily access the company products which in turn can lead to large volume of sales. Large distribution channel guarantees wide market for the products. PepsiCo channels its products directly to the points of sales.
This is a powerful strategy which includes “three pronged approach which also includes employees making direct store deliveries of snacks and beverages and the use of third party distribution services” (PepsiCo 5). Well planned distribution network has enhanced the competitive ability of PepsiCo.
To strengthen their distributive capability, PepsiCo acquired three restaurant chains namely Taco Bell, Kentucky Fried chicken and the Pizza hut. PepsiCo can sell three products along one distribution channel which helps to reduce costs, improve their efficiency and to smooth out fluctuations which might seasonally arise as a demand for a specific product falls (PepsiCo 5).
Quick Response to Emerging Trends and Issues
PepsiCo has a quick response mechanism to emerging issues in the market. These issues may include health and environmental issues and the development of Pepsi generation.
Penetration to the International Market
The company has expanded its operation to the untapped international market. PepsiCo and Quaker oats merged and this led to increased revenue and a better international market share.
PepsiCo have strong presence in snacks market in countries like Mexico, UK, Brazil, Australia, India and Russia and they are planning to enter an emerging market in China. This will lead to additional market and revenue for the company (Olidix Consultants 4).
Strategies
The company is driven by concise mission statement that it presents to its employees and shareholders so as to enable them understand what the company stands for. PepsiCo drives the local America market which they have used as leverage to expand into developing markets while still maintaining its strong market base in US. They also stress the importance of the relationship between the employees and the company.
The mission, objectives and strategies that are pursued by the company are a reflection of the company’s intention to enter into international markets (Olidix Consultants 8).
Enough Capital
The company does not suffer from capital constraints because they have large cash flow system. This has enhanced their great brands, distribution network and their innovative capabilities.
Branding
The conspicuous market brand of PepsiCo is Pepsi and it is one of the most recognizable and household brand in the world ranked as interbrand. In the year 2006, Pepsi was ranked as position 26th in the list of top 100 brands in the world. Pepsi averagely makes $15 million from sales proceeds.
The Pepsi’s brand is joined by other PepsiCo brands like the diet Pepsi, thirst quencher, Lipton Teas and Gatorade Mountain Dew among others. The brand dominance facilitates product loyalty and enhances repetitive sales which can contribute to approximately $15 million in annual volume of sales (Craw, Merchan and Feng 3).
Better Marketing Strategy
Pepsi has one of the world’s best bottling systems. This has enhanced its reputation on the international scale hence enabling it to transact business at the global scale while on the other hand it maintains its local presence.
Implementation
The company has a strong implementation strategy. The success of the company is due to its enough revenue base and stable market. Their implementation strategy include how to enter into new markets, how to improve employee relations and contemplating on how to reduce expenditure while maximizing costs.
Services Quality
PepsiCo exercises great care so as to ensure that high standards are maintained every day. This is applied to their products, packaging, and marketing. The company always aims at achieving the best for their customers since, according to their policies, customers deserve better and quality services and products.
Consequently, this quality is manifested in their manufacturing and bottling process so as to meet manufacturing standards. They adhere to quality procedures in their manufacturing and packaging. This is realized by ensuring that each bottle is subjected to a process of testing and inspection.
This quality control measures are necessary to ensure that the integrity of PepsiCo and its products are maintained (Sparks, Meack, Hillstrom and Cervantes 4).
Weakness of the Company
Focus
Due to the diversified market, the company has tended to have divided concentration on each of its products unlike its competitors who only have focus in one line of goods. This has negatively affected the sales of the different products by the company.
PepsiCo has found it hard to inspire a direction and a vision for a large global economy. It is evident that majority of their products do not bear the names or the logo of the company (Olidix Consultants 8).
Overdependence on Wal-Mart
PepsiCo sales depend majorly on its sales to Wal-Mart. This sale represents approximately 12 percent of its overall net sales. Wal-Mart is undisputedly Pepsi’s largest customer; this implies that the business fortunes of Pepsi are influenced by the ways that Wal-Mart does business. The low price theme of Wal-Mart has the impact of forcing Pepsi to lower their prices (Olidix Consultants 6).
Overdependence on the US market
Although Pepsi has an international presence, it is estimated that almost more than 50 percent of its sales revenue are from the US market. This overreliance and concentration on the US market leaves PepsiCo at a susceptible position in the event of changing market conditions.
The economic recession that hit the US market in the year 2008 greatly affected the sales of PepsiCo. Consequently, the large US customer base has the effect of weakening PepsiCo bargaining power hence leading to decreased revenues (Craw, Merchan and Feng 7).
Low Productivity
By the year 2008, Pepsi company had close to 198, 000 employees. The revenue per employee totaled to $219, 439 which was comparably low when compared with that of its competitors which is an indication of low productivity. In the productivity volume, PepsiCo is far much behind Coca-Cola in the international market and hence they are unable to meet the elastic demand.
Image Damage
PepsiCo has suffered from image problems due to the recall of its products. In the year 2008, contamination by salmonella forced the company to call back some of its products which are already in the market; this followed another event of the explosion of its diet Pepsi cans in 2007.
Such eventualities damage the image of the company and subsequently reducing customer confidence in PepsiCo products. The company has also been blamed for presence of pesticide residues in one of their products in the Asian market.
Opportunities of the Company
Efforts to Penetrate Emerging Markets
The company has attempted to tap into the newly emerging international market through PepsiCo International. The company should strategize on ways to enter into new markets instead of wasting resources on the markets which are already captured.
This will give PepsiCo an upper hand over its competitors; “PepsiCo is in the process of rolling out $1billion investment in China and further $500 million investment in India” (Sparks, Meack, Hillstrom and Cervantes 1).
All these are initiatives to widen its international market and to reduce its dependence on the US market. The company has also plans to massively invest in Brazil and Mexico (Sparks, Meack, Hillstrom and Cervantes 1).
Introduction of Pepsi Generation Theme
The introduction of PEPSI generation theme for its products provided a perfect opportunity for PepsiCo. This is aimed at reaching the younger generations so as to endear them to be lifelong Pepsi drinkers and to nurture product loyalty. This opportunity of designing new trends can be endless but it serves to attract young people.
Surfacing Issues
PepsiCo finds opportunity in emerging issues like health and environment. They seize this opportunity by quickly responding to these concerns as they emanate. This appeals to the consumers and further enhances its share in the market. The company has prospects in this area because of its potential as a corporate body.
Broadening of its Product Base
The company seeks to address some of its problems and potential weaknesses. This includes moving away from dependence on the US market and the acquiring the leading juice company in Russia called Lebedyansky and also acquiring of V water in the UK.
The company has also “continued to broaden the base of its products through the introduction of True North Nut Snacks and increasing of its Lipton tea venture with the Unilever Company” (Sparks, Meack, Hillstrom and Cervantes 3). All these plans have widened the market share of PepsiCo and enabling the company to regulate into the dynamic ways of life of the clients.
Growing Snack and Bottled Water Market
It has been observed that the company has a huge potential in the snack and water market:
The company is in a better position to take advantage of the growing market of snacks and bottled water which has been projected to be worth approximately $24 million by the year 2012. The company’s products like the Aquafina and Propel are better established and are in a position to surge upwards in terms of market share and sales. (Sparks, Meack, Hillstrom and Cervantes 3)
Its large chains of snacks could also benefit from the growing savory snack market in the US which has been projected to reach 27 percent by the year 2013 which is a market growth of $28 million (Sparks, Meack, Hillstrom and Cervantes 3).
Increasing Trend towards Health Food
The world is experiencing an unprecedented trend for demand for health food. The ability of PepsiCo to adapt to these market trends towards health food could enhance its competitive advantage and will take its place as a socially responsible producer.
Since this requires a lot of money that can be unmet with the current economic climate. People have become health conscious and hence they have a passion and preference for health foods and drinks. There is a growing market for healthy food products which the company needs to tap into.
Internet Marketing
The surging opportunities on the internet provide an opportunity for online marketing and advertisement which could be placed on the boxes and shelves of chain stores so as to tap into a wide market. In this age of communication technology, internet advertising and online marketing is indispensable.
Internet promotion such as banners, adds and key words will increase the volume of sales. Their computerized manufacturing, ordering and packaging system will increase their efficiency.
Threats of the Company
Competitors
PepsiCo has many competitors in the US as well as outside the US. It has been observed that most of the competitors engage in one product range; this provides the competitors an advantage of handling one line of the product in the market.
Failure by PepsiCo to consider it a threat may result to its diminishing market share. Coca-Cola particularly is PepsiCo’s number one competitor in the market and products innovation, others are Kraft foods and Groupe Danone.
It is also observed that unhealthy competition may negatively affect the company. This was evidenced when Coca-Cola surpassed PepsiCo in juice sales. PepsiCo for example is far much behind Coca-Cola in the international penetration and market share, this has made it hard for it to compete substantially with Coca-Cola’s strong presence, strong brand identity and strong customers’ loyalty.
High level of competition might result into losing of market share in the event that other companies adapt to the business environment faster. The company also competes with Cadbury Schweppes and other competitor companies which have sound financial management and are well run.
This might stretch the resources of the company. In the mineral water segment, the company has to content with strong competition from Nestle. All these fierce competition is largely due to the fact that food and beverage industry has come of mature age (Craw, Merchan and Feng 7).
Emerging Environmental and Health Threats
These are new sources of threats to PepsiCo; more and more clients are adopting better eating methods whereby fast foods which PepsiCo among other companies offer.
Declining Carbonated Drink Sales
The sales of soft drinks have been predicted to decline by approximately 2.7 percent in the year 2012 which represents a drop of $63, 460 million in market value.
Government Regulation
Government regulation may affect the sales of PepsiCo: “It is anticipated that government initiatives related to environmental, health and safety may have the potential to negatively impact PepsiCo” (Sparks, Meack, Hillstrom and Cervantes 4). These government measures will likely alter the state of manufacturing, marketing and distribution of food products.
First round examination on the acrylamide have indicated that it may likely cause cancer when it is used in large quantities. Therefore, if the company has to comply with these government rules or regulations and measures, it will be prompted to add labels to its products or to where its products are sold, and these will likely have an impact on PepsiCo (Sparks, Meack, Hillstrom and Cervantes 4).
Potential Labor Unrest
Arguing from the past record, PepsiCo is prone labor disruptions. In the year 2008, for example, there was a massive strike by the employees of Indian operation which paralyzed operations for almost a month leading to disruption of the manufacturing and distribution network.
Recession and Economic Instabilities
The ongoing recession in majority of the countries and the unexpected currency dynamics have had a lot of impact on the operations of PepsiCo. The global economic recession that hit the US in 2008 and 2009 led to considerable decline of revenues for the company which highly depended on the US market.
The company sells its products at expensive prices than their competitors. This can limit the poor or the lower income people from purchasing PepsiCo products (Sparks, Meack, Hillstrom and Cervantes 5).
Works Cited
Craw, Ford, Merchan Jennifer, and Feng Park. Coke vs. Pepsi. Computer Lab Nevada, n.d. Web.
Olidix Consultants. The Pepsi-cola company competitive analysis. Slide Share, n.d. Web.
PepsiCo. History Overview. PepsiCo Website, n.d. Web.
Sparks, Aaron, Meack Cherokee, Hillstrom Elly, and Cervantes Sandra. PepsiCo Portfolio Marketing. PepsiCo Report, 2008. Web.