PEPSI

Growth, Balance, and a World of Fun

Strategic Management Audit Conducted By:

Provided To:

May 16, 2007

TABLE OF CONTENTS

EXECUTIVE SUMMARY .............................................................................................. 2

CURRENT SITUATION ................................................................................................. 3
CORPORATE GOVERNANCE ..................................................................................... 7
EXTERNAL ENVIRONMENT ...................................................................................... 8
INTERNAL ENVIRONMENT ..................................................................................... 12
ANALYSIS OF STRATEGIC FACTORS ................................................................... 15
STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY................ 18
IMPLEMENTATION .................................................................................................... 19
EVALUATION AND CONTROL ................................................................................ 20
BIBLIOGRAPHY........................................................................................................... 21
 Executive Summary

Created in 1965 through the merger of Pepsi-Cola and Frito-Lay, PepsiCo is one
of the strongest beverage and convenient food companies in the world. Originally started
in 1898, Pepsi Cola became the first branded soft drink in the world. Its brand is
available in over 200 countries around the world and generated sales in excess of $92
billion last year. Headquartered in Purchase, New York, PepsiCo is the number two
beverage company in the world behind the Coca-Cola Company.
Financially, 2006 was a year of progress with an overall growth of 5.5%, revenue
of nearly 36 billion USD and a return on investment of 26%. These numbers are all well
above the industry average, with their main competitor still being the Coca-Cola
Company. PepsiCo has continued their brand image by appealing to Generation Y and
becoming synonymous with music, entertainment and sports. In addition to their
financial success, PepsiCo is also dedicated to ethics and social responsibility in the
community. They have invested heavily in recycling programs and in developing nations
in Africa. PepsiCo even has a sustainability mission that states “PepsiCo’s responsibility
is to continually improve all aspects of the world in which we operate- environmental,
social, economic- creating a better tomorrow than today.”
They believe that they have the competitive, sustainable advantage in the industry
because of three things: big brands, proven innovation and differentiated products, and
powerful go-to markets. With their strong brand, socially responsible employees and
corporate beliefs and focus on the younger generation, PepsiCo will continue its stance as
one of the most powerful companies in the world.

Current Situation

Current Performance

Pepsi Co is a worldwide corporation that has been in existence since the late 19th
century when Caleb Bradham, a pharmacist from New Bern, North Carolina first started
experimenting with different soft drink concoctions. It was in 1898 that Pepsi Cola first
became a branded soft drink and from that point forward their product and the company
have grown to be the most recognized brand in the world.1 This past financial year, Pepsi
Co continued it three-year positive growth strategy by maintaining an aggressive
presence in the United States and worldwide, boasting healthy profits and market share.
The company is broken into four major branches: Frito-lay North America,
PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North
America. Pepsi Co has one of the largest footholds in each of these markets compared to
relative competition, holding the following rankings worldwide: #2 in Carbonated Soft
Drinks. #1 in Sports Drink #1 in PET Water Brand (non-jug) #1 in chilled Juices and
Juice Drinks #1 Enhanced Water Brand #1 In ready to-Drink Coffee #1 in Ready-to-
Drink Teas #1 in Potato Chips #1 in Tortilla Chips #1 in Corn Chips #1 in Extruded
Snack #1 Multigrain Snacks #2 in Pretzels #1 in Hot Cereal #1 In Grits #1 Rice Side Dish
#1 Brand Pancake Syrup #2 Pancake Mix.2
Financially “PepsiCo delivered a very strong 2006: Volume grew 5.5%; net
revenue grew 8% to 35,137 in millions; total operating profit increased 9% to 6,439 (in
millions); return on investment was 26%; total return to shareholders was 8%; cash flow

1
PepsiCo Company Website. History Overview. http://www.thecoca-
colacompany.com/heritage/chronicle_birth_refreshing_idea.html. Last updated January 2007. Accessed
May 10, 2007.
2
PepsiCo Rankings Worldwide. Hoover’s. http://0-premium.hoovers.com.bianca.penlib
.du.edu/subscribe/co/ops.xhtml?ID=ffffrfyhsffytsjrkh. Last updated January 2007. Accessed May 5, 2007.
from operations was 6.1 billion USD, and earnings per share increased 13%.”3 Much of
the strong financial performance can be attributed to the intense marketing, product
diversification, and strong market presence in the United States. In addition, Pepsi Co
“Has a solid share of snacks in major markets such as Mexico, the United Kingdom,
Brazil, Australia, India and Russia, and are developing markets such as China,” of which
offers additional revenue from emerging markets. As will be discussed later, Pepsi Co
still remains second in the international beverage industry, with Coca-Cola maintaining
its strong market share.

Brief Annual Review 2006

- PepsiCo Launches Pepsi Limon in Peru
- PepsiCo Completes Acquisition of Stacy's Pita Chip Company
- Pepsi Celebrates 20th Consecutive Super Bowl With New Diet Pepsi
Campaign
- North American Coffee Partnership Launches New Starbucks Beverages,
Starbucks Iced Coffee, Starbucks Iced Coffee Light as well as Strawberries
and Creme Frappuccino and Starbucks DoubleShot Light
- SoBe Launches New SoBe Life Water
- Frito-Lay announces the launch of a new line of snack chips called Lay's
Sensations and Tostitos Sensations
- Frito-Lay cuts saturated fat in Lay's, Ruffles by more than 50% with move to
NuSun™ Sunflower Oil
- Starbucks and PepsiCo sign a distribution agreement for Ethos Water
- PepsiCo, National Hockey League and National Hockey League Players
Association sign multi-year deal, giving PepsiCo exclusive rights in the
beverage, sports beverage, bottled water and snack categories. With this deal,
Gatorade becomes the official sports drink of NHL
- Frito-Lay kicks of its nationwide rollout of Lay’s with 100% Pure Sunflower
Oil

3
Financial Releases of PepsiCo. Phoenix Corporate. http://phx.corporate-
ir.net/phoenix.zhtml?c=78265&p=irol-financial_releases. Accessed May 10, 2007.
 - Pepsi acquires IZZE beverage company
- Cold Stone Creamery announces a multi-year agreement making Pepsi its
exclusive beverage supplier
- Pepsi signs 5-year sponsorship renewal with Major League Baseball
Properties making Pepsi the “Official Soft Drink of Major League Baseball”
- PBSG Parkwood and Frito-Lay headquarters associates raise more than $1.8
million dollars in the American Heart Association Walk
- PepsiCo announced intent to acquire Naked Juice Company
- PepsiCo announces it will acquire New Zealand snack company Bluebird
Foods4

Strategic Posture
Pepsi Cola has a very concise mission statement which offers its employees,
shareholders and consumers a clear offering of what Pepsi Co embodies. “We have
absolute clarity around what we do: We Sell Soda. We commit ourselves to these
Operating Principles: Rules of the Road 1. Drive local market success 2. Act Now. Do it
today. Get Results. 3. Set Targets. Keep Score. Win. 4 Respect Each other. Our success
will ensure: Customer build their business, Employees build their futures, Shareholders
Build their wealth.” 5 Each of the operating principles of Pepsi Co deliver the actions that
all employees are expected to perform and the quality that shareholders and consumers
alike should come to expect. In the paragraphs below, their operating principles will be
detailed to clarify their current strategic posture in the market and in the industry.
Drive local market success. Pepsi Co, an American company since its inception,
continues to expand into developing markets while maintaining its major stronghold of
the United States. To drive domestic market success, Pepsi Co has three main sub-
objectives: 1. To compete locally 2. To be a “small” company within a big company,
insuring that the company remains maneuverable, and not a stagnant giant and, 3. to have

4
Annual Review 2007 for Pepsi Company. AngelFire. http://www.angelfire.com
/ga/struitt /pepsi.html. Accessed May 9, 2007.
5
PepsiCo Objectives.
http://pepsico.com/PEP_Company/BrandsCompanies/index.cfm. Last updated
January 2007. Accessed May 9, 2007.
visible community leadership. Pepsi Co continues to be a client centric company,
focusing on this objective now more than ever. Due to the recent trend of “healthy
living,” PepsiCo has been forced to expand into other markets to meet the health
conscious demand of its consumers. “Carbonated beverages remain the most popular
beverage category, with some 85% of U.S. households purchasing them. However, non-
carbonated beverages represent a fast-growing category- a place where consumers are
migrating…We recognized the need to broaden our portfolio early on and moved to
extend our presence in non-carbonated beverages in 1992…Providing consumers with
choices has long been a part of our mindset”5 . Ahead of its time, Pepsi Co introduced
Diet Pepsi in 1964 and it’s Reduced Fat Ruffles in the mid 1980s. In 2006 Pepsi Co
stated, “It’s about growing a business profitably for the long term….We believe we can
do this in ways directly related to our business, beginning with our products…Human
sustainability, and we’re continuously transforming our portfolio of products to meet
consumer needs. We’ve improved the nutritional profiles our global and flagship brands
by changing to healthier oils, reducing sugar and sodium content, and by expanding the
range of products we offer. This includes products ranging from indulgences – or treats-
to good for you products that offer functional benefits like hydration or heart
health…What we call “Smart Spot” eligible products represented over two-thirds of our
growth in North America in 2006…And we’ve set a goal of deriving 50% of all our U.S.
revenues with Smart spot eligible products by 2010.”6
Secondly, Pepsi Co focuses on its strategy for result: “Act Now. Do it today. Get
Results.” This objective is designed to accomplish tasks with a sense of urgency, to fix
problems before they become major issues, and to build upon passion.
Third, Pepsi Co accomplishes goals by setting targets, keeping score, and
winning. They created five simple rules to promote this idea throughout the company:
Every front-line job has tarots, reinforce goals, plan performance, protesting, focusing,
and simplifying, clear accountability for result and no excuses. These objectives are goal
oriented with emphasize on how individual actions can affect the entire corporation,
positively or negatively.

6
PepsiCo Strategies and Objectives. PepsiCo Corporate Site.
http://www.pepsico.com/PEP_Investors/AnnualReports/06/PepsiCo2006Annual.pd
f. Last updated January 2007. Accessed May 9, 2007.
 Their fourth objective focuses on the employees relationships within the company
and throughout their daily lives: “Respect each other by treating everyone fairly, and with
dignity, operating with integrity and justice, and keeping in mind that everyone is
important.”
It is crucial to note that the current mission, objectives, strategies and policies of
Pepsi Co reflect the corporation’s attempt to progress in international operations. Pepsi
Co follows a relatively simple strategy with the four objectives that can be applied to
almost any corporation around the world, offering a base concept to all of its employees
and consumers. The mission statement “We sell Soda” is only three words, but it speaks
volumes in it meaning. It projects the idea that this company has developed a business
that they are exceptional at and will not pretend to be anything more than what their core
competencies can offer.

Corporate Governance

Board of Directors
The members that make up the directors are very diversified in their skills,
experience, and knowledge. Members are from various places of the world and have held
contrasting positions from CFO’s to Medical Professors. Although the ages of the
members are similar, the experience and knowledge of the diversified group is a great
asset for PepsiCo. One interesting fact is the CEO is a woman that has been involved in
many facets of the business from Strategic Planning President to Corporate Strategy.
Committees within the group are the Nominating and Corporate Governance
Committee, an Audit Committee, and Compensation Committee which are all comprised
of individuals from the Board of Directors. The directors have performed very well in the
past and have received many awards for their performance and leadership.7 Successful
performance by the board members may be attributed to the fact that some are financially

7
PepsiCo. Company Honors. http://pepsico.com/PEP_Company/Honors/index.cfm.
Last updated January 2007. Accessed May 11, 2007.
involved in PepsiCo and others are not associated with the firm.8 The combination of the
two groups serves as an excellent medium between serving the companies interests while
maintaining ethical and responsible decisions.

External Environment

As a beverage and food producer and distributor developed in the late 19th
century, Pepsi Co is in a dominant market position that has little qualms about emerging
competitors in the market. Its current concerns remain its top competitor, Coca-Cola who
maintains a similar stance in the beverage market as well as Cadbury-Schweppes who
controls the international market share of beverages and confectionary goods. In
addition, acquisitions and mergers of current mid-size beverage companies could prove to
be an external threat to Pepsi Co, while not in the near future. In the following section of
the strategic management audit, Coca-Cola and Cadbury Schweppes will be detailed
according to their financial statements, management schemes, marketing campaigns and
recent acquisitions.

Financial
As a company that employs over 71,000 individuals around the world and
engages in the manufacturing, distribution, and marketing of non-alcoholic beverages
worldwide, Coca-Cola remains Pepsi Co’s most aggressive and threatening competitor in
existence. In 2006, Coca-Cola maintained revenues of nearly 25 billion USD and a gross
profit of nearly 16 billion USD.9 Their return on equity remains one of the strongest in
the industry and in the market, at a staggering 31.15% (compared to the industry average

8( Reference Chart 1) Mergent Online Journal. Company Insiders.

http://www.mergentonline.com/compdetail.asp?company=1&company_mer=6581&
fvtype=a&Page=insiders. Last updated March 2007. Accessed May 11, 2007.
9 Coca-Cola Company. YAHOO Finance. www.finance.yahoo.com. Last updated May

14, 2007. Accessed May 14, 2007.

of 14.3%) in 2006. Pepsi Co has managed to maintain nearly 97,000 more employees
and 10 billion USD more in revenue in 2006, yet their net incomes remain comparable at
5.5 billion USD. This statistic shows that while Coca-Cola may employ fewer
individuals and therefore generates smaller revenue, they are still able to remain
competitive with Pepsi Co in regards to their net income. Coca-Cola is the number one
soft drink company in the world and owns four of the five top selling brands. Although
Coca-Cola does not do its own bottling, it does own 35% of Coca-Cola Enterprises, 32%
of Coca-Cola FEMSA, and 23% of Coca-Cola Hellenic Bottler (the largest European
bottler).10 Coca-Cola was also ranked number 94 in Fortune 500, while Pepsi ranked at
63.

Management
Coca-Cola’s current CEO and chairman is E. Neville Isdell, a 63 year old who has
remained at this position since 2004. Prior to his current position, Isdell was an
international consultant to the company and has held a variety of positions within the
company since 1966. Isdell has proven to understand the company values and the
industry in which it deals, and provides the glimpse of an opportunity for others in the
company to work their way through the ranks. He has also offered an international
viewpoint which has increased awareness and sales overseas.11 In 2007, Coca-Cola re-
structured their business units for a more strategic approach, organizing them into the
sparkling beverages, still beverages, and emerging brands.12 This will allow their
functional areas to focus on what kind of marketing to do and other issues based on the
type of product it is.

10 Hoovers.
http://premium.hoovers.com/subscribe/co/factsheet.xhtml?ID=rfyhsffytsjrkh.
Updated January 2007. Accessed May 10, 2007.
11 Coke Overseas Sales Bolster Turnaround. Wall Sreet Journal. February 17, 2007.

Page A14. http://0-

proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=6&did=1216359421&SrchMo
de=1&sid=5&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179
373335&clientId=48347.
12 Hoovers.

http://premium.hoovers.com/subscribe/co/overview.xhtml?ID=ffffrfyhsffytsjrkh.
Updated January 2007. Accessed May 10, 2007.
Marketing
As the classic cola brand in America, Coca-Cola tends to focus its marketing
efforts on the baby boomer generation and the loyal Coca-Cola consumers. Unlike Pepsi,
Coca-Cola does not feel the need to expand into industries that are not of its core
competencies and continues its marketing scheme to that of what they’re good at: making
soda. Coca-Cola does not attempt to recreate its image as something new and hip that the
entertainment industry can play off of, they simply portray themselves as the best
beverage maker in the world. They have also recently began a campaign called “Every
Drop Counts,” and have announced that they are retooling their Atlanta headquarters to
conserve natural resources and combat global climate change. Recently, Coca-Cola has
also initiated a clean water program in Africa by creating a chlorine purifying substance
and gave jobs to people in the community to create these products. Coke is not well
known in this area, but with the involvement and assistance they are offering, this
community will soon become Coke consumers.13

Recent Acquisitions
Coca-Cola has been attempting to take over the bottled teas and juices market
share for a long time. In February 2007, they announced plans to acquire FUZE
Beverage LLC, which is an enhanced juice and tea company.14 The have also announced
in March 2007 that they will continue refining beverage partners worldwide joint venture
with Nestle. They also acquired full ownerships of Phillipines Bottler “San Miguel
Corporation” in late February 2007. As well, United Airlines has ended their contract
with PepsiCo and has now signed a five year agreement with Coca-Cola to only provide
their beverages on their flights.15 Each of these acquisitions and joint ventures amount to
Coca-Cola expanding their doors internationally and in different industries.

13 McKay, Betsy. Why Coke Aims to Stake Global Thirst for Clean Water. Wall Street
Journal. March 15, 2007. Accessed May 10 ,2007.
14
Coke Buys Fuze to Light Up Its Lineup. Wall Street Journal. February 2, 2007. Page
B3. http://0-
proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1208970671&SrchMo
de=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179
373236&clientId=48347.
15 United Returns, Ending Five-Year Pepsi Deal. Wall Street Journal. May 1, 2007.

Page A17. http://0-

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Financial
Although Cadbury is at a far away third marking place of beverage sales in the
world, and only had 14 billion UDS in sales in 2006, they still remain a viable competitor
to PepsiCO. In addition, Cadbury Schweppes increased their sales by 29.3% from 2005
to 2006, meaning that their growth is extremely high and that they are a competitor that
PepsiCo must keep an eye on. This is mostly due to their international expertise and
recognition. They have nearly as many employees at Coca-Cola does, yet their market
cap is only 27 billion USD as compared to Coca-Cola’s 121 billion USD and PepsiCo’s .
Their net income was only 1 billion USD, where the industry standard was 24 billion
USD. This shows that Cadbury has some financial cost structure issues and that they are
not as large or efficient as PepsiCo or Coca-Cola Company.

Management
Currently, Todd Stitzer is the CEO of Cadbury Schweppes and has been since
2004. He is an American and Harvard educated, but has worked his way up in the ranks
to become the CEO of Dr.Pepper/7UP for almost six years and then move on to become
the current CEO of the entire company. Their management structure is set up to be
divided first into four different geographical regions and then into six different functional
areas. This allows for a decentralized system that can still fall back on the company
brand name. They are able to change marketing, financial and human resource schemes
to fit the region and then focus on profit from there. Recently they have had issues with
salmonella in 1 million chocolate products, bringing scrutiny to their work. They
recalled the products, but the city council is still bringing three suits against them.

Marketing

de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179
373042&clientId=48347.
 Cadbury Schweppes’s marketing strategy tends to be one of brand recognition
and the consumers understanding of a long-standing company that provides the majority
of international confectionary and beverage goods. They are also large proponents of
social responsibility and believe that “good values and good business go hand in hand.”16
Because they have a wide array of goods and international markets, they have several
different marketing strategies that seem to be working for them quite well.

Recent Acquisitions
Recently announced was the expected split between Cadbury’s confectionary and
beverage divisions. Many critics expect that the confectionary division will be bought
out by America’s Hershey brand and that the value of the product will decrease.
However, this move was made after careful consideration and the belief that the two
divisions would be better off splitting than being together.17 There are also a few mergers
that may be in the works for the beverage side of Cadbury, including Canada’s Cotts.
This would join the number 3 and 4 beverage producers in the United States and bring the
competition even close to PepsiCo and Coca-Cola, capturing nearly 20% of the market
share.18

Internal Environment

Corporate Culture
PepsiCo’s corporate culture is based on performance and quality of their
products, services, and social responsibility. The guiding principles and commitment

16 Cadbury Schweppes Society and Environment.

http://www.cadburyschweppes.com/EN/EnvironmentSociety/. Last updated
January 2007. Accessed May 14, 2007.
17 Jargon, Julie. The case for a Hershey-Cadbury Romance; Play for UK firm May

pinch Stock Now, But Set Stage for Growth. Wall Street Journal. April 19, 2007.
Page C1. Accessed May 12, 2007.
18 McKay, Betsy. Canada’s Cotts Explores Cadbury. http://0-

proquest.umi.com.bianca.penlib.du.edu/pqdweb?index=1&did=1253948821&SrchMo
de=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1179
377829&clientId=48347. Wall Street Journal. April 15, 2007. Page C3. Accessed May
14, 2007.
consist of:

The culture is clearly communicated throughout the company and is very strong
in consumer and social responsibility. 19
In fact, many efforts have been made to be environmentally conscious by heavily
investing in recycling, and also extensive efforts have been made to better the lives of
impoverished people in regions such as Africa.
One of the main lacking components of PepsiCo’s values is their
employees. Of the many concerns they have about the consumer and clients, little is said
about the way employees are treated and what expectations and responsibilities are
towards them. Programs exist that help employee’s take part in the community, and also
future employees by offering school programs and scholarships. However, little effort is
directed towards the responsibility of the company to employees. Coinciding with their
values, objectives, and commitment, employees are left out of the grand scheme and may
even be considered a means to an end. The limited focus on employees may be a problem
in the long-run due to retention issues and resulting lack of quality.

Corporate Resources
Marketing
Due to the many product lines PepsiCo markets, there are many different
types of marketing strategies, but can all fall into several main categories. Much of the
marketing efforts are directed towards a younger crowd that is associated with music,
entertainment, sports, and various other market niches such as corporate sponsorship.
19PepsiCo. Company Values.
http://pepsico.com/PEP_Citizenship/pepsicoValues/index.cfm. Last updated
January 2007. Accessed May 11, 2007.
Products are marketed with the same type of values the company has regarding quality,
innovation, and performance. Drinks such as Mountain Dew and Gatorade are especially
marketed towards younger active individuals and based on performance and a sense of
“coolness” that Pepsi provides. This has not been clearly identified by the company, but
is apparent with sponsorship of athletic events and teams, as well as in accordance with
their website and target market.
However, PepsiCo is missing a huge market that could largely add to revenues
which is the baby-boomer generation. As much of the marketing is generated with a
younger audience in mind, additional markets are taken up by competitors, which have
not shown to be detrimental, but could bring in many more customers. On the contrary,
by grabbing the attention of many younger individuals, PepsiCo is capturing the loyalty
of an audience that will continue to grow and thrive for many years.

Finance
As one of the leading beverage and food distributors and producers in the world,
PepsiCo obviously has very strong financial backing and has been performing especially
well. Their basic financial statement is very promising with revenues above Coca-Cola
and the highest PepsiCo has ever seen, as well as low debt and liabilities.20 PepsiCo has
shown and average of six percent growth since the year 2000 and has accomplished many
growth goals by acquired and manufacturing a wide range of products. The pure size of
PepsiCo is a competitive advantage because they produce so many commonly used
products throughout the world, and are minimally leveraged by market ups and downs.
Illustrating this point is their increasing ROE, ROA, and ROI ratios that have experienced
great increases over the past several years where soda sales have declined.21

Research and Development

20 (Reference Chart 2) Mergent Online Journal. Company Detail.

http://www.mergentonline.com/compdetail.asp?company_mer=6581&company=-1.
Last updated March 2007. Accessed May 11, 2007.
21 (Reference Chart 3) Company Detail.

http://www.mergentonline.com/compdetail.asp?company_mer=6581&company=-1.
Last updated March 2007. Accessed May 11, 2007.
 For a company that solely depends on the happiness of the consumer,
PepsiCo invests in R&D in many different ways. Not only does research go into products,
but also into additional opportunities to profit with concentric diversification. PepsiCo
does not explicitly state R&D objectives and goals, but implicitly through their values
and mission to create quality product that serves the consumer. Consequently, R&D can
be assumed to constantly occur, and has been shown through the addition of many
products throughout the years.

Operations and Logistics

Headquarters are in New York, but several smaller headquarters for each product
are distributed throughout the U.S. and the world. Since PepsiCo is mainly a U.S.
company, factories and distribution centers are mainly located throughout the U.S.,
although there are a couple exceptions of plants in the United Kingdom, Puerto Rico, and
Ireland. Most likely to PepsiCo’s advantage, offices, warehouses, plants and distribution
centers are located in the U.S. which provides quick and convenient access and also is
less associated with the complications of operating and producing internationally

ANALYSIS OF STRATEGIC FACTORS

Pepsi Co has been consistently living up to its mission and objectives, as they
offer the most valuable products and beverages to their clients. The main areas they need
to focus on for improvement is continuing of recycling of containers. Due to the liquid
nature of Pepsi’s product, it is necessary that a solid and non-porous container be used to
store the products. In way to the recover, their position in the minds of the public
externally, and with employee satisfaction internally. In light of the various
discrimination lawsuits brought on in 2001 and 2004, the company has been faced with
the task of how to improve from within themselves, thus portraying a more positive
external image. Their mission clearly their dedication to client satisfaction through the
integration of all employees on an equal opportunity playing field. This mission has to be
carried out more effectively in the future for them to be able to progress forward in the
most opportune manner possible.22
Due to the liquid nature of Pepsi’s product, it is necessary that a solid and non-
porous container be used to store the product. This fact leads to the use of plastics,
aluminum, and glass as materials for the containers that Pepsi is stored in. These
materials work very well for the purpose of their use, however these materials do not
biodegrade easily. Every day, 93 million empty soft drink bottles and cans are thrown
away, rather than recycled. In November 2000, the boards of Pepsi and Coke passed
resolutions for future container recycling targets. The resolutions call upon management
to establish recycling targets and prepare a plan to achieve them by January 1, 2005.
There are two goals: (1) achieving an 80 percent national recycling rate for bottles and
cans; and (2) making plastic bottles with an average of 25 percent recycled plastic. The
implementation of these resolutions will have a future effect on the cost basis of Pepsi’s
product, and a positive environmental impact if the recycling targets are met.23
Growing in another sections, declining Cola’s interest. Beverage industry is
moving towards another choice of drinks sector. . Although in recent times, normal
beverages have been making a renewal, it is obvious that alternative drinks will continue
to grow. Pepsi can utilize its excellent brand recognition and reputation to invest in and
capitalize on growth in this area, and increase it market share against Coca-Cola at the
same time.24
Also increasing the use of exclusivity agreements with restaurant chains and
college campuses. Coca-Cola has a majority of exclusivity with restaurant chains
including McDonalds and other major fast food chains. The benefits of exclusivity
agreements give Coca-Cola a major advantage in channel distribution. The major reason
Taco Bell was purchased by Pepsi was to create a new channel for Pepsi to be sold in
restaurants. In addition to restaurants, soft drink manufacturers are willing to engage in
"cola wars" to win the rights to supply all the machines in a given school in return for a

22 Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR
Archives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 2007
23 PepsiCo. Sustainability Report. http://www.pepsico.com/PEP_. Last updated

January 2007. Accessed May 10, 2007.

24 Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR

Archives. 20 Feb 2007. U.S. Securities and Exchange Commission. 12 May 2007
commission. The funds go to support financially starved school programs that could
range from buying new library books to beefing up the computer lab.
Coca-Cola’s is now the market supremacy. The dominance of Coca Cola in the
soft drink market has always been considered a major factor for Pepsi management. As
long as Coca Cola continues to retain a dominant market share, Pepsi should continue to
aggressively acquire Coca Cola market share.
The excessive work pressure results in evacuation of Pepsi management. The
“creative tension” which is constantly being placed on Pepsi management has resulted in
a number of management leaving the company for Coca Cola. Coca Cola has consistently
been able to acquire the “Pepsi Tigers”, or very good managers, away from Pepsi.

Review of Mission and Objectives

According to the company’s official website, PepsiCo Incorporated’s mission is
to make this company: “the world’s premier consumer products company, focused on
convenient foods and beverages. PepsiCo strives to produce healthy financial rewards to
investors as it provides opportunities for growth and enrichment to its employees,“ So the
overall mission of PepsiCo is to increase the value of shareholder's investments. This is
achieved through sales growth, cost controls and wise investment of resources. PepsiCo
believes that their commercial success depends upon offering quality and value to their
consumers and customers; providing products that are safe, wholesome, economically
efficient and environmentally sound; and providing a fair return to their investors while
adhering to the highest standards of integrity.25

Objectives
Concentration of resources on growth of businesses through internal growth and
carefully selected acquisitions PepsiCo has adopted a plan for growth by continually
addressing the opportunities and risks associated with the global marketplace. The
corporation's success reflects their continuing commitment to growth and a focus on
those businesses where they can drive their own growth and create opportunities.

25PepsiCo. http://www.sec.gov/ Archives.com . 12 May 2007

"Form 10-K Annual Report." U.S. Securities and Exchange Commission EDGAR
Archives. 20 Feb 2007.
 Contribute to the quality of life in communities. PepsiCo believes that as a
corporate citizen, it is responsible to contribute to the quality of life in the communities it
serves. This policy is implemented through support of social agencies, projects, and
programs. The company also supports employee volunteer activities through
contributions of time, talent, and funds. Each PepsiCo division is responsible for its own
giving program with corporate giving focused on supporting employee volunteer
activities. 26
The strategic objectives seem to address most of the strategic problems facing PepsiCo
Inc. For example, the risk that demand for PepsiCo’s products may be adversely affected
by changes in consumer preferences is addressed by the strategic objective of caring for
customers and their changing needs and wants. The issue of damage to PepsiCo’s
reputation that could have an adverse effect on its business is addressed by the company’s
objective of respecting employees, vendors, customers, and by its commitment to
diversity, and by its commitment to candor and openness.
PepsiCo is among the world’s largest consumer products companies. In fact, it is
one of the largest companies in the world. PepsiCo is focused on various strategic
initiatives that it believes will drive growth and ensure the company’s success. When
considering whether to change the mission and objectives, it is important consider the
impact of such a change on the company’s long-term strategies. It is also important to
note that PepsiCo reported a sales revenue increase of 8 percent for fiscal year 2006
compared to 2005. In 2006 PepsiCo also reported net income of more than $5.6 billion
representing a 4 percent increase relative to fiscal year 2005. Whatever PepsiCo is doing,
it seems to be doing well. The biggest risk associated with a change in mission and
objectives would be a loss of focus and a loss of momentum (PepsiCo Vision and
Strategy).

Strategic Alternatives and Recommended Strategy

Pepsi Co is currently a strong worldwide leader in the food and beverage industry.
Throughout its growth, it has stayed true to its mission and objectives, while becoming a

26"PepsiCo Vision and Strategy." PepsiCo Inc. 2007. PepsiCo Incorporated. 11 May
2007
dominant force within the United States as well as abroad. Known throughout the world
for quality products and customer care, Pepsi Co should make no major strategic changes
to its plan. However, like in any business situation there are areas that Pepsi Co can
improve upon. Some of the recommendations are as follows:
- Continue to expand with their “Human Sustainability”. The healthy eating
market is a demographic that will continue to grow in the future, and will
provide generous profits if Pepsi Co is able to obtain a large market share.
- Expand more into social benefits, especially for those in developing nations.
Pepsi’s main competitor Coca Cola has implemented a water purification
program for African Villages, which provides a valuable need and at the same
time introducing their brand name where it was before unknown. If Pepsi
followed this same ideology with food products and water purification it too
would significantly increase brand recognition
- Capture more of the aging population’s market share. Pepsi is a company
focused on a younger market hoping to repeat the worldwide success of Coca
Cola in regards to brand loyalty with the generations born after 1980;
however, there is still a large market with the Baby boomer demographic that
they could break into.
- A minor yet still important change that needs to be made is to their website.
After comparing it to competitors we feel that it needs to be simplified.

Implementation

Overall PepsiCo is a successful company with substantial revenue, and a large

footprint in the marketplace. PepsiCo should continue to expand their growth and take
advantage of potential opportunities by continuing to improve on areas at the corporate
top level, in the markets that they currently are in, and in new markets and market
segments that they wish to expand into.
 PepsiCo should expand into markets and market segments that they are currently
not in, such as Asia, India, and South America, in order to expand their market
share at the global level and to increase their overall revenue.

 PepsiCo should improve their employee relations in order to create employees all
over the world that will promote the product both during their work day and in
their personal life in order to create “word of mouth marketing”.

 PepsiCo should look to cut some of their expenses as they currently have $10
billion more in revenue than the competition, but they have a similar Net Income
of $5.5 billion.

 PepsiCo needs to continue to expand their market share in the markets where they
currently have a strong presence in order to maintain their market share and their
footprint in the marketplace.

 PepsiCo should become more proactive in the health food/product marketplace

rather than being reactive to the market trends. They need to improve their
responsiveness and future projections to market trends and changes that can
therefore allude to different product segments and target markets.

Evaluation and Control

 PepsiCo should expand into markets and market segments that they are currently
not in, such as Asia, India, and South America, in order to expand their market
share at the global level and to increase their overall revenue. In doing so, they
should increase the revenue percentage above the current below 20%. They
should evaluate the situation and growth again in one calendar year, and analyze
the total effect.
 PepsiCo should do market surveys of their target market segments in order to
analyze the existing brand awareness in the marketplace every two quarters and
then analyze the overall change and trend on the calendar year.

 PepsiCo should cut their expenses by a set percentage every quarter in order to
increase their Net Income each quarter and year. This would increase the bottom
line and benefit the stockholders. It would be advised to reduce costs by 10% as
an original amount, and then potentially increase the percentage after a few trial
quarters.

 PepsiCo should position themselves on the cutting edge of the health trend in the
marketplace by increasing funds for R&D in order to research potential new
product ideas. Funding should be increased significantly and then the ROI on the
positioning should be analyzed after multiple quarters of study.

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