Strategic Management Analysis Of Pepsico

PEPSI Growth, Balance, and a World of Fun

Strategic Management Audit Conducted By: Provided To: May 16, 2007 TABLE OF CONTENTS

Executive Summary Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is one of the strongest beverage and convenient food companies in the world. Originally started in 1898, Pepsi Cola became the first branded soft drink in the world. Its brand is available in over 200 countries around the world and generated sales in excess of $92 billion last year. Headquartered in Purchase, New York, PepsiCo is the number two beverage company in the world behind the Coca-Cola Company. Financially, 2006 was a year of progress with an overall growth of 5.5%, revenue of nearly 36 billion USD and a return on investment of 26%. These numbers are all well above the industry average, with their main competitor still being the Coca-Cola Company. PepsiCo has continued their brand image by appealing to Generation Y and becoming synonymous with music, entertainment and sports. In addition to their financial success, PepsiCo is also dedicated to ethics and social responsibility in the community. They have invested heavily in recycling programs and in developing nations in Africa. PepsiCo even has a sustainability mission that states “PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate- environmental, social, economic- creating a better tomorrow than today.” They believe that they have the competitive, sustainable advantage in the industry because of three things: big brands, proven innovation and differentiated products, and powerful go-to markets. With their strong brand, socially responsible employees and corporate beliefs and focus on the younger generation, PepsiCo will continue its stance as one of the most powerful companies in the world.

Current Situation Current Performance

Pepsi Co is a worldwide corporation that has been in existence since the late 19th century when Caleb Bradham, a pharmacist from New Bern, North Carolina first started experimenting with different soft drink concoctions. It was in 1898 that Pepsi Cola first became a branded soft drink and from that point forward their product and the company have grown to be the most recognized brand in the world.1 This past financial year, Pepsi Co continued it three-year positive growth strategy by maintaining an aggressive presence in the United States and worldwide, boasting healthy profits and market share. The company is broken into four major branches: Frito-lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North America. Pepsi Co has one of the largest footholds in each of these markets compared to relative competition, holding the following rankings worldwide: #2 in Carbonated Soft Drinks. #1 in Sports Drink #1 in PET Water Brand (non-jug) #1 in chilled Juices and Juice Drinks #1 Enhanced Water Brand #1 In ready to-Drink Coffee #1 in Ready-toDrink Teas #1 in Potato Chips #1 in Tortilla Chips #1 in Corn Chips #1 in Extruded Snack #1 Multigrain Snacks #2 in Pretzels #1 in Hot Cereal #1 In Grits #1 Rice Side Dish #1 Brand Pancake Syrup #2 Pancake Mix.2 Financially “PepsiCo delivered a very strong 2006: Volume grew 5.5%; net revenue grew 8% to 35,137 in millions; total operating profit increased 9% to 6,439 (in millions); return on investment was 26%; total return to shareholders was 8%; cash flow from operations was 6.1 billion USD, and earnings per share increased 13%.”3 Much of the strong financial performance can be attributed to the intense marketing, product diversification, and strong market presence in the United States. In addition, Pepsi Co “Has a solid share of snacks in major markets such as Mexico, the United Kingdom, Brazil, Australia, India and Russia, and are developing markets such as China,” of which offers additional revenue from emerging markets. As will be discussed later, Pepsi Co still remains second in the international beverage industry, with Coca-Cola maintaining its strong market share. 1

PepsiCo Company Website. History Overview. http://www.thecocacolacompany.com/heritage/chronicle_birth_refreshing_idea.html. Last updated January 2007. Accessed May 10, 2007. 2 PepsiCo Rankings Worldwide. Hoover’s. http://0-premium.hoovers.com.bianca.penlib .du.edu/subscribe/co/ops.xhtml?ID=ffffrfyhsffytsjrkh. Last updated January 2007. Accessed May 5, 2007. 3 Financial Releases of PepsiCo. Phoenix Corporate. http://phx.corporateir.net/phoenix.zhtml?c=78265&p=irol-financial_releases. Accessed May 10, 2007.

Brief Annual Review 2006 -

PepsiCo Launches Pepsi Limon in Peru

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PepsiCo Completes Acquisition of Stacy's Pita Chip Company

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Pepsi Celebrates 20th Consecutive Super Bowl With New Diet Pepsi Campaign

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North American Coffee Partnership Launches New Starbucks Beverages, Starbucks Iced Coffee, Starbucks Iced Coffee Light as well as Strawberries and Creme Frappuccino and Starbucks DoubleShot Light

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SoBe Launches New SoBe Life Water

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Frito-Lay announces the launch of a new line of snack chips called Lay's Sensations and Tostitos Sensations

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Frito-Lay cuts saturated fat in Lay's, Ruffles by more than 50% with move to NuSun™ Sunflower Oil

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Starbucks and PepsiCo sign a distribution agreement for Ethos Water

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PepsiCo, National Hockey League and National Hockey League Players Association sign multi-year deal, giving PepsiCo exclusive rights in the beverage, sports beverage, bottled water and snack categories. With this deal, Gatorade becomes the official sports drink of NHL

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Frito-Lay kicks of its nationwide rollout of Lay’s with 100% Pure Sunflower Oil

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Pepsi acquires IZZE beverage company

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Cold Stone Creamery announces a multi-year agreement making Pepsi its exclusive beverage supplier

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Pepsi signs 5-year sponsorship renewal with Major League Baseball Properties making Pepsi the “Official Soft Drink of Major League Baseball”

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PBSG Parkwood and Frito-Lay headquarters associates raise more than $1.8 million dollars in the American Heart Association Walk

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PepsiCo announced intent to acquire Naked Juice Company

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PepsiCo announces it will acquire New Zealand snack company Bluebird Foods4

Strategic Posture Pepsi Cola has a very concise mission statement which offers its employees, shareholders and consumers a clear offering of what Pepsi Co embodies. “We have absolute clarity around what we do: We Sell Soda. We commit ourselves to these Operating Principles: Rules of the Road 1. Drive local market success 2. Act Now. Do it today. Get Results. 3. Set Targets. Keep Score. Win. 4 Respect Each other. Our success will ensure: Customer build their business, Employees build their futures, Shareholders Build their wealth.” 5 Each of the operating principles of Pepsi Co deliver the actions that all employees are expected to perform and the quality that shareholders and consumers alike should come to expect. In the paragraphs below, their operating principles will be detailed to clarify their current strategic posture in the market and in the industry. Drive local market success. Pepsi Co, an American company since its inception, continues to expand into developing markets while maintaining its major stronghold of the United States. To drive domestic market success, Pepsi Co has three main subobjectives: 1. To compete locally 2. To be a “small” company within a big company, insuring that the company remains maneuverable, and not a stagnant giant and, 3. to have visible community leadership. Pepsi Co continues to be a client centric company, focusing on this objective now more than ever. Due to the recent trend of “healthy living,” PepsiCo has been forced to expand into other markets to meet the health conscious demand of its consumers. “Carbonated beverages remain the most popular beverage category, with some 85% of U.S. households purchasing them. However, noncarbonated beverages represent a fast-growing category- a place where consumers are migrating…We recognized the need to broaden our portfolio early on and moved to extend our presence in non-carbonated beverages in 1992…Providing consumers with choices has long been a part of our mindset”5 . Ahead of its time, Pepsi Co introduced Annual Review 2007 for Pepsi Company. AngelFire. http://www.angelfire.com /ga/struitt /pepsi.html. Accessed May 9, 2007. 4

PepsiCo Objectives. http://pepsico.com/PEP_Company/BrandsCompanies/index.cfm. Last updated January 2007. Accessed May 9, 2007. 5

Diet Pepsi in 1964 and it’s Reduced Fat Ruffles in the mid 1980s. In 2006 Pepsi Co stated, “It’s about growing a business profitably for the long term….We believe we can do this in ways directly related to our business, beginning with our products…Human sustainability, and we’re continuously transforming our portfolio of products to meet consumer needs. We’ve improved the nutritional profiles our global and flagship brands by changing to healthier oils, reducing sugar and sodium content, and by expanding the range of products we offer. This includes products ranging from indulgences – or treatsto good for you products that offer functional benefits like hydration or heart health… What we call “Smart Spot” eligible products represented over two-thirds of our growth in North America in 2006…And we’ve set a goal of deriving 50% of all our U.S. revenues with Smart spot eligible products by 2010.”6 Secondly, Pepsi Co focuses on its strategy for result: “Act Now. Do it today. Get Results.” This objective is designed to accomplish tasks with a sense of urgency, to fix problems before they become major issues, and to build upon passion. Third, Pepsi Co accomplishes goals by setting targets, keeping score, and winning. They created five simple rules to promote this idea throughout the company: Every front-line job has tarots, reinforce goals, plan performance, protesting, focusing, and simplifying, clear accountability for result and no excuses. These objectives are goal oriented with emphasize on how individual actions can affect the entire corporation, positively or negatively. Their fourth objective focuses on the employees relationships within the company and throughout their daily lives: “Respect each other by treating everyone fairly, and with dignity, operating with integrity and justice, and keeping in mind that everyone is important.” It is crucial to note that the current mission, objectives, strategies and policies of Pepsi Co reflect the corporation’s attempt to progress in international operations. Pepsi Co follows a relatively simple strategy with the four objectives that can be applied to almost any corporation around the world, offering a base concept to all of its employees and consumers. The mission statement “We sell Soda” is only three words, but it speaks PepsiCo Strategies and Objectives. PepsiCo Corporate Site. http://www.pepsico.com/PEP_Investors/AnnualReports/06/PepsiCo2006Annual.pdf. Last updated January 2007. Accessed May 9, 2007. 6

volumes in it meaning. It projects the idea that this company has developed a business that they are exceptional at and will not pretend to be anything more than what their core competencies can offer. Corporate Governance Board of Directors The members that make up the directors are very diversified in their skills, experience, and knowledge. Members are from various places of the world and have held contrasting positions from CFO’s to Medical Professors. Although the ages of the members are similar, the experience and knowledge of the diversified group is a great asset for PepsiCo. One interesting fact is the CEO is a woman that has been involved in many facets of the business from Strategic Planning President to Corporate Strategy. Committees within the group are the Nominating and Corporate Governance Committee, an Audit Committee, and Compensation Committee which are all comprised of individuals from the Board of Directors. The directors have performed very well in the past and have received many awards for their performance and leadership.7 Successful performance by the board members may be attributed to the fact that some are financially involved in PepsiCo and others are not associated with the firm.8 The combination of the two groups serves as an excellent medium between serving the companies interests while maintaining ethical and responsible decisions.

External Environment As a beverage and food producer and distributor developed in the late 19th century, Pepsi Co is in a dominant market position that has little qualms about emerging competitors in the market. Its current concerns remain its top competitor, Coca-Cola who PepsiCo. Company Honors. http://pepsico.com/PEP_Company/Honors/index.cfm. Last updated January 2007. Accessed May 11, 2007. 8 ( Reference Chart 1) Mergent Online Journal. Company Insiders. http://www.mergentonline.com/compdetail.asp?company=1&company_mer=6581&fv type=a&Page=insiders. Last updated March 2007. Accessed May 11, 2007. 7

maintains a similar stance in the beverage market as well as Cadbury-Schweppes who controls the international market share of beverages and confectionary goods. In addition, acquisitions and mergers of current mid-size beverage companies could prove to be an external threat to Pepsi Co, while not in the near future. In the following section of the strategic management audit, Coca-Cola and Cadbury Schweppes will be detailed according to their financial statements, management schemes, marketing campaigns and recent acquisitions.

Financial As a company that employs over 71,000 individuals around the world and engages in the manufacturing, distribution, and marketing of non-alcoholic beverages worldwide, Coca-Cola remains Pepsi Co’s most aggressive and threatening competitor in existence. In 2006, Coca-Cola maintained revenues of nearly 25 billion USD and a gross profit of nearly 16 billion USD.9 Their return on equity remains one of the strongest in the industry and in the market, at a staggering 31.15% (compared to the industry average of 14.3%) in 2006. Pepsi Co has managed to maintain nearly 97,000 more employees and 10 billion USD more in revenue in 2006, yet their net incomes remain comparable at 5.5 billion USD. This statistic shows that while Coca-Cola may employ fewer individuals and therefore generates smaller revenue, they are still able to remain competitive with Pepsi Co in regards to their net income. Coca-Cola is the number one soft drink company in the world and owns four of the five top selling brands. Although Coca-Cola does not do its own bottling, it does own 35% of Coca-Cola Enterprises, 32% of Coca-Cola FEMSA, and 23% of Coca-Cola Hellenic Bottler (the largest European bottler).10 Coca-Cola was also ranked number 94 in Fortune 500, while Pepsi ranked at 63. Coca-Cola Company. YAHOO Finance. www.finance.yahoo.com. Last updated May 14, 2007. Accessed May 14, 2007. 10 Hoovers. http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=rfyhsffytsjrkh. Updated January 2007. Accessed May 10, 2007. 9

Management Coca-Cola’s current CEO and chairman is E. Neville Isdell, a 63 year old who has remained at this position since 2004. Prior to his current position, Isdell was an international consultant to the company and has held a variety of positions within the company since 1966. Isdell has proven to understand the company values and the industry in which it deals, and provides the glimpse of an opportunity for others in the company to work their way through the ranks. He has also offered an international viewpoint which has increased awareness and sales overseas.11 In 2007, Coca-Cola restructured their business units for a more strategic approach, organizing them into the sparkling beverages, still beverages, and emerging brands.12 This will allow their functional areas to focus on what kind of marketing to do and other issues based on the type of product it is. Marketing As the classic cola brand in America, Coca-Cola tends to focus its marketing efforts on the baby boomer generation and the loyal Coca-Cola consumers. Unlike Pepsi, Coca-Cola does not feel the need to expand into industries that are not of its core competencies and continues its marketing scheme to that of what they’re good at: making soda. Coca-Cola does not attempt to recreate its image as something new and hip that the entertainment industry can play off of, they simply portray themselves as the best beverage maker in the world. They have also recently began a campaign called “Every Drop Counts,” and have announced that they are retooling their Atlanta headquarters to conserve natural resources and combat global climate change. Recently, Coca-Cola has also initiated a clean water program in Africa by creating a chlorine purifying substance and gave jobs to people in the community to create these products. Coke is not well Coke Overseas Sales Bolster Turnaround. Wall Sreet Journal. February 17, 2007. Page A14. http://0proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=6&did=1216359421&SrchMo de=1&sid=5&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179 373335&clientId=48347. 12 Hoovers. http://premium.hoovers.com/subscribe/co/overview.xhtml?ID=ffffrfyhsffytsjrkh. Updated January 2007. Accessed May 10, 2007. 11

known in this area, but with the involvement and assistance they are offering, this community will soon become Coke consumers.13 Recent Acquisitions Coca-Cola has been attempting to take over the bottled teas and juices market share for a long time. In February 2007, they announced plans to acquire FUZE Beverage LLC, which is an enhanced juice and tea company.14 The have also announced in March 2007 that they will continue refining beverage partners worldwide joint venture with Nestle. They also acquired full ownerships of Phillipines Bottler “San Miguel Corporation” in late February 2007. As well, United Airlines has ended their contract with PepsiCo and has now signed a five year agreement with Coca-Cola to only provide their beverages on their flights.15 Each of these acquisitions and joint ventures amount to Coca-Cola expanding their doors internationally and in different industries.

Financial Although Cadbury is at a far away third marking place of beverage sales in the world, and only had 14 billion UDS in sales in 2006, they still remain a viable competitor to PepsiCO. In addition, Cadbury Schweppes increased their sales by 29.3% from 2005 to 2006, meaning that their growth is extremely high and that they are a competitor that PepsiCo must keep an eye on. This is mostly due to their international expertise and recognition. They have nearly as many employees at Coca-Cola does, yet their market McKay, Betsy. Why Coke Aims to Stake Global Thirst for Clean Water. Wall Street Journal. March 15, 2007. Accessed May 10 ,2007. 14 Coke Buys Fuze to Light Up Its Lineup. Wall Street Journal. February 2, 2007. Page B3. http://0proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1208970671&SrchMo de=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179 373236&clientId=48347. 15 United Returns, Ending Five-Year Pepsi Deal. Wall Street Journal. May 1, 2007. Page A17. http://0proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=4&did=1263011991&SrchMo de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179 373042&clientId=48347. 13

cap is only 27 billion USD as compared to Coca-Cola’s 121 billion USD and PepsiCo’s . Their net income was only 1 billion USD, where the industry standard was 24 billion USD. This shows that Cadbury has some financial cost structure issues and that they are not as large or efficient as PepsiCo or Coca-Cola Company. Management Currently, Todd Stitzer is the CEO of Cadbury Schweppes and has been since 2004. He is an American and Harvard educated, but has worked his way up in the ranks to become the CEO of Dr.Pepper/7UP for almost six years and then move on to become the current CEO of the entire company. Their management structure is set up to be divided first into four different geographical regions and then into six different functional areas. This allows for a decentralized system that can still fall back on the company brand name. They are able to change marketing, financial and human resource schemes to fit the region and then focus on profit from there. Recently they have had issues with salmonella in 1 million chocolate products, bringing scrutiny to their work. They recalled the products, but the city council is still bringing three suits against them. Marketing Cadbury Schweppes’s marketing strategy tends to be one of brand recognition and the consumers understanding of a long-standing company that provides the majority of international confectionary and beverage goods. They are also large proponents of social responsibility and believe that “good values and good business go hand in hand.”16 Because they have a wide array of goods and international markets, they have several different marketing strategies that seem to be working for them quite well.

Recent Acquisitions Recently announced was the expected split between Cadbury’s confectionary and beverage divisions. Many critics expect that the confectionary division will be bought Cadbury Schweppes Society and Environment. http://www.cadburyschweppes.com/EN/EnvironmentSociety/. Last updated January 2007. Accessed May 14, 2007. 16

out by America’s Hershey brand and that the value of the product will decrease. However, this move was made after careful consideration and the belief that the two divisions would be better off splitting than being together.17 There are also a few mergers that may be in the works for the beverage side of Cadbury, including Canada’s Cotts. This would join the number 3 and 4 beverage producers in the United States and bring the competition even close to PepsiCo and Coca-Cola, capturing nearly 20% of the market share.18 Internal Environment Corporate Culture PepsiCo’s corporate culture is based on performance and quality of their products, services, and social responsibility. The guiding principles and commitment consist of:

Jargon, Julie. The case for a Hershey-Cadbury Romance; Play for UK firm May pinch Stock Now, But Set Stage for Growth. Wall Street Journal. April 19, 2007. Page C1. Accessed May 12, 2007. 18 McKay, Betsy. Canada’s Cotts Explores Cadbury. http://0proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1253948821&SrchMo de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179 377829&clientId=48347. Wall Street Journal. April 15, 2007. Page C3. Accessed May 14, 2007. 17

The culture is clearly communicated throughout the company and is very strong in consumer and social responsibility. 19 In fact, many efforts have been made to be environmentally conscious by heavily investing in recycling, and also extensive efforts have been made to better the lives of impoverished people in regions such as Africa. One of the main lacking components of PepsiCo’s values is their employees. Of the many concerns they have about the consumer and clients, little is said about the way employees are treated and what expectations and responsibilities are towards them. Programs exist that help employee’s take part in the community, and also future employees by offering school programs and scholarships. However, little effort is directed towards the responsibility of the company to employees. Coinciding with their values, objectives, and commitment, employees are left out of the grand scheme and may even be considered a means to an end. The limited focus on employees may be a problem in the long-run due to retention issues and resulting lack of quality. Corporate Resources Marketing Due to the many product lines PepsiCo markets, there are many different types of marketing strategies, but can all fall into several main categories. Much of the marketing efforts are directed towards a younger crowd that is associated with music, entertainment, sports, and various other market niches such as corporate sponsorship. Products are marketed with the same type of values the company has regarding quality, innovation, and performance. Drinks such as Mountain Dew and Gatorade are especially marketed towards younger active individuals and based on performance and a sense of “coolness” that Pepsi provides. This has not been clearly identified by the company, but is apparent with sponsorship of athletic events and teams, as well as in accordance with their website and target market. However, PepsiCo is missing a huge market that could largely add to revenues which is the baby-boomer generation. As much of the marketing is generated with a PepsiCo. Company Values. http://pepsico.com/PEP_Citizenship/pepsicoValues/index.cfm. Last updated January 2007. Accessed May 11, 2007. 19

younger audience in mind, additional markets are taken up by competitors, which have not shown to be detrimental, but could bring in many more customers. On the contrary, by grabbing the attention of many younger individuals, PepsiCo is capturing the loyalty of an audience that will continue to grow and thrive for many years. Finance As one of the leading beverage and food distributors and producers in the world, PepsiCo obviously has very strong financial backing and has been performing especially well. Their basic financial statement is very promising with revenues above Coca-Cola and the highest PepsiCo has ever seen, as well as low debt and liabilities.20 PepsiCo has shown and average of six percent growth since the year 2000 and has accomplished many growth goals by acquired and manufacturing a wide range of products. The pure size of PepsiCo is a competitive advantage because they produce so many commonly used products throughout the world, and are minimally leveraged by market ups and downs. Illustrating this point is their increasing ROE, ROA, and ROI ratios that have experienced great increases over the past several years where soda sales have declined.21

Research and Development For a company that solely depends on the happiness of the consumer, PepsiCo invests in R&D in many different ways. Not only does research go into products, but also into additional opportunities to profit with concentric diversification. PepsiCo does not explicitly state R&D objectives and goals, but implicitly through their values and mission to create quality product that serves the consumer. Consequently, R&D can be assumed to constantly occur, and has been shown through the addition of many products throughout the years.

(Reference Chart 2) Mergent Online Journal. Company Detail. http://www.mergentonline.com/compdetail.asp?company_mer=6581&company=-1. Last updated March 2007. Accessed May 11, 2007. 21 (Reference Chart 3) Company Detail. http://www.mergentonline.com/compdetail.asp?company_mer=6581&company=-1. Last updated March 2007. Accessed May 11, 2007. 20

Operations and Logistics Headquarters are in New York, but several smaller headquarters for each product are distributed throughout the U.S. and the world. Since PepsiCo is mainly a U.S. company, factories and distribution centers are mainly located throughout the U.S., although there are a couple exceptions of plants in the United Kingdom, Puerto Rico, and Ireland. Most likely to PepsiCo’s advantage, offices, warehouses, plants and distribution centers are located in the U.S. which provides quick and convenient access and also is less associated with the complications of operating and producing internationally

ANALYSIS OF STRATEGIC FACTORS Pepsi Co has been consistently living up to its mission and objectives, as they offer the most valuable products and beverages to their clients. The main areas they need to focus on for improvement is continuing of recycling of containers. Due to the liquid nature of Pepsi’s product, it is necessary that a solid and non-porous container be used to store the products. In way to the recover, their position in the minds of the public externally, and with employee satisfaction internally. In light of the various discrimination lawsuits brought on in 2001 and 2004, the company has been faced with the task of how to improve from within themselves, thus portraying a more positive external image. Their mission clearly their dedication to client satisfaction through the integration of all employees on an equal opportunity playing field. This mission has to be carried out more effectively in the future for them to be able to progress forward in the most opportune manner possible.22 Due to the liquid nature of Pepsi’s product, it is necessary that a solid and nonporous container be used to store the product. This fact leads to the use of plastics, aluminum, and glass as materials for the containers that Pepsi is stored in. These materials work very well for the purpose of their use, however these materials do not biodegrade easily. Every day, 93 million empty soft drink bottles and cans are thrown away, rather than recycled. In November 2000, the boards of Pepsi and Coke passed resolutions for future container recycling targets. The resolutions call upon management Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR Archives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 2007 22

to establish recycling targets and prepare a plan to achieve them by January 1, 2005. There are two goals: (1) achieving an 80 percent national recycling rate for bottles and cans; and (2) making plastic bottles with an average of 25 percent recycled plastic. The implementation of these resolutions will have a future effect on the cost basis of Pepsi’s product, and a positive environmental impact if the recycling targets are met.23 Growing in another sections, declining Cola’s interest. Beverage industry is moving towards another choice of drinks sector. . Although in recent times, normal beverages have been making a renewal, it is obvious that alternative drinks will continue to grow. Pepsi can utilize its excellent brand recognition and reputation to invest in and capitalize on growth in this area, and increase it market share against Coca-Cola at the same time.24 Also increasing the use of exclusivity agreements with restaurant chains and college campuses. Coca-Cola has a majority of exclusivity with restaurant chains including McDonalds and other major fast food chains. The benefits of exclusivity agreements give Coca-Cola a major advantage in channel distribution. The major reason Taco Bell was purchased by Pepsi was to create a new channel for Pepsi to be sold in restaurants. In addition to restaurants, soft drink manufacturers are willing to engage in "cola wars" to win the rights to supply all the machines in a given school in return for a commission. The funds go to support financially starved school programs that could range from buying new library books to beefing up the computer lab. Coca-Cola’s is now the market supremacy. The dominance of Coca Cola in the soft drink market has always been considered a major factor for Pepsi management. As long as Coca Cola continues to retain a dominant market share, Pepsi should continue to aggressively acquire Coca Cola market share. The excessive work pressure results in evacuation of Pepsi management. The “creative tension” which is constantly being placed on Pepsi management has resulted in a number of management leaving the company for Coca Cola. Coca Cola has consistently been able to acquire the “Pepsi Tigers”, or very good managers, away from Pepsi. PepsiCo. Sustainability Report. http://www.pepsico.com/PEP_. Last updated January 2007. Accessed May 10, 2007. 24 Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR Archives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 2007 23

Review of Mission and Objectives According to the company’s official website, PepsiCo Incorporated’s mission is to make this company: “the world’s premier consumer products company, focused on convenient foods and beverages. PepsiCo strives to produce healthy financial rewards to investors as it provides opportunities for growth and enrichment to its employees,“ So the overall mission of PepsiCo is to increase the value of shareholder's investments. This is achieved through sales growth, cost controls and wise investment of resources. PepsiCo believes that their commercial success depends upon offering quality and value to their consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhering to the highest standards of integrity.25 Objectives Concentration of resources on growth of businesses through internal growth and carefully selected acquisitions PepsiCo has adopted a plan for growth by continually addressing the opportunities and risks associated with the global marketplace. The corporation's success reflects their continuing commitment to growth and a focus on those businesses where they can drive their own growth and create opportunities. Contribute to the quality of life in communities. PepsiCo believes that as a corporate citizen, it is responsible to contribute to the quality of life in the communities it serves. This policy is implemented through support of social agencies, projects, and programs. The company also supports employee volunteer activities through contributions of time, talent, and funds. Each PepsiCo division is responsible for its own giving program with corporate giving focused on supporting employee volunteer activities. 26 The strategic objectives seem to address most of the strategic problems facing PepsiCo Inc. For example, the risk that demand for PepsiCo’s products may be adversely affected by changes in consumer preferences is addressed by the strategic objective of caring for PepsiCo. http://www.sec.gov/ Archives.com . 12 May 2007 "Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR Archives. 20 Feb 2007. 26 "PepsiCo Vision and Strategy." PepsiCo Inc. 2007. PepsiCo Incorporated. 11 May 2007 25

customers and their changing needs and wants. The issue of damage to PepsiCo’s reputation that could have an adverse effect on its business is addressed by the company’s objective of respecting employees, vendors, customers, and by its commitment to diversity, and by its commitment to candor and openness. PepsiCo is among the world’s largest consumer products companies. In fact, it is one of the largest companies in the world. PepsiCo is focused on various strategic initiatives that it believes will drive growth and ensure the company’s success. When considering whether to change the mission and objectives, it is important consider the impact of such a change on the company’s long-term strategies. It is also important to note that PepsiCo reported a sales revenue increase of 8 percent for fiscal year 2006 compared to 2005. In 2006 PepsiCo also reported net income of more than $5.6 billion representing a 4 percent increase relative to fiscal year 2005. Whatever PepsiCo is doing, it seems to be doing well. The biggest risk associated with a change in mission and objectives would be a loss of focus and a loss of momentum (PepsiCo Vision and Strategy).

Strategic Alternatives and Recommended Strategy Pepsi Co is currently a strong worldwide leader in the food and beverage industry. Throughout its growth, it has stayed true to its mission and objectives, while becoming a dominant force within the United States as well as abroad. Known throughout the world for quality products and customer care, Pepsi Co should make no major strategic changes to its plan. However, like in any business situation there are areas that Pepsi Co can improve upon. Some of the recommendations are as follows: -

Continue to expand with their “Human Sustainability”. The healthy eating market is a demographic that will continue to grow in the future, and will provide generous profits if Pepsi Co is able to obtain a large market share.

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Expand more into social benefits, especially for those in developing nations. Pepsi’s main competitor Coca Cola has implemented a water purification program for African Villages, which provides a valuable need and at the same time introducing their brand name where it was before unknown. If Pepsi

followed this same ideology with food products and water purification it too would significantly increase brand recognition -

Capture more of the aging population’s market share. Pepsi is a company focused on a younger market hoping to repeat the worldwide success of Coca Cola in regards to brand loyalty with the generations born after 1980; however, there is still a large market with the Baby boomer demographic that they could break into.

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A minor yet still important change that needs to be made is to their website. After comparing it to competitors we feel that it needs to be simplified. Implementation

Overall PepsiCo is a successful company with substantial revenue, and a large footprint in the marketplace. PepsiCo should continue to expand their growth and take advantage of potential opportunities by continuing to improve on areas at the corporate top level, in the markets that they currently are in, and in new markets and market segments that they wish to expand into.  PepsiCo should expand into markets and market segments that they are currently not in, such as Asia, India, and South America, in order to expand their market share at the global level and to increase their overall revenue.  PepsiCo should improve their employee relations in order to create employees all over the world that will promote the product both during their work day and in their personal life in order to create “word of mouth marketing”.  PepsiCo should look to cut some of their expenses as they currently have $10 billion more in revenue than the competition, but they have a similar Net Income of $5.5 billion.

 PepsiCo needs to continue to expand their market share in the markets where they currently have a strong presence in order to maintain their market share and their footprint in the marketplace.  PepsiCo should become more proactive in the health food/product marketplace rather than being reactive to the market trends. They need to improve their responsiveness and future projections to market trends and changes that can therefore allude to different product segments and target markets. Evaluation and Control  PepsiCo should expand into markets and market segments that they are currently not in, such as Asia, India, and South America, in order to expand their market share at the global level and to increase their overall revenue. In doing so, they should increase the revenue percentage above the current below 20%. They should evaluate the situation and growth again in one calendar year, and analyze the total effect.  PepsiCo should do market surveys of their target market segments in order to analyze the existing brand awareness in the marketplace every two quarters and then analyze the overall change and trend on the calendar year.  PepsiCo should cut their expenses by a set percentage every quarter in order to increase their Net Income each quarter and year. This would increase the bottom line and benefit the stockholders. It would be advised to reduce costs by 10% as an original amount, and then potentially increase the percentage after a few trial quarters.  PepsiCo should position themselves on the cutting edge of the health trend in the marketplace by increasing funds for R&D in order to research potential new

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