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PepsiCo Sustainable Advantage and Market Expansion Strategy

Learn about PepsiCo's sustainable advantage and market expansion strategy through the SMART Spot program. Explore their objectives, growth, competition with Coca-Cola, and strategic plans for US and international markets.

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PepsiCo Sustainable Advantage and Market Expansion Strategy

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  1. Bret Goldin Mariana Loose Randy Noval Jamie Olarte Juan Torres

  2. Incorporated in 1919 Four divisions: PepsiCo International Frito-Lay North America PepsiCo Beverages North America Quaker Foods North America North American divisions operate in the United States and Canada International divisions operate in over 200 countries Largest operations in Mexico and the United Kingdom PepsiCo

  3. PepsiCo’s Sustainable Advantage • Sales $33.2 billion 2005 • 7.2% growth over 5 years • Three major sustainable advantages give PepsiCo a competitive edge in the global marketplace: • Big, muscular brands • Proven ability to innovate and create differentiated products • Powerful go-to-market systems

  4. PepsiCo Objectives • Widen the gap between competitors by focusing on 2 key areas: • SMART Spot Program • U.S. Expansion • Selective International Introduction • International Expansion • Focus on emerging markets

  5. SMART Spot Background • 5 steps that are easy to remember, to follow, and to incorporate into daily life • Start with a healthy breakfast • Move more • Add more fruits, vegetables and whole grains • Remember to hydrate • Try lower calories or fat

  6. SMART Spot Growth • 2005 Smart Spot growth was more than 13% • 40% of U.S. sales are from products that have the Smart Spot label • Growth was more than 2½ times the rate of the rest of the PepsiCo portfolio in 2005 • 2006 projected growth is 50%

  7. SMART Spot Competition • Coke focusing on promoting carbonated soft drinks • Leaving open spot for Pepsi in market with huge potential • Pepsi now associating a healthy lifestyle with products, Coke is not • Coke was a latecomer to this healthy market • Not the market leader in any major healthy beverage • Bottled water, energy drink, sports beverage, tea, refrigerated juices • First time in 20 years, soda sales in the U.S. decreased • 2005 by 10.2 billion cases • Coke down 2%, Pepsi down 3.2%

  8. Two pronged strategic plan for expansion Expansion in the U.S. market Add quality and quantity to the SMART label Dedicate resources and funds to R&D to improve taste and quality of SMART label food Develop lower fat / calorie substitutes to more PepsiCo products Cookies, energy bars, soy products Promotion Continue focus on kids / playgrounds Include high schools students to continue healthy lifestyle Target adults in health clubs Partner with healthy eating establishments e.g., Subway SMART Spot Expansion

  9. Expand SMART internationally Have started cautiously in Canada, July 2004 Find other similar markets concerned with health, with a strong Pepsi presence Childhood obesity is growing intensely in England Using the national Body Mass Index percentiles approach, 30.3% of boys and 30.7% of girls were overweight, including 16% who were obese in 2002 Build playgrounds, recreation centers, fund SMART dieting programs in schools across UK SMART Spot Expansion

  10. SMART Spot Expansion There’s a discernible acceleration in the obesity trend in England from the mid-1980s onwards

  11. International Strategy • Build on our global snack leadership position • Focus on the strengths of beverages • Grow through acquisition • Leverage our economies of scale

  12. International Strategy Profit of PepsiCo International are more than half of all operating profits for PepsiCo Operating profits have been increasing at over 20% per year since creation of PepsiCo International and expected to continue to grow 2005: $1.6 billion profit on $11.4 billion of international revenues 2004-2005: Per year revenue increase rose above 15% and is expected to demonstrate growth

  13. Focus on snacks and non-carbonated beverages Snacks account for 70% of international profits and about 72% of all revenues outside U.S. Non-carbonated drinks expected to show double digit growth 64% of growth of bottled water consumers are switching from sodas Desire to continue being world-wide leader in snack foods Can grow this further with the SMART program Coke plays a much smaller role in this international market Coke accounts for a paltry 4% of non-carbonated beverages Coke lost global market share in teas and coffees in 2005 International Focus

  14. Key Regions • China and India • Combined population of 2.5 billion people • Almost half the world’s population • Combined population under age 15 approaching 700 million • more than twice entire U.S. population • Combined urban population approaching 800 million • more than 2.5 times entire U.S. population

  15. International Entry Mode • China and India • PepsiCo International has used acquisition and partnerships with foreign firms for entry into new markets • We suggest continued pursuits of acquisitions • Smaller, local snack and beverage companies

  16. China and India Already have existing R&D facility in China Build R&D facility in India The PepsiCo Foundation contributed $500,000 to establish water projects in China and another $385,000 for projects in India Continue social responsibility initiatives International Strategy

  17. China and India Become hubs for both countries as well as Asia Pacific and Middle East regions Focus on developing snacks for children under 15 population (700 million) Develop partnerships with schools for distributing snacks to students International Recommendations

  18. International Recommendations • China and India • Emphasize Global Procurement Group’s role in materials acquisition • Emphasize local procurement wherever possible • Create Asian Advisory Board • already have Latin and African American Advisory boards • Expand sponsorship of regional sporting events • China - Baseball • India - Cricket and Rugby

  19. Focus on expanding SMART Program in: U.S. Canada Introduce SMART to the UK Devote additional 25% of R&D budget to SMART product development Research potential regional snack food producers for India and China acquisitions 3 year plan: Year 1

  20. Expand UK SMART Spot program to include high school to adult age consumers Celebrity endorsements in the UK Acquire regional snack food producers in India and China To mitigate liability of foreignness 3 year plan: Year 2

  21. Research further expansion of SMART Program to other regions including: Latin America Emerging Markets Grow brand extensions of acquired firms in India and China Strengthen those foreign market positions With local R&D in both markets, will have local knowledge to better cater to unique cultures and expand offerings 3 year plan: Year 3

  22. We are #1 in a variety of growing sectors Leading sports drink (Gatorade) Leading juice drink (Tropicana) Leading ready to drink coffee (Starbucks) Leading chips products Coke lacks these strengths to build upon They are ahead only in the shrinking carbonated beverage market “With 95% of the worlds population located outside of N. America, international growth is our single largest opportunity. Our strategies are focused: Build on our snack leadership position; Focus on the strengths of our beverages; Grow through acquisitions; Take advantage of our scale.” An Exciting Time For PepsiCo

  23. QUESTIONS?

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