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1. Focal Questions for PepsiCo: Performance with Purpose, Achieving the Right Global Balance

 

1. Discuss the changes that are occurring in the global food and beverage industry and their implications for PepsiCo and other companies that compete in these markets.

 

There is growing incidence of chronic diseases which are linked to poor diet and obesity. The World Health Organization (WHO) recommends:

 

• Elimination of trans-fatty acids and reduction of saturated fats, salt, and sugar.
• Increased consumption of fruits, vegetables, legumes, whole-grains, and nuts.

 

In 2009, Governments of US and EU were considering legislating “obesity” taxes on sugared soft drinks, fatty and salty snack foods.

 

PepsiCo’s new CEO Indra Nooyi opted for promoting enjoyable and wholesome food: reduced sugar, salts and saturated fats.

 

Also included concerns for reducing environmental impact and for fostering a diverse and inclusive workplace culture.

 

2. Analyze PepsiCo’s new corporate strategy and its efforts to transform the company to achieve growth and differentiation. What are the key elements of this strategy and how do they involve PepsiCo’s marketing strategies and programs?

 

PepsiCo has reframed its portfolio into a Global Nutrition Group (GNG) consisting of two companies:

 

• Fun-for-You (FFY) PepsiCo’s traditional Pepsi consumer soft drinks (CSD) and Fritos snack business – the “treats to be enjoyed in moderation within a balanced diet” - businesses which were expected to progressively slow down; and

 

• Good-for-You (GFY) PepsiCo’s new nutrition organization – a promising new business which required investment to be developed and which required the participation of medical, scientific and academic communities.

 

Consequently, one could foresee the gradual shifting of product-developing and marketing resources from the cash cow FFY towards the embryonic GFY.

 

3. Evaluate the various acquisitions PepsiCo has made including Tropicana, Quaker Oats/ Gatorade, Naked Juice, South Beach Beverage Company (SoBe), and Amacoco as well as the decision to spin-off its restaurant group and bottling operations.

PepsiCo’s acquisitions since the arrival of the new CEO in 2006, Indra Nooyi, have been in the so-called “health sector”, including fruit juices, energy drinks, and coconut water – reputedly healthy, refreshing hydration drinks.

• PepsiCo’s decision to spin-off its restaurant group and bottling operations reflects a decision to move out of low-growth, low-margin categories.

 

• Besides, the company’s decision to spin-off its restaurant group probably recognizes that PepsiCo’s strength lies in product marketing as opposed to service management.

 

• Furthermore, PepsiCo’s decision to spin-off its bottling operations indicate the firm’s decision to focus on its key strength – marketing – rather than on production.

 

4. Use a portfolio model approach to evaluate PepsiCo’s current group of brands and products.  What is your assessment of the company’s portfolio of businesses?

 

Boston Consulting Group’s Product Portfolio / Growth-Share Matrix Theory, presented below, is a matrix which helps corporations to analyze the availability of or need for resources on the basis of their product portfolios. The basic principles of the Matrix are:

 

1. High growth markets usually require more cash than they generate owing to a combination of production and marketing challenges. Low growth markets are more stable and will require comparatively less; and

 

2. Products owning a high market share of their specific category typically generate more cash than they consume. Low market share products consume more cash to maintain consumers’ share of mind and retailers’ share of shelf.

 

The four quadrants are explained from the top-left quadrant clockwise:

 

1. Stars – Sustaining the market leadership of products in a fast-growing industry may require extra cash. When growth slows, stars which have maintained their category leadership become cash cows. If they lose share drastically, they become dogs.

 

2. Question Marks – Since these will be growing rather rapidly, they consume large amounts of cash. However, because they have low market shares, they do not generate much cash. The result is large net cash consumption. If a Question Mark gains market share, it might become a Star. If it doesn’t become a leader, it will degenerate into a Dog.

 

3. Dogs – Products with a low market share in a mature, slow-growing industry generate barely enough cash to maintain the business’s market share. Dogs are normally sold-off, since they depress a company’s return on assets.

 

4. Cash Cows – Products with a high market share in a slow-growing industry typically generate cash in excess of the amount needed to maintain the business. They are “milked” with as little investment as possible, since investment would be wasted on a slow-growth industry.

 

The Growth-Share Matrix Theory prescribes the following:

 

“To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both kinds are needed simultaneously.”        ‘The Product Portfolio’, Bruce Henderson

 

		Relative Market Share
		High	Low
Market   Growth   Rate	High	++   Stars	--- Question Marks (Nutritious Drinks/Foods)
	Low	+++   D.Cash Cows   (CSD/Snack Foods)	--   C.Dogs   (Beverage Bottling/ Restaurant Operations)

 

From the above analysis, until recently PepsiCo possessed:

 

• Two Cash Cows (CSD/Snacks) – these successful categories will be delivering a reasonable ROI – at least in the foreseeable future.

 

• Two Dogs (Beverage Bottling & Restaurant Operations) - these non-performers have since been spun-off.

 

• Two Question Marks (Nutritious Foods & Beverages) – these new categories require heavy investment in both product development and marketing.

 

By recently disposing of its two Dogs (Beverage Bottling & Restaurant Operations), PepsiCo is focusing its resources on converting its two Question Marks (Nutritious Foods & Beverages) into Stars. It plans to do so before its two current Cash Cows (CSD/ Snacks) become disposable Dogs.

 

5. What new capabilities must PepsiCo develop to compete effectively in the global marketplace?  Do you think the Global Nutrition Group (GNG) is positioning the company well for future growth?

 

In building up its GNG, PepsiCo needs to attend to the following:

 

• On-the-pulse Marketing Research which provides timely indications on upcoming nutritious food & beverage trends.

 

• New Product Development which delivers new products with a meaningful USP on an ongoing basis.

 

• Creative Integrated Marketing Communications which effectively communicate the benefits of the new products being launched onto the market.

 

• Aggressive Sales Team which accesses appropriate shelf-space for new food and beverage products being launched.