Paulo Nazario, Onur Saka and Juliette Clark

International Business Policies and Strategies, Winter Quarter 2011 11/29/11

CASE 11: PepsiCos Diversification Strategy in 2008

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1. BACKGROUND INFORMATION Time Country(s) Involved Key Individuals & frame MileStones Titles 1965- Headquarters in Indra Krishnamurthy 2008 Purchase, New York, Nooyi, Chairman of USA. Operations the Board and CEO (2006-). global in scope. Steven Reinemund (CEO 2001-2006). Roger Enrico (CEO 1996-2001). Donald Kendall and Herman Lay, Founders.

Company Type & Size PepsiCo is a publicly traded company, listed on the NYSE, NASDAQ, and as a component of the S&P 500. In 2010 it had 294,000 employees worldwide. As of November 2011, it had a market cap of $101.02 billion.

1965

Merger with Frito-Lay CEO of Pepsi Cola, and engineer of PEPSICO Merger, Donald Kendal Diversification outside snacks and beverages Acquisition of Pizza Hut, Taco Bell, KFC Acquisition of 7UP, Mug Root Beer, SunChips, Introduction of Aquafina - 1993 Portfolio Reconstruction Roger Enrico, CEO (1996-2001) Wayne Colloway, CEO (1986-1996)

"Potato chips make you thirsty; Pepsi

satisfies thirst." Donald Kendall on merger.

1970s 1980s

Balanced three leg stool describes Wayne Colloway, however, strategic fit problems occurs

1990s

Bottled water business starts.

1997

Due to several strategic fit problems, restaurant businesses have been spun off to form Tricon, later Yum! Brands. FTCs bans to jointly distribute Gatorade with Pepsi for ten years.

2001

Acquisition of Quaker Oat Company, Adding Gatorade to arsenal Re-Organization of Structure

Steven Reinemund (CEO 2001-2006)

2008

Indra Krishnamurthy Nooyi, Chairman of the Board and CEO (2006-).

Three division model. Strategic realignment.

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2. BRIEF SUMMARY OF CASE SITUATION Business or Industry Description Particular Company Situation The case concerns the international In 2008, PepsiCo was the largest snack and food and beverage industry. The beverage company in the world, with a broad situation and position of PepsiCo, in portfolio of businesses and a focus on growth addition to the evolving corporate through acquisitions and innovation. However, even strategy. The case is important for a strong company like PepsiCo deals with several showing the related diversification challenges, to name few, low international profit strategy. margins, product innovation, supply chain decisions and fierce competition.

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3. ORGANIZATIONAL ANALYSIS Company Strengths Company Weaknesses The 'Power of One' retailer alliance Relative lack of success at strategy meant close collaboration internationalizing the Quaker brands. between PepsiCo's marketing team and International operations had a low retailers, helping PepsiCo to understand profitability, relative to US operations. consumer needs and reinforcing sales of Despite making up some ground, both Pepsi and Frito-Lay products. PepsiCo's share of the US carbonated PepsiCo's management team is soft drink market was still considerably responsive and proactive, and willing to lower than that of its traditional rival in the restructure the organization to achieve industry, Coca-Cola. more profitability internationally. PepsiCo remains highly dependent on the The CEO, Indra Nooyi, is from India and US market for revenues; profitability of its retains strong ties to her home of domestic businesses is still far greater Chennai; she is therefore better able to than that of its international units. understand the dynamics of the important The continuing changes in the company's Indian market than an outsider might be. organizational structure hints at a Product innovation is a major company possible internal weakness and instability. strength. PepsiCo is responsive to consumer and governmental concerns about health: the company had begun to reformulate and repackage products to lower salt, fat and sugar content. The broadness of PepsiCo's portfolio is a major strength, as is the fact that the company has leadership across many product categories. PepsiCo has an excellent ability to integrate acquired companies, turning them into profitable business units quickly. Dominant in the US salty snack segment with its Frito-Lay brand; also the largest seller of nonalcoholic beverages in the US, with 26% market share in 2006. PepsiCos Corporate Strategy The strategy was to achieve dominance in the category in which PepsiCo's products were competing, and by 2008 most PepsiCo brands were either the leader or the number two player in their category. The key was sustaining the momentum that followed the company's post-1997 restructuring, in order to maintain PepsiCo's impressive performance. To further PepsiCo's corporate goals, a vigorous acquisition strategy has been followed. In addition, a key part of corporate strategy is innovation, and the continuous introduction of new products. The company took the challenge of developing 'better-for-you' snack foods very seriously, and prioritized this in its strategic vision. PepsiCo saw major growth potential overseas and was focused on increasing market share and relative profitability outside of North America, especially in emerging markets. By utilizing the 'Power of One' retailer alliance strategy, PepsiCo aimed to exercise greater control over how its products were displayed in stores, helping to boost sales. Page 4

PepsiCos Business Strategy Among Its Divisions All of the four business divisions followed the general strategic approach laid out by PepsiCo's corporate team. Frito-Lay North America: this was a major component of PepsiCo's overall business, accounting for 29% of total revenues and 36% of operating profits. Management was concerned with maintaining Frito-Lay's strong market dominance by keeping pace with consumer demands and trends including the continuing desire for convenience, the increasing awareness of nutritional content, and the developing demand for 'indulgent' snacking. Frito-Lay's products underwent reformulations to improve their health credentials, and packaging was changed to allow smaller portion sizes. Strong growth was seen in the 'better-for-you' products offered, like SunChips and Quaker rice cakes, and strategic acquisitions of healthy snackfood companies like Flat Earth allowed PepsiCo to continue its push into the health-conscious segment of the market. PepsiCo Beverages North America: As the largest seller of nonalcoholic beverages in the United States, PepsiCo controlled 26% of the market in 2006. This was also an extremely profitable part of PepsiCo's overall business, accounting for 28% of the corporation's total revenues and 31% of its profits. Revenue growth had been strengthened through a broadening of the product line to include not only Pepsi but Gatorade, Tropicana, Lipton tea, and other strategic acquisitions. This positioned PepsiCo well for future shifts in consumption, as although carbonated beverages still accounted for almost half of all nonalcoholic refreshments sold in the US, the segment was losing ground to apparently healthier options like juices, enhanced water products, and energy drinks. Pepsi's ongoing battle with Coke for the carbonated soft drink market was in essence a battle lost (Coke vastly outsells Pepsi in cola sales in the US), but as seen as part of the larger war for overall beverage market share, PepsiCo appears to be positioned well as consumer tastes transition towards healthier options. Still, Pepsi sales were bolstered by the use of the 'Power of One' program, which entailed the cross-promotion of Pepsi and Frito-Lay products and made use of the strong relationships PepsiCo had built with its retailers. PepsiCo International: PepsiCo followed a strategy of pushing aggressively into international markets, and was rewarded with strong growth in international snack volume (up 9% in 2007 on average, with much higher growth rates in newly emerging markets such as Russia, the Middle East and Turkey). Frito-Lay's salty snack market share was strong in most international markets, and PepsiCo's share of the carbonated soft drink market was much larger in most international markets than in the US. The fastest growth in beverage volumes occurred in the Middle East, China and Pakistan. This overall growth experienced by PepsiCo internationally was spurred in large part by multiple acquisitions across many markets; the company also saw the potential for the implementation of the 'Power of One' strategy in order to increase the market share of certain weaker brands by piggy-backing on the popularity of stronger ones. Quaker Foods North America: The growth story of the Quaker family of foods in North America was not as strong as the other business divisions, although for the most part volumes increased through this period (the exceptions were sales of Aunt Jemima products and Rice-A-Roni and PastaRoni kits, which experienced declines in sales volumes). This portion of the business was probably the most natural fit for PepsiCo's strategy to bring more 'good-for-you' foods to market, and more than half of Quaker Food's 2007 revenues were generated by these products. In 2008, PepsiCo underwent a strategic realignment. It was split into three divisions: PepsiCo Americas Foods: All food and snack businesses in North America and Latin America. Page 5 PepsiCo Americas Beverages: All beverage businesses in North America and Latin America.

Overall Organizational Assessment PepsiCo is in a strong position. Its dominance across the beverage and snack food industry worldwide has given the company strong revenues and enviable growth rates which have been supported by a series of strategic acquisitions, allowing the company to keep up with trends in the market, shifts in consumer wants and needs, and to place itself in a position in which it can leverage its sophisticated supply chains and distribution networks globally to foster further growth and to insulate itself from the risks inherent in the global food and beverage business. The strength of the company is reflected in its stock price, which has consistently outperformed the S&P 500 average over the past decade and, even through a period of economic contraction and crisis, has remained relatively stable.

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4. EXTERNAL SITUATION Opportunities The company is present in fast growing international markets: PepsiCo's international sales of snack foods grew by 9% in 2007, with even stronger growth rates in developing markets like Russia, Turkey and the Middle East. There is room for significant growth in the international noncarbonated beverage market. The growing desire for healthy food options among consumers in many of PepsiCo's markets means that the company's strategy to reformulate snack foods and to focus on functional beverages and water products was well-timed; this market will continue to grow. This presents a good opportunity for the Quaker Foods brands, which are largely characterized by 'better-for-you' qualities. PepsiCo will be able to use the same distribution channels for Gatorade as for its other beverage products once the FTC's 10-year prohibition on bundling beverage contracts with retailers and jointly distributing Gatorade and the company's other soft drinks come to an end. This will provide an opportunity to increase Gatorade sales by leveraging the company's existing distribution and retail networks and achieving efficiencies of scale in marketing. PepsiCo can use its flagship products as a way to introduce consumers to other products in its range: for example, if Pepsi-Cola sells well in one market, but Lays chips do not, the company can use the 'Power of One' strategy in retail outlets to achieve effective crosspromotion. The economic crisis can be an opportunity as PepsiCo can offer consumers small indulgences that are affordable. PepsiCo can seek further cost efficiencies by capturing strategic fit benefits within PepsiCo's stable of businesses, achieve economies of scale through global coordination of marketing, distribution, procurement, and so on. Threats Risks/Constraints Increasing concerns about health: even PepsiCo is a convenience food company, though PepsiCo is reformulating so how legitimate can their 'good for you' products, salty and sweet snack foods food really be? can still be the target for government PepsiCo's best established brands legislation. (including Pepsi and Frito-Lay) are Growing environmental concerns may unhealthy snack foods; they must lead consumers to reject buying bottled continue to profit from these brands in water, canned drinks, and prepackaged order to preserve shareholder value. food. Ongoing risk of shortages or disruption in Economic crisis may erode household supply of key raw materials. budgets and result in less expenditure on As an international operator, exchange unnecessary snack foods. rate risk is a concern. Volatile commodity prices may make it Changing consumer preferences may difficult for PepsiCo to control margins lead to a rejection of PepsiCo's product and may necessitate price rises. offerings. New entrants to the market pose a significant threat. Barriers to entry to the food and beverage industry are relatively low.

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6. STRATEGIC ANALYSIS SWOT Analysis (graph + narrative)

PepsiCo is a company with substantial internal strengths, including the vision of its management team, the integration between business units that allows for the realization of significant efficiencies throughout all levels of operations, and an enviable worldwide reach. The environment in which it operates can be risky, but PepsiCo does a good job at minimizing this risk by investing in research and development and spreading its interests across many market segments. There are many opportunities for PepsiCo in this environment, and the company is well poised to take advantage of them. Therefore, PepsiCo should continue to follow a strategy of aggressive diversification, placing it on the borderline between cells 1 and 2.

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7. MODELS Industry Attractiveness Assessment

Attractiveness Measure Market Size & Growth Rate Industry Profitability Intesity of Competition Weight Soft Drinks Bottled Water Chilled Juices Isotonic Beverages Salty Snacks Hot Cereals

0.25 9 0.15 8 0.15 5 0.2 7

2.25 1.2 0.75 1.4 0.45 1.2 0.35 7.6

8 7 4 8 7 10 8

2 1.1 0.6 1.6 0.4 1.5 0.4 7.5

6 6 7 6 7 8 7

1.5 0.9 1.1 1.2 0.4 1.2 0.4 6.6

4 7 1 0 7 8 5 7

1 1.05 1.5 1.4 0.4 0.75 0.35 6.45

8 9 5 7 7 6 6

2 5 1 7 1 8 1 5 0 8 1 7 0 7 7

1.25 1.05 1.2 1 0.4 1.05 0.35 6.3

Emerging Opportunities & Threats Resource Requirements Product Innovation Social Political Environmental Factors

0.05 9 0.15 8 0.05 7

Totals

Competitive Position/Business Strength

Competitive Position / Business Strength Relative Market Share Market & Promotion Product Innovation Distribution Resources Brand Name / Image

Weight

PepsiCola 3 7 6 7 8 6

Aquafina 0.6 1 0.6 0.9 0.8 1 4.9

Tropicana, Dole, Sobe 2 6 8 6 8 7 0.5 1.2 0.8 0.9 0.8 1.4 5.6

Gatorade 6 8 8 7 8 8 1.5 1.6 0.8 1.05 0.8 1.6 7.35

FritoLay 6 8 7 7 7 8 2 2 1 1 1 2 7

Quaker Oatmeal 6 6 6 6 8 6 1.5 1.2 0.6 0.9 0.8 1.2 6.2

0.25 0.2 0.1 0.15 0.1 0.2

0.75 2.5 1.4 0.6 1.05 0.8 1.2 5.8 5 6 6 8 5

Totals

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Nine-Cell Industry Attractiveness/Business Strength Matrix

Competitive Strength/Business Position Strong

10
7.6 7.5 7 6.6 6.45 6.3

Average

Weak

Long-Term Industry Attractiveness

High
7.35 7

FritoLay PepsiCola

Gatorade

Medium

6.2 5.8 5.6 4.9

Tropicana Dole, Sobe

Quaker Oatmeal

Aquafina

Low
1

Narrative summary of model analysis results

All of PepsiCo's businesses are relatively attractive, although some trump others. Over the long term, the carbonated soft drink market may see significant loss of the beverage market share to other refreshments, and Pepsi-Cola is weaker in key markets than its main rival, Coca-Cola. Bottled water sales may also come under pressure due to increasing environmental concerns. PepsiCo's star business units, according to these analyses, are Frito-Lay, Gatorade, and Tropicana; Quaker Oatmeal is also a standout performer. The key reasons for the strength of these business units are their dedication to R&D, their excellent brand names, and the fact that they offer products that appeal to consumers seeking healthier options for snacks and drinks.

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Strategic Fit Potentials Between PepsiCos Business Units PepsiCos Related Diversification Strategy and Strategic Fits in Value Chain PEPSICO
Business Unit Pepsi Cola
CS with Aquafina CS/ST with all carbonated beverages CS with all carbonated beverages/ST with FritoLay snacks Cross-selling with Frito-Lay products/ST with all convenience products and BS Potential BS with Frito-Lay

Value Chain Activities

Frito-Lay

Some potential CS with Quaker products

Potential CS/ST with Quaker products

ST with Pepsi Cola and other carbonated beverages, CS with Quaker branded products CS with all convenience beverages/ST with convenience snacks Potential CS with all beverages

Cross-selling with Frito-Lay products/ST with all convenience products And BS Cross-selling among all noncarbonated healthy drinks/Potential ST with healthy snacks CS/ST with Gatorade

Potential BS with carbonated beverages, ST/CS among all FritoLay products Potential ST/CS among fruit juices and healthy beverages None

Tropicana/Dole/ Some potential CS with hot fill SoBe

beverages

CS among hot fill operations

Aquafina

CS with Pepsi Cola

CS among hot fill operations

Gatorade

Some potential CS with hot fill beverages

None

Potential CS/ST with other beverages, except Pepsi-Cola.

Potential CS with all beverages/ST with healthy snacks

Potential CS with other beverages

Quaker hot cereals

CS with Quaker Snacks

CS/ST with other Quaker snacks

ST with other PepsiCo products, CS/ST wth Frito-Lay

None

ST/CS with Quaker branded products

CS = cost sharing benefits

ST = skills transfer opportunities BS = brand sharing

Does PepsiCos portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see?

PepsiCo's portfolio does exhibit good strategic fit. It seems as though, for the most part, PepsiCo has pursued a strategy of acquiring businesses that have certain elements in common in terms of production, distribution, and marketing. The areas of the business in which PepsiCo has demonstrated particular success in exploiting strategic fits in the value chain are in purchasing, where Aquafina and Pepsi-Cola enjoy cost-sharing benefits, operations, where cost sharing benefits are achieved among hot fill operations of Tropicana, Dole and SoBe, distribution, in which cost sharing and skills transfer may be achieved among the longer-established beverage units and Gatorade, and in sales and marketing, where Frito-Lay products and all other convenience products (especially soft drinks) can be cross-marketed using brand sharing. PepsiCo should continue to explore new opportunities for skills transfer, brand sharing and cost sharing benefits across all business units, in order to maximize its advantage as a diversified company.

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Model of Grand Strategy Clusters

Narrative summary of model analysis results

PepsiCo's strong competitive position and the rapid growth of the global market for food and beverages indicates that the company fits into cell I. This applies across its business units; some, which are experiencing particularly strong growth rates (FritoLay, for instance), are well-matched to a concentrated growth strategy, while other units would benefit from further diversification into related products.

Grand Strategy Selection Matrix

Narrative summary of model analysis results

PepsiCo has considerable strengths as a company, which it can maximize to enable further growth. It can do this by leveraging both its internal and external advantages, such as its ability to innovate quickly in response to market needs, the ability to growth market share in key products, and the strong company will that exists to open up new markets for PepsiCo's businesses. It can also engage in concentric diversification to continue to add new, complementary businesses to the company's portfolio. Therefore, PepsiCo fits between cells III and IV.

Resource Fits: Cash Flows for 2007

Resource Fits: Cash Flows for 2007
Frito-Lay North America 2007 Operating profit $ 2,845 Depreciation / other amortization $ 437 Amortization of intangible assets $ 9 Interest expense(1) $ (80) Income taxes (2) $ (579) Capital expenditures $ (624) Dividend payments (3) $ 854 Estimated free cash flow $ 2,007
Narrative summary of analysis results

PepsiCo Beverage North America $ 2,188 $ 302 $ 11 $ (62) $ (512) $ (430) $ 656 $ 1,498

Pepsi International $ 2,322 $ 564 $ 38 $ (66) $ (790) $ (1,108) $ 697 $ 960

Quaker Foods North America $ 568 $ 34 $ $ (16) $ (93) $ (41) $ 166 $ 452

Total Division $ 7,923 $ 1,337 $ 58 $ (224) $ (1,974) $ (2,203) $ 2,377 $ 4,917

Corporate $ (193) $ 31 $ $ $ $ (227) $ $ (389)

Total $ 7,730 $ 1,368 $ 58 $ (224) $(1,974) $(2,430) $ 2,377 $ 4,528

PepsiCo presented an excellent result in terms of free cash flow. This approach is allowing the company to continue put money in Acquisitions, dividends, share repurchases, capital spending, short-term investments and borrowing. Frito-Lay North America has generated more than 40% of total free cash flow. While the International business has the worst result among the business segment. Page 12

Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007

Resource Fits: Operating Profit Margin by Business Segment: 2004 - 2007 Division 2004 2005 2006 2007 Frito-Lay North America 25% 25% 24% 25% PepsiCo Beverages North America 23% 22% 21% 21% Pepsi International 13% 15% 16% 15% Quaker Foods North America 31% 31% 31% 31% Total Division 21% 21% 21% 20%
Narrative summary of analysis results

PepsiCo has an outstanding operating profit margin compared with competitors in its market. Company as a whole has a operating profit margin of 18%. Its four business segments: Frito-Lay North America, PepsiCo Beverage North America, Pepsi International and Quaker Foods North America presented stability in its results from 2004 to 2007. Although Quaker is the smallest division, its operating profit margin was the best of all divisions in these years with 31%. On the other hand, Pepsi international presented the worst result among divisions. This point has made the company to concentrate efforts to enhance this business results. Resources Fits: Revenue Contribution by Business Segment: 2004 - 7
Resources Fits: Revenue Contribution by Business Segment: 2004 2007 Division 2004 2005 2006 2007 Frito-Lay North America 33% 32% 31% 29% PepsiCo Beverages North America 28% 28% 27% 26% Pepsi International 34% 35% 37% 40% Quaker Foods North America 5% 5% 5% 5%
Revenue growth by Business Segment: 2004 2007

Division Frito-Lay North America PepsiCo Beverage North America Pepsi International Quaker Foods North America Total Division
Narrative summary of analysis results

2004/20052005/20062006/2007 8% 5% 7% 10% 5% 7% 15% 14% 22% 13% 3% 5% 11% 8% 12%

With a CAGR of 10% from 2004 to 2007, PepsiCo showed that its growth strategy through acquisitions and business improvement were in a good way. However, there are two questions to its internal segmentation: Quaker was so smaller than others and international business was less lucrative than others divisions. Besides this, international business presented the biggest opportunity to grow with 22% between 2006 and 2007and Quaker seemed stagnated in the US market in the last two years. Page 13

9. MODEL GUIDANCE (What do the models suggest?) SWOT: PepsiCo should pursue a highly aggressive strategy, due to its current market position, its internal strength, and its ability to cope with the risks inherent in the environment and to take advantage of the many opportunities for growth, especially into emerging markets. 9-cell Analysis: The strongest of PepsiCo's business units going forward will be those best poised to take advantage of shifts in consumer demand and those most responsive to changing pressures due to government policies regarding the nutrition contend of food. FritoLay, Tropicana, Gatorade and Quaker Oatmeal are the star players here. Value Chain Match-ups: This is an area in which PepsiCo should focus, so that they can maximize their advantage as a diversified company. By choosing new companies to acquire based upon their relevance in the overall corporate value chain, PepsiCo can achieve a lasting competitive advantage. Maximizing cross-promotional potential should be a priority. Grand Strategy Clusters: PepsiCo enjoys market leadership across growing segments of the food and beverage industry. A concentrated growth strategy is recommendable for the strongest business units, and the company should aim to continue its diversification into related business areas in order to maintain its leadership. Strategy Selection Matrix: Following a strategy of aggressive diversification combined with a focus on innovation and market development for its existing businesses will ensure that PepsiCo remains competitive over the longer term. Resource Fits: PepsiCo faces a significant challenge in that its revenues from the North American units are very strong, yet the company must invest heavily in much less profitable international markets in order to plan for the future. PepsiCo must address this issue, and it must also address the issue of exactly where Quaker Foods fits in its structure; the smallest but also the most profitable division, it is set to play an important role in the company's future growth.

10. STRATEGIC ALTERNATIVES GOING FORWARD #1 #2 CONCENTRIC DIVERSIFICATION VERTICAL INTEGRATION Continue actively acquiring new businesses and Pursue a strategy of acquiring key players in the value chain, such as bottlers, agricultural diversifying into new (but strategically related) producers, or biotechnology companies. market areas. Acquisition of an alcoholic beverage maker is a possibility. #3 #4 HORIZONTAL INTEGRATION MARKET DEVELOPMENT Move aggressively to buy Kraft Foods and Continue moving into international market, become the new leader in the global market, restructuring their organizational structure . overtaking Nestle.

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11. Evaluating Alternatives Tests of a Winning Strategy How do these alternatives rate?
Does the strategy fit the situation (Y/N)? Will the strategy achieve a sustainable competitive advantage (Y/N)? Will the strategy result in better company performance (Y/N)? Summary (Good or Poor choice?)

Alt #1 Yes

Alt #2 Yes

Alt #3 No Yes Maybe Poor

Alt #4 Yes Yes Yes Good

Maybe Yes Maybe Yes Good Good

12. RECOMMENDED STRATEGY/POLICY PepsiCo should continue its aggressive growth strategy, utilizing concentric diversification where possible in order to grow into emerging market segments and also to achieve meaningful expansion into international markets. In the North American market, PepsiCo should increase profit margins by means of a vertical integration strategy, acquiring bottlers and perhaps other key players in the value chain. In the future, the company can consider horizontal integration, in order to growth its overall dominance in the food and beverage industry. 13. SUGGESTED ACTIONS
What strategic actions should Indra Nooyi take to sustain the corporations impressive financial and market performance? Should its free cash flows be used to fund additional share repurchase plans, pay higher dividends, make acquisitions, expand internationally, or for other purposes? What other strategic actions should be pursued by corporate level management?

Indra Nooyi and her team should focus on the aggressive expansion of the Pepsi brand internationally, aiming for market dominance in sodas in the international arena. In the US, the best strategy to compete with Coca-Cola in this market segment is to engage in vertical integration (in order to realize economies of scope) and also to build on the company's famously strong relationship with retailers. Furthermore, the company can strengthen its other soda brands, and perhaps introduce Miranda onto the US market in order to compete with Fanta. PepsiCo should increase international growth and profits by changing the organizational structure in a way that focuses on markets other than North America, and enables the company to ensure that new acquisitions are made profitable rapidly. PepsiCo should retain its strong focus on innovation and keep investing heavily in research and development, in order to keep ahead of the curve in this competitive industry. The aggressive diversification strategy is a major strength of PepsiCo. The company should continue along this path, but should also seek to specifically acquire companies that can offer it excellent strategic fit benefits, in order to capture efficiencies in the value chain. In terms of cash allocation, PepsiCo should seek to increase spending on R&D , acquisitions of companies that are a good fit for its portfolio, and pay higher dividends to shareholders, thus having a positive impact on the company's share price. The company should reduce expenditure on share buybacks.

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