Custom «Pepsi Case» Essay Paper Sample
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Gamble (2008) explained that Pepsi is currently the world's leading company for beverages, snacks and other types of foods. It is a multinational company with branches spread in America, Europe, Africa, Asia, the United Kingdom and Middle East. Pepsi has branches in about 200 countries. Most of the companies under Pepsi were acquired by merging with other companies for example, PepsiCo merged with Frito Lay in 1965. This was followed by other company acquisitions by PepsiCo; the acquisition of Tropicana in 1998 and finally its merger with Gatorade and Quaker Oats Company in 2001. The company has a rich history dating from 1898 when it was founded by Caleb Bradham.
Today, Pepsi holds the largest beverages' and snacks' market share of 43%. Its competitors are coca-cola with a market share of 30%, Diet Pepsi which has a market share of 5.9%, Diet Coke at 8.5%, Mountain Dew Beverage Company has a market share of 6.3% and it is followed easily by Sprite at 6.2%. Other companies in this industry include 7-up that has a market share of 2.3%, Miranda at 2.8% and lastly Fanta that commands only 1% market share. This is going to discuss in detail the chief economic and business characteristics of Pepsi, relative pressures in its five locations, company's generic strategy and lastly the reason as to why one should not fear investing in Pepsi shares.
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Economic and Business characteristics
To begin with, Pepsi is the world's leading beverage company. It currently operates outlets in 200 countries with an estimated 39.5 billion dollars as net profit. Pepsi has a rich portfolio of business that includes a number of numerous companies. The companies under Pepsi portfolio include: Tropicana orange Juice, Pepsi soft drink products, Aquafina, Propel, Quaker oats product among many others (Gamble, 2008).
Gamble (2008) points out that Pepsi has also been restructuring its business portfolio since 1997. The restructuring process led to acquisition of other companies such as Quaker Oats. Quaker Oats was the last to be bought in 2001and since then; Pepsi has managed to increase its profits and revenues at the rates of 12 percent and 7 percent respectively per year.
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Generally speaking, Pepsi Company has experienced an economic growth after a successful restructuring of its portfolio. The company attributes about 15% to 20% of its economic growth to its new products that include: drinks with tiger woods signature, Gatorade G2 and Quaker simple harvest multigrain hot cereal. Additionally, growth was due healthy products that the company had innovated. Examples of pro-health products by Pepsi are the "better for you" and "good for you" that contributed to high sales of 16% and 70% of profits in North America in 2007. This trend led to increase of healthy foods by the company as result of increased demand especially in developed countries (Gamble, 2008).
Gamble (2008) acknowledges that in 2007, Pepsi increased its global sales by 22%. By this time, the company also enjoyed the advantage of a larger market share in all its outlets in various countries for majority of its products. However, this was not the case with Quaker branded products that were unavailable in North American markets. In fact, 75% of total global sales of Quakers Oats were in only six countries.
By 2007, Pepsi's business in North America alone was much more profitable than in the rest of all other countries. However, there was an increase in its profits from international business to 15.6% from 13.4% between years 2004 and 2007. This was far much below the profits in North America and Frito-Lay that were estimated to be within the range of 21.3% and 25% (Gamble, 2008)
Five fronts of competition
Gamble (2008) defines Porters five fronts of competition model as a tool that enables companies or rather people in business to comprehend their areas of strength as compared to their competitors. The companies should capitalize on their strength in order to beat their competitors at opportunities in business or rather market. Pepsi faces a number of challenges in its business operations internationally.
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The first pressure stems from the supplier power. Pepsi offers a wide range of products i.e. snacks, beverages and foods, it requires and probably has a huge number of suppliers for raw materials and other inputs. This cushions the company form effects of few suppliers; few suppliers will mean high costs of supplies and this lead to high costs of production and those of products (Gamble, 2008)
Secondly, Gamble (2008) notes that the company has a good number of competitors. These include: coca-cola, Diet Pepsi, Diet Coke, Mountain Dew Beverage Company, Sprite, 7-up, Miranda and Fanta. Majority of these competitors e.g. coca cola, commands a commendable market share. Beside a huge market share of 43%, Pepsi is likely to loose its customers to its competitors if it fails to keep up with its customers' needs and preferences e.g. affordable price and quality.
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The third force is the buyer power. Pepsi has a large market share of 43% with its target buyers being between the ages of 18 to 29 years. It also targets young adults of ages between 12 to 18 years. This customer numbers is way too far above that of competitors and hence they do not have the power determine the operations of the company unlike its competitors who have low market share. Fanta being one the competitors has a market share of 1% (Gamble, 2008).
Gamble (2008) argues that the current trend has seen Pepsi grow to regain its international profitability. This was after the restructuring of its business portfolio in 2007; it faces a threat of new entry by new companies. The new entrants will provide competition and hence Pepsi's profits will reduce.
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Besides its wide range of products, Pepsi has also had a number of newly introduced foodstuffs. These have contributed to company's total international growth by approximately 15% to 20%. Other development in product range is the innovation of more healthy beverages and snacks. This led to increased sales in North America in 2007 by 16%. From the above data, we can conclude that very few or no products of competitors will be used in place of those from Pepsi and thus limited or no threat of substitution (Gamble, 2008).
Gamble (2008) noted that Pepsi is employing differentiation strategy in order to have market advantage over its competitors. The company has plans laid down to establish loyalty from its targeted customers who are mainly the X-generation (18 to 29 year olds). Pepsi marketing report (2010) noted that "...Pepsi believes if they can get this market to adopt their product then they could establish a loyal customer for life." Customer loyalty will keep off new entrants or competitors.
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The company has had a generic strategy through differentiation by increasing the number of its territories. Through the restructuring of its business portfolio, Pepsi have acquired a number of companies the last one being Quaker Oats in 2001. Currently, it operates inn 200 countries and has the biggest market share of 43%. This big market share indicates a big number of buyers for its products. The large number makes denies the customers the power to bargain (Gamble, 2008).
In terms of the range of products, Pepsi have the widest than all of its competitors. Introduction of new products that include the newly innovated healthy snack and beverage options have given Pepsi a boost in sales by 16% leading to increased profits especially in North America and internationally in 2007. Gamble (2008) noted that "The Company also increased the percentage of healthy snacks in markets outside North America since consumers in most developed countries wished to reduce their consumption of saturated fats..." This makes buyers to loyal to unique products from new innovations thus eliminating risk of substitutions.
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According to Gamble (2008), Pepsi is a company worth investing in. this is because it is currently the world's number one profitable beverage and snacks company. It operates in 200 countries spread in America, Europe, Africa, Middle East and Asia. It commands the largest market share of 43%. Pepsi marketing report (2010) says "a recent research survey shows about 90% of the world population when asked which soft drink do they prefer replied Pepsi". To add on to this, Gamble (2008) asserted that "...Since the restructuring, the company had increased revenues and net income at annual rates of 7 percent and12 percent, respectively..." As seen above, the company has a potential to increase its market share, profit and also there is high prospects of growth as compared to its competitors.
Pepsi is the world's leading beverage, snacks and foods company. It operates internationally in a total of 200 countries spread all over America, Europe, Africa, Asia, Middle East and the United Kingdom. Pepsi is enjoys the biggest market share of 43%. It company was started way back in 1898 by Caleb Bradham. The company has undergone a number of restructuring in its business portfolio, and currently it realizes increased revenue of 7% and12% income. It is also important to note that the company faces challenges from five fronts of competition that include: buyer power, supplier power, threat of new entry, competitive rivalry and lastly threat of substitution. Pepsi applies differentiation strategy in order to cope with competition. Lastly, Pepsi Company is a viable investment opportunity.