Strategic Analysis of PepsiCo

Dominant LogicDavid Bright, Terra Christensen, Nicholas

Papas,

Arc Sims, Derrick Smith

Introduction

Methods

Areas of concern

•Growth opportunities and competition

Recommendations

•Acquisition

Company Overview

2001

Total Revenue $27 Billion

Net Income $2.7 Billion

ROS 9.8%

ROE 32.8%

Company Overview

Three divisions

•Pepsi •Frito-Lay •Quaker

OatsFrito-Lay54%

Quaker Oats7%

Pepsi39%

Beverages Industry Overview

Non-Dairy, Non-Alcoholic

Pressures from

•Buyers•Competitors

Other information

•Entrants

Snack Food Industry Overview

Salty, Grain-Based

Pressures from

•Buyers•Substitutes•Competitors

Other information

•Entrants

Competitive Positioning

Differentiation Strategy

•Product packaging•Product manufacturing•Product innovations•Marketing

Core Competency

Branding/Marketing

Product Innovation

Diversification Strategy

Recent efforts

•Acquisitions•Divestitures•Joint Ventures

Strategic Conclusions

Current strategies are working

Areas of concern

•Growth rates (domestic and abroad)

•High competition•Over diversified

Alternatives

Divestiture

Acquisition

R&D

Divestiture

Quaker Oats

•Appears to be poor fit•Acquired for Gatorade

Research and Development

Be innovator

•Develop unique brand extensions

•Lead development of unique preservatives, additives, and packaging technology

Acquisition

Jones Soda

•Growing specialty, premium soda market niche

•Fits with PepsiCo’s core competency

•Can possibly be acquired for $10M•NPV of $19M, with potential for

nearly $50M

Recommended Alternative

Acquire Interstate Bakeries Corporation

•Portfolio of bread, bakery goods, and sugary snack foods,which uses many of the same distribution channels

•Recognizable, segment leading brands with Hostess and Dolly Madison

Recommended Alternative—Financials

IBC Present Value CalculationsRealistic Assumptionsamounts in $ millions

Actual12/ 31/ 01 12/ 31/ 02 12/ 31/ 03 12/ 31/ 04 12/ 31/ 05 12/ 31/ 06

Sales 3,496 3,531 3,566 3,602 3,638 3,674 Cost of Goods Sold (1,653) (1,670) (1,686) (1,703) (1,720) (1,737) Selling, Delivery and Administrative(1,586) (1,190) (892) (901) (910) (919) Depreciation & Amortization (111) (112) (113) (114) (116) (117) Interest Expense (47) (47) (47) (47) (47) (47) Net Income Before Taxes 99 513 828 836 845 854 Taxes (39) (179) (290) (293) (296) (299) Net Income Before Taxes 60 333 538 544 549 555

12/ 31/ 05 Terminal Value 3,938 Total Cash Flows 333 538 544 4,487 Discounted Cash Flows 290 406 357 2,557 Present Value of Cash Flows 3,609

<--------------------------Estimated--------------------------->

Thank you