CASE STUDY: PEPSI-COLA

PRODUCTS PHILS., INC. (PCPPI)

Presented by:
Group 2
Mary Ann Robin Palattao
Nelson Perreras
Riza Martin Domingo
Juvar Levi Galicia
Mariz Gwen Bersola
Ken Grafia
Viewpoint Taken: CEO
Time Context: 1999
 INTRODUCTION:
Pepsi was introduced into the Philippine market as
early as World War II and operates principally in the
business of manufacturing, marketing, selling and
distribution of carbonated drinks duly licensed and
authorized by the franchising company, the Pepsi-Cola
Company. PepsiCo has several bottling plants in
Luzon, Visayas, Mindanao and sales offices scattered
all over the country to meet head-on the growing
demand.
 Pepsi launched successfully several
promo campaigns such as the:
1. "Have a Pepsi Day” (1980)
2. “Go Big Time” (1980)
3. “Yes, Pepsi You’re the One” (1983)
4. “Pepsi-The Choice of the New Generation” (1984)
5. “Number Fever”, "349" (1992)
 COMPANY BACKGROUND
Pepsi-Cola in the Philippines
• On October 16, 1946, John Clarkin acquired a franchise to bottle and
distribute Pepsi-Cola in the Philippines, establishing Pepsi-Cola Bottling
Company of the Philippine Islands Ltd. Clarkin was an American who
came to the Philippines as a member of the US Air Force during the close of
World War II. In the beginning, the company imported Pepsi-Cola until 1947,
when its first bottling plant was established in Quezon City.
• After Clarkin returned to the United States in 1957, PepsiCo International
took over the Philippine operations. In 1983, the Philippine operations
became a branch of PepsiCo’s New York office - renamed PepsiCo, Inc.
(Philippine branch) - and operated until 1985. From 1985 to 1989, Pepsi-
Cola Distributors of the Philippines, Inc., a group identified with Filipino
businessmen Ernest Escaler and Eduardo Cojuangco, Jr., took over the
Philippine franchise.
Pepsi-Cola in the Philippines
• Pepsi-Cola Products Philippines, Inc. (PCPPI) was established in 1989 as
Premier Beverages by Luis Lorenzo, Sr. to acquire the bottling and
distribution rights to PepsiCo beverages in the Philippines.
• In 1997, the Guoco Group acquired Lorenzo’s holdings in PCPPI. Under
Guoco management, ₱700 million was spent in 1998 to upgrade the facilities
of PCPPI. In 2000, PepsiCo paid P 2 billion to the Guoco Group to acquire a
33% stake in PCPPI.
• Guoco Group Limited is an investment holding company. The principal
activities of its subsidiaries and associated companies include investment
and treasury management, property development and investment, stock and
commodity broking, insurance, investment advisory, fund management as
well as banking and finance, operating principally in Hong Kong, Singapore,
Malaysia and the mainland of the PRC, etc. It is part of the Hong Leon Group
Malaysia.
 VISION AND MISSION
Vision:
• Be the premier Food & Beverage Company in the Philippines.
Mission:
• We will continue to market a portfolio of international and home-
grown branded quality products at prices that provide good value
to our consumers in key Food & Beverage categories.
• We are committed to expand the business and provide healthy
financial returns to our shareholders, opportunities for growth and
enrichment to our employees, business partners and the
communities where we operate.
CORE VALUES:
We remain strong with our core values of Passion,
Excellence, Professionalism, Service & Integrity.

BRANDS:
• Pepsi-Cola, Seven-Up, Mountain Dew, Mirinda,
Orange, Diet Pepsi and Diet Seven-Up.
 STATEMENT OF THE PROBLEM
• Major Problem: PCPPI is slowly being overtaken
by it’s competitors in the soft drinks market due to
low market penetration.

• Minor Problem: How can PCPPI lower it’s

operating costs while maintaining a competitive
price?
 OBJECTIVES:
• Long Term - To survive in a fierce competitive soft
drinks marketing arena and to continually be the
choice of the new generation.

• Short Term - To increase it’s sales volume and

capture a bigger market on areas not visited by the
company’s sales force.
 Area Of Consideration
A. External Environment
1. Demography

• Philippine is one the biggest

market in the world.

• Total industry sale in 1998 was

roughly 598 million ”
 2. Industrial Profile
Per Capita Consumptions VS GDP Per Capita

Servings GDP Per Capita

Philippines 200 (8 oz.) US$ 841

Mexico 550 US$ 5,480

Chile 330 US$ 5,480

Thailand 130 US$ 1,900

Indonesia 100 US$ 500

Malaysia 130 US$ 3,100

South Korea 100 US$ 7,000

Economic situation
• 1998 Phil was facing an
economic crisis and sugar
shortage.
Socio Cultural Background
• Consumer in the lower CDE
income bracket are highly price
sensitive.
Political/ Government
• Strict compliance to all
government regulations.
SWOT- Opportunities
• Growing bottled water market

• Growing population in the

Philippines.

• Unvisited retail outlets nationwide.

 SWOT- Threats
• Substitute for soft drinks.

• High oil and sugar prices.

• Sluggish growth of carbonated

beverages.

• High level competition with main

rival.
 Areas Of Consideration
B. lnternal Environment
1. Marketing Operations
• PCPPI has been the leading company beverages industry having a
lot of experience in the market. The convenience of purchasing,
low price and favorable taste are some of the things a customer
expects in a competitive non-alcoholic beverages market.

• The company has a low market penetration because of too much

dependence on distributorship/dealership arrangements. The
promotional and merchandising paraphernalia support for
customer’s value of product offerings were not implemented. In
1998 sugar shortage crisis, plant capacity remains underutilized
because of the following factors such as weak distribution
networks, inadequate marketing efforts, poor work systems, and
very inadequate information networks.
2. Production Operations

• PCPPI has a solid reputation as a leading provider of non-alcoholic,

non-carbonated beverage in the country. The company’s production
processes aims to provide the highest quality products and to
deliver change across the company, value chain, industry and the
world for optimal efficiency.

• The company continues to develop products or variants of existing

ones such as low-calorie or low- saturated fat variants of beverages
such as Diet Pepsi, Diet Seven-Up and etc. The packaging which is
the canned soft drinks has gained acceptance in the upscale market
and fountains or vending machines are dominantly more
pronounced in restaurants and popular fast food chains in the
country.
3. Organizational Operations

• PepsiCo has come a long way from Pepsi being its primary
product and source of revenue. The company has several
bottling plants in Luzon, Visayas and Mindanao and sales
offices scattered all over the country to meet the fast
growing demand of the marketplace. It reflects the business
aims of global expansion and market leadership through
efficient management operations such as high quality
management, sustainable growth, constant improvement
and keeping new ideas in the marketplace, adequacy of
workforce, and optimization of supply chains.

• The company maintained a large workforce not

commensurate to total productivity outputs.
 3. Financial Operations

• The company is burdened with huge interest payments and

the inefficiency in credit extension and collection policies
have increase accounts receivables. And due to the sugar
shortage it inevitably increases the cost of goods sold and the
only alternative is price reduction to further erode operating
margins.

Financial Aspects
4,100,000
4,063,773
4,050,000

4,000,000 3,982,626

3,950,000
3,898,224
3,900,000

3,850,000

3,800,000
1994 1995 1996
Gross Revenues
ALTERNATIVE COURSES
OF ACTION
ACA 1
• Adjust the price of the products

Advantage
• They can compete with Cosmo’s lower price in the
market
• It can penetrate the market

Disadvantage
• It may have an with the customers perception
about the product
ACA 2
• Widen the distribution network

Advantage
• It can penetrate the market
• Products will be available at more locations and
reach untapped locations
• It can improve the delivery and service options
• Improves sales performance
ACA 2 cont’d
• Widen the distribution network

Disadvantage
• It can be costly
• Loss of communication control with the costumers
ACA 3
• Cancel the contract and replacing
non-performing distribution
partners, dealers and salesforce.

Advantage
• Reduces the operating cost
• Opportunities to find a new and better
dealer/distributor and sales person
ACA 3 cont’d
• Cancel the contract and replacing non-performing
distribution partners and dealers

Disadvantage
• Pepsi needs to build a new relationship with their new partners to test if
it they will be able to meet the standard
ACA 4
• Create a new product segment with
a lower price

Advantage
• They can compete with Cosmo’s lower price in the
market
• It can penetrate the market
• They can maintain the prices of the existing
products
ACA 4 cont’d
• Create a new product segment with a lower price

Disadvantage
• It will be costly as they will need to advertise the new product
segment
ACA 5
• Increase brand awareness

Advantage
• Consistency in the marketplace
• It helps create a customer loyalty
ACA 5 cont’d
• Increase brand awareness

Disadvantage
• Increase expense
• The negative event will be attached with the product
 Strategy
Formulation
Widen the
distribution
network.
Objective
To strengthen and gain
market growth for a long
tern survival in the fierce
competitive softdrinks
marketing arena.
Short-run (1st – 5th
year) To expand
growth and take
advantage of potential
opportunities to have
control over the market.
Long-run (beyond the
5th year) To develop
faster-growing, higher-
margin with global
leadership in the
market.
Functional Strategies