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PEPSICO Diversification Strategy 2008
Citation preview
INTERNATIONAL STRATEGIC
MANAGEMENT
Clémentine BABONNEAU
Alice BEZIRARD
Léna BITTON
Carole GUIMBART
Maxime HUBIN
• External analysis
• Internal company analysis
Strategic Diagnosis
Alternatives
Recommendations
How can PEPSICO improve its diversification strategy in 2008?
EXTERNAL ANALYSIS
-MARKET TRENDS
-PESTEL
-OPPORTUNITIES & THREATS
-PORTER’S 5 FORCES
-KEY SUCCESS FACTORS
•Great-tasting
•Gourmet flavor
•Styles
•Diet and reduced calories food
•Non-carbonated beverages
Consumer health and wellness
concern
Consumers want to reward
themselves
Consumer desire to escape from the norm and taste snacks from a wider, often global
palate
Ready to eat and ready to drink consumption
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
•“Better for you” – “Good for you” opportunities
•Changing lifestyles of consumers
•Taste preferences from country to country: adaptation to the local tastes
Consumer lifestyle:
•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”
International Expansion
• 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
Potential growth of markets:
Awareness for healthy, sugar and salt free meals Decline in Carbonated Drink Sales
• Legal barriers to enter new markets : protectionism
• Legislation involving environmental, health, and safety may force a reorganization in the industry
Potential Negative Impact of Government Regulations
• 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
Intense Competition
• In 2008 a strike in India shut down production for nearly an entire month
Potential Disruption Due to Labor Unrest
Rivalry among existing
competitors
Threat of new
entrants
Bargaining power of buyers
Threat of substitute products
Bargaining power of suppliers
--
Low power of new entrants
Few multinational groups own
the largest part of the market
share
Possible entrants for niche
markets or local markets
++
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
+
High
-All kind of food depending on
the taste
-Pay attention to healthy and
wellness categories
+/-
Medium
bargaining power
-Dependence on
raw materials
-But…a lot of
suppliers available
++
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
-STRENGHTS & WEAKNESSES
Frito-Lay North
America
PepsiCo
Beverages
North America
Pepsi
International
Quaker Foods
North America
$11,586 $10,230$15,798 $1,860
Non Alcoolics Beverages brandsSalty Snacks brands Oat Food and Cereals brands
PepsiCo’s organizational structure & Net Revenues for each Business Segment
(in $ millions) in 2007:
Organizational profile:
Diversification strategy = multi products & multi markets
• PepsiCo constantly improved its knowledge on the consumer behaviour by identifying trends such as healthier products:
• New brand value: PepsiCo’s better-for-you & good-for-you products
Market Research
• Launch of less saturated fat and less salted products answering to the trends found it by « Consumer Insight dept »
• Introduction of Lay’s traditional flavour with 50% less saturated fat
R&D: Product Innovation
• Close relationships with suppliers & customers under the Power of One program that allow PepsiCo to have direct information from both retailers & customers
Efficient Information System
• PepsiCo has succeed in creating an international exposure especially with Beverages & Salty snacks (increase of 22% in 2007)
International expansion
• Those acquisitions allowed PepsiCo to gain synergy in its whole business
Strategicacquisitions
Competitive Advantages
Product diversity
Differentation
Brand equity
Product diversity:
- 3 Business Units
- A wide and deep range of
products
Brand equity:
-Awareness
-Recognition
-Perception
Differentiation:
-High value products
-Strong positioning
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)
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
GOOD FINANCIAL HEALTH WHICH ALLOWS THEM TO SELF FINANCE THEIR GLOBAL EXPANSION
Price in the stock exchange was about $33 in 1999 & about $64 in 2008 (+ 120%)
Net revenues by activity (2004-2007):
Frito-Lay North America=21%
PepsiCo beverages North America=23%
Pepsi International=60%
Quaker Foods North America=22%
Total Net revenues of PepsiCo Inc. from 1998 to 2007: increased by approximately 77%
-MAIN STRATEGIC CHOICES
-ACTUAL STRATEGY
-PEPSICO DIVERSIFICATION
-PEPSICO CHALLENGES
-PEPSICO DIFFICULTIES
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
Focus on snacks
and beverages
Strategic International acquisitions
Large diversification of PepsiCo’s
products
Make healthy and wellness
products
Relevant innovations in
R&D
Strong presence in mature and emerging markets
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
•new flavors, health and wellness products
•Frito lay North America, Quaker Foods North America, Latin American Foods, PepsiCo Americas Beverages, UK and Europe, Middle East, Africa & Asia
•Understand local taste•China and Brazil would 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 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
To manage efficiently the new
six reporting segments
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 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).
We have defined 3 SBUs:
• Frito Lays
• Beverages
• Quaker
We considered both american and
international markets
Mark
et
Gro
wth
Rate
high
Low
1
Frito
lays
Int
Frito
lays
AMERICA
Stars
Cash cows
Question marks
Garbage can dogs
Bever
ages
Int
LEGEND
GREY :
AMERICA
BUSINESS
Pink:
INTERNATIONAL
BUSINESS
Relative Market Share
Quaker AMERICA
Quaker Int
Beverages
AMERICA
-OBJECTIVES
-OUR ALTERNATIVES
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
Choice number
3:
• Forecast new 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‟
NEW NEEDS0,20 5 4 9
TOTAL 1 5,55/10 4,65/10 6,2/10
ALTERNATIVE 3.
Forecast the
trends
ALTERNATIVE 2.
International
acquisitions
ALTERNATIVE 1.
Adaptation to local
customers
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
According to our analysis, the best choice for
the company would be: