Indra Nooyi has employed you as a consultant to assess PepsiCo’s diversified bus
ID: 350429 • Letter: I
Question
Indra Nooyi has employed you as a consultant to assess PepsiCo’s diversified business portfolio in 2015 and to make recommendations as to what actions PepsiCo’s top management team should now take to increase shareholder value to new highs.
What is your evaluation of PepsiCo’s lineup of businesses? Has the company diversified into attractive industries?
What is the competitive strength of its business units? Do they have adequate strategic and resource fit to contribute to increases in shareholder value?
What is the financial performance of the corporation overall and each of its business units?
How should PepsiCo management best allocate management operating cash flows? Should the company consider new acquisitions? Do some of the Quaker brands need to be divested?
What other corporate strategies would you recommend to PepsiCo management?
Explanation / Answer
WHAT IS YOUR EVALUATION OF PEPSICO’S LINEUP OF BUSINESSES? HAS THE COMPANY DIVERSIFIED INTO ATTRACTIVE INDUSTRIES?
The corporate strategy of PepsiCo is to diversify the company’s product portfolio into all kinds of categories within the snack, food and beverages industries. They are doing this through product innovation and close relationships with distribution allies. They are also expanding nationally and globally through external acquisitions and mergers, and reformulating their products to be healthier. The business strategy of PepsiCo Beverages North Americais to improve the volume and market share in soft drinks by applying the unique strategy “Power of One”, which focuses on local distribution through placing Pepsi and Frito-Lay products side by side on shelves. The business strategy of Frito Lay North Americas to develop “good-for-you” and “better-for-you” products that are healthier snacks and provide multiple flavors to its customers to create growth opportunities. The business strategy of PepsiCo International is to increase the volume of snacks, beverages, and food outside North America by discovering new opportunities indifferent markets and understanding the local consumer taste preferences. The business strategy of Quaker Food North America is to increase market share through applying the “good-for-you” and “better-for-you” strategy in hot and ready-to-eat cereals, pancake mixes and syrups, and rice and pasta side dishes in North America
What is the competitive strength of its business units? Do they have adequate strategic and resource fit to contribute to increases in shareholder value?
Since the Frito-Lay
N.A in snack industry, Pepsi N.A in beverage industry have the score of competitive strength rating above 6.7 so they are strong market contender in the industry. The other which is Pepsi International in snack, cereal & beverage industries and Quaker N.A in cereal industry have the score in the 3,7-6,7 range so they have moderate competitive strength comparing to other rivals
WHAT IS THE FINANCIAL PERFORMANCE OF THE CORPORATION OVERALL AND EACH OF ITS BUSINESS UNITS?
HOW SHOULD PEPSICO MANAGEMENT BEST ALLOCATE MANAGEMENT OPERATING CASH FLOWS? SHOULD THE COMPANY CONSIDER NEW ACQUISITIONS? DO SOME OF THE QUAKER BRANDS NEED TO BE DIVESTED?
Either independently or through contract manufacturers, QFNA makes, markets and sells cereals, rice, pasta and other branded products. QFNA’s products include Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch cereal, Quaker grits, Life cereal, Rice-A-Roni, Quaker rice cakes, Pasta Roni and Near East side dishes. These branded products are sold to independent distributors and retailers. QFNA’s net revenue was $2.7 billion in 2010, 2009 and 2008 and approximated 4% of our total net revenue in 2010 and 6% of our total net revenue in both 2009 and 2008.
WHAT OTHER CORPORATE STRATEGIES WOULD YOU RECOMMEND TO PEPSICO MANAGEMENT?
PepsiCo was the world’slargest snack and beverage company. More exactly the company’s corporate strategy had diversified the company into salty and sweet snacks, soft drink, orange juice, bottled water, ready to drink tea and coffee. About picking new industries to enter anddeciding on the mean of entry, PepsiCo used related diversification through acquisition and merger to quicker launch a brand-new operation, hurdle entry barrier as acquiring technology knowhow, establish supplier relationships, match rival’s efficiency. And to move directly to the task of building a strong market position. As early as 1968, the company began to pursue growth through acquisition outside snacks and beverages. A list of acquisition is 1977 acquisition of Pizza Hut,1978-tacobell. 1986-Kentucky Fried Chicken, Mug root beer, &UP international, smart food ready to eat popcorn, Walker’s Crisps, Smith’s Crisps, Mexican cookie