11/29/2016

A case study on PepsiCo,

Profits, and Food: The Belt
Tightens

Submitted to:
Dr. Nilanjan Sengupta

Submitted by:
Section A Group 1
Aakansha Lakhani(16001)
Aashna Ahuja(16002)
Akash Debnath(16004)
Akshay S S(16005)
Anand M Dileep(16006)
Anshuman Sharma(16008)
Anurag Bora(16009)
Ashvek Banavalikar(16010)
Ayushi Singh(16011)
Company Profile

In the year 1965 PepsiCo formed by the merger of two companies Pepsi Cola Company and
Frito lay. PepsiCo is an American Multinational company. The main product category of
PepsiCo includes food, beverages, Snacks. The head quarter of the company is in New York
United states. PepsiCo have introduced many new brands in the market as well as acquired
many brands. In the year 1998 it acquired Tropicana which is one of biggest acquisition by
PepsiCo. They have acquired Quaker Oats in 2001 which generated sales in retail stores of
more than $1 billion. Company also distributes its products more than 200 countries. PepsiCos
Annual net revenue is more than $43.3 billion. If comparison is done only based on net revenue
than PepsiCo would be second in the food and beverages company in the world. In the North
America it is largest. In the year 2010 PepsiCo have divided its operations in four main
division: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe, and
PepsiCo Asia, Middle East and Africa. PepsiCo have many different products under their
portfolio like Doritos, Tostitos, Walkers, Quaker, Gatorade, Aquafina, and Tropicana.

Indra Nooyi earned a college degree and an MBA in India and joined a British textiles
company. Nooyi needed to proceed with her training and went to the Yale School of
Management. Nooyi joined PepsiCo as senior VP in 1994 and gradually promoted to senior
VP for the corporate system and development in 1996. She assumed a key part in the choices
to offer PepsiCo's restaurant and packaging operations. However, Nooyi was likewise behind
choices to move the organization in new headings, and PepsiCo gained the Tropicana and
Quaker (which claimed Gatorade) organizations amid her time in key planning. These
acquisitions were driven by her understanding that wellbeing and nourishment were
progressively imperative to consumers. Nooyis tenure as chief executive officer, PepsiCo
launched Performance with Purpose, its arrange for property
growth engineered on 3 property pillars:

1. Human
2. Environmental
3. Talent

Underneath this arrange, PepsiCo would increase the

quantity of merchandise supported healthy foods like whole grains, fruits, and vegetables.
PepsiCo conjointly planned to chop metallic element by twenty fifth and saturated fats by V-J
Day in their beverages and other food products by 2020, as well as sugar in few food products
by 2015..The corporate planned to incorporate organic process info on all packaging by 2012,
and to prevent marketing drinks high in sugar in faculties by 2012. In the process PepsiCo
invested in R&D and reformulated old products and launched some products with new
ingredients. This new ingredients do not affect the test of products. In the process of reducing
sugar from their products they found one sweetener from stevia plant which PepsiCo is
claiming to have 50% less sugar and calories in that. They are using it on fruit Juice like
Tropicana and Pepsi. In the year they have claimed that the sweetener from stevia plant used
in Pepsi and it has 60% less sugar quantity than the previous ones with same taste.

Products

Focus of the company to develop a good for you category to 30 billion dollars by 2020. But
this strategy is cannibalising their own brands by stealing attention away from their basic
products which are said to be unhealthy in nature .It was even said that the best thing to be
done by PepsiCo against world obesity is to run out of business. The company was even
compared to various cases like that of tobacco industry as they have diversified their business
into various other sectors due to the nature of the products they have sold. There was a hidden
existential crisis for the company. They had a dilemma to choose between their high earning
core brands and to be developed new segment. Product portfolio was PepsiCo and Doritos
which made the company successful in the first place and the place was ready to be taken over
by the competitors in terms of market share if PepsiCo exit the particular sector.

According to the surveys taken, half of the US population drank at least one soda per day. As
per the medical research the average calorie requirement was 140-150 calorie but a soda
contained 130 calorie per ounce. This was the major threat faced by the company and the same
things. Along with that the United States agriculture department listed soda as empty calorie
product that is a product with no nutritional value. PepsiCo started their business in macro scale
after combination of Pepsi cola and Frito-Lay. Their product portfolio has three major types of
products namely good for use, better to use and fun to use products. PepsiCo had 22 major
brands where most of them were favourites and hot sellers. They even had the control of various
fast food chains including Pizza hut, Taco bell and Kentucky fried chicken which was later
sold off in 1997.
 To look deep into various patterns and change in behaviour, it was evident that the consumer
preference was shifting from fun to use products to product which are healthy and nutritional
in nature and PepsiCo understood they wouldnt survive in the market by focusing only on
sodas. The strategy they followed was to pump their capital into R&D to produce healthier
products. For their products to be healthy the main challenges they faced was to reduce the
content of various components without reducing the taste of their products. They major
components which was a threat to the customers health wise was the content of sugar, fats and
salt in their products. They have even manufactured zero calorie products and forced the
customers by pushing the product through various campaigns and promotional activities. The
health of the customers was also to be taken into account so the company has to emphasis on
health without compromising on the taste of the products.

After Indira Nooyi has taken charge of the CEO, the company started a movement called
performance with purpose, where the major concerns was about the three pillars of
sustainability i.e. human, environment and talent. The main aim was to include products with
fruit and vegetable content in their portfolio. PepsiCo took a major decision in cutting around
25% sodium, 15% saturated fats and cutting the sugar by 25% which actually helped them in
getting back their credibility and trust. Pepsi also invested a lot in maintaining the taste of their
products and cutting down the content of harmful material by investing a lot in the R&D.

PepsiCo products

Good to use better to use Fun to use

Tropicana beverage Gatorade Pepsi
Quacker foods Diet Pepsi Mountain dew
Quacker snacks Lipton teas Lay's potato chips
Aquafina bottled water 7 up
Doritos tortilla chips
Cheetos

The table above shows the major products offered by PepsiCo and their positioning done by
the company.
Mode of Operations
Over time, the company introduced and acquired other well-known brands, including
Doritos, Tostitos, Walkers, Quaker, Gatorade, Aquafina, and Tropicana.
The company had once owned quick-serve restaurants, including the Pizza Hut, Taco
Bell, and Kentucky Fried Chicken restaurant chains, all three of which it sold off in
1997.
PepsiCo divided its operations into four segments. The U.S. was PepsiCos primary
market, responsible for half of its total net revenues.
Under the plan, Performance with Purpose PepsiCo would increase the number of
products based on healthy foods such as whole grains, fruits, and vegetables.68 PepsiCo
also planned to cut sodium by 25% and saturated fats by 15% in some foods and
markets by 2015, and sugar in some beverages and markets 25% by 2020.69
The company planned to include nutritional information on all packaging by 2012, and
to stop selling drinks high in sugar in schools by 2012.
PepsiCo reformulated some products and launched new ones by identifying a products
unique taste and then replacing ingredients without changing taste.
In 2012, PepsiCo partnered with the German dairy company Theo Muller Group on a
U.S. joint venture called Muller Quaker Dairy. The joint ventures $206 million yogurt
plant was scheduled to open in mid-2013.

2012 PepsiCo PepsiCo PepsiCo PepsiCo Asia,

Americas Americas Europe Middle East,
Foods Beverages Africa

% of net profits 35% 34% 20% 11%

% of operating 51% 30% 11% 8%

profits
The above tables show the percent of profits obtained from various sections of Pepsico, i.e.,
PepsiCo American foods which incurs the highest amount of net profit which is 35%, PepsiCo
Americas Beverages which constitutes 34% of the net profits incurred whereas PepsiCo Europe
and PepsiCo Asia, Middle East, and Africa constitutes 20% and 11% respectively, whereas if
we consider operating profits PepsiCo America foods incurs 51%.

Exhibit 4 in the above table shows revenue and operating profit generated from various
products available in different countries over the years from 2008 to 2011 and we see that the
revenie as well as the operating profit has oncreased over the years.
Mission and Vision of PepsiCo

Vision statement of PepsiCo

PepsiCo has a long term strategic plan where they aim to deliver efficient and better financial
performance by integrating sustainability into their business strategy, which would leave a
positive impact and imprint on the society and the environment

PepsiCo has always emphasised on building its brand on the idea of Satisfying their consumers
with a purpose of delivering performance every time. To attain to this idea, they have divided
their vision into three parts:

a) To efficiently deliver excellence in performance

b) To holistically adopt the concept of sustainability
c) To always adhere to the Corporate Social Responsibility

To deliver an excellence in performance has always been the core aim at PepsiCo. The
stakeholders of PepsiCo expect excellence from them and PepsiCo ensures that they always
adhere to the promise. PepsiCo also integrates the concept of sustainability in their business.
They want to ensure the world that they only use that much resource that is used to manufacture
their product and that would leave sufficient amount of resource for the coming generation.
PepsiCo also emphasises on the concept of doing Corporate Social Responsibility on a regular
basis so as to make the consumers happy and enhance their corporate and brand image. The
CSR factor has a major influence in framing of the company policies and strategies for the
organizational development.
Mission statement of PepsiCo

To attain their long term vision, PepsiCo has implemented their Mission statement as to give
their consumers a range of foods and beverages which are affordable, good to taste and
provide the best wholesome breakfasts that are healthy and also provide their consumers with
fun daytime snacks and beverages for evening delights. PepsiCo highlights their mission
statement so as to satisfy their customers. PepsiCo, in addition to their existing mission
statement, also states that they are and always will be committed to invest in their people, their
company and the communities where they operate to help position their company and ensuring
them for a long term and sustainable growth. PepsiCo has further divided its mission statement
in four parts:

a) Ensuring to deliver happiness to their consumers around the world

b) Delivering delicious and nutritious products to their stakeholders
c) Making their products affordable
d) Ensure their stakeholders convenience at every steps of their operations

PepsiCos mission statement has always emphasised in their stakeholders and their product
characteristics. PepsiCo always aims to deliver products that appeal to all the customers
throughout the world. PepsiCo wants to deliver products that goes well beyond backgrounds,
cultures and other variables of the people. PepsiCo makes it a point to make products easily
accessible, implying the firms market strategy.
Ethical Issues

Macro perspective:

Different challenges companies are facing in balancing financial success and social
responsibility.
For example PepsiCo started concentrating on healthy products and stopped
concentrating on their core products which directly affected their market share in
carbonated soft drink category year by year in US.

Micro perspective:

Increase sugar consumption lead to serious health problems like obesity and people
started shifting towards healthier food. Obesity caused serious diseases like stroke, type
2 diabetes, heart disease, cancer and high blood pressure.
Carbonated soda was listed as an empty calorie product which had some or no
nutritional value by United States department of agriculture.
The stock price of PepsiCo was degrading rapidly as was its financial results comparing
to its competitors.
Another major problem of PepsiCo and other carbonated drinks could be targeted with
health related law suits.
There was also conflict between investors and the company as the investors were
interested in financial results and they were in support of the company concentrating
mainly on core product.
When Nooyi started ethical practices in the company for example by reducing the sugar
level in core product and also started making healthier products investors did not
respond positively.
Although healthier products were available in the market people always opted for the
unhealthier products because eating junk food costs less than health food which was
profitable for the company but was unethical in societys perspective.
In some cities soft drinks high in calorie and sugar and junk food was banned for a
small period of time which directly affected the financials of the company.
 When companies started partnership with different health organizations a set of people
started criticizing the companies.
A set of people supported that it is the individual consumer responsibility that they
should understand what they want to have and risk associated with that product which
was also unethical.
Competitor of PepsiCo were directly attacking the company by making and selling
healthy products similar to that of PepsiCo.

Ethical Strategies

Company adopted stakeholder approach as they are primarily concerned with the company

PepsiCo started investing heavily in R&D because now they were concerned towards
healthier products for their consumers.
Their main aim was to reduce the levels of sugar, salt and fat without compromising on
taste in their existing and core products and make them healthier. For example
Tropicanas trop 50 fruit juices had 50% less sugar than other fruit juices due to its
usage of stevia plant sweetener.
PepsiCo launched Performance with Purpose plan which concentrated on three
sustainability pillars which were human, environment and talent. For example cutting
down sodium by 25% and saturated fat by 15%.
Company planned on providing the full nutritional information of all their products
which was to be implemented by the year 2012.
They also planned to stop selling the carbonated drinks in schools by the year 2012.
They hired an official from WHO and also an expert in diabetes and nutritional health
to help them to improve their products in terms of health and related issues.
PepsiCo financially supported some NGOs like academy of nutrition and diabetes
which in turn supported some nutritional and public health issues and initiatives and
also their related programs at universities.
PepsiCo tried to increase its nutritional portfolio by acquisitions and partnerships with
companies like Wimm-Bill-Dann and Theo Muller group.
Viewpoint of the group

1. PepsiCo should tie up with other carbonated beverage companies and work
together to solve the issues related to health and other related diseases.
2. The main core values of PepsiCo is human sustainability, environment
sustainability and talent sustainability. They should promote these values
in return it will improve the brand image among all their stakeholders.
3. PepsiCo has been associated with implementing a number of CSR
activities worldwide, they also have started focusing on the nutrition
aspects with the introduction of oats and Tropicana, though in this case it
was mentioned that stakeholders were not satisfied with Nooyis objectives
and wanted her removed, they should have discussed this matter with the
management and have a proper line of communication.
4. Companies like PepsiCo should tie up with the government of the
respective country to impart proper knowledge about the hazards of
consuming too much of carbonated drinks.
5. Companies like PepsiCo should adopt stakeholder approach to ensure
health and safety and also to improve the loyalty of the company.
Bibliography
PEPSICO. (n.d.). Retrieved from (http://panmore.com/pepsico-vision-statement-mission-statement-
analysis, n.d.)

IQ, c. (n.d.). Retrieved from capital IQ may 2013

(n.d.). Retrieved from http://panmore.com/pepsico-vision-statement-mission-statement-analysis.