Analysis of Pepsi Co in India

Analysis of Pepsi Co in IndiaPepsiCo is the largest snack and non alcoholic beverage manufacturing teleph starr in the world. Its output range includes grain found snacks, change and non- carbonated beverages and foods. It operates through four operating components Frito-Lay wedlock America (FLNA), PepsiCoBeverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA).It sells its returns in 200 countries with major trading operations in the US, Canada, Mexico and the UK. It distributes its firebranded products through multi channels such as direct stores, broker wargonhouses, food service centers and vending machines.PepsiCo in IndiaPepsiCo entered India in 1988 and concentrated on three focus areas soft drink, snack foods and food processing. PepsiCo got permit to import cola conecnterate and to sell soft drink under Pepsi tag in Indian grocery and in return to export juice concenterate from Punjab.Main objective put forward was To prom ote the development and export of Indian made and agro ground products and to foster the introduction and development of PepsiCo products in India.Pepsico entered in India in the form of joint venture with PAIC holding 36.11%, voltas 24%, PepsiCo holding 36.89%.ISSUESPepsiCo was coupled with the punjab card. They made plastered commitments to Indian cental government.PepsiCo specifically supported national priorities in area like export and agriculture. Some of the commitments are as follows1) the project give produce employment for cholecalciferol00 peope nationally, including 25000 jobs in Punjab alone.2) 74% of total investment pass on be in food and agro processing.25% will be in manufacturing of soft drinks.3) PepsiCo will bring advanced technology in food processing and provide thrust by marketing Indian products abroad and giving them worldwide market.4) 50% of total production will be exported.5) an agro research center will be established by PepsiCo with ICAR and PAU .6) no foreign brand conjure will e used for domestic sales.7)export import ratio will be 51.FAILED COMMITMENTSWithin few course of instructions pepsi was recorded as one of non meekness companies that did not fulfill the commitments it made to Indian government. The confederation nowhere met its obligations.On September 4,1991 george fernandes said that Pepsi co has failed to meet its commitments and the confederacy became a challenge to the government.The failed commitments are as follows1)EMPLOYMENT COMMITMENTEmployment generated by PepsiCo1990-911991-92directindirectdirectFood processing1699903170Administration117432179Bottling49715115560Total78325450909Source data taken from balance sheets of pepsi foods ltd.Pepsico by 1996 join ond the employment figure to 2400 which was just 3% of the commitment made.Branch name commitmentPepsi committed not to use its brand name pepsi in india. During first year pepsi used Indian brand name Lehar pepsi bt with the introduction of new policy in 1991 pepsi immediately changed its drink name from lehar pepsi to pepsi.Export commitmentPepsi commited that 50% total product will be exported but instead of exporting its own products it exported basmati rice, tea, leather productsAgro research centerNo agro research center was established.PepsiCo, Inc., tog out AnalysisStrengths WeaknessesStrong gain ProspectsEfficient Use of ResourcesExpanding Operating MarginDeclining Market Share inSectorOverdependence on FewCustomersGeographical ConcentrationOpportunities ThreatsHuge Potential in theEmerging MarketsIncreasing Bottled WaterMarketGrowing Organic FoodsMarketHighly belligerent MarketPrivate Label Brands GainingMomentumGlobal Economic ConditionsPepsiCo, Inc.PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code GDCPG35119FSAPage 2PepsiCo, Inc. SWOT AnalysisSWOT Analysis OverviewPepsiCo, Inc. (PepsiCo) is one of the leading snack and beverage companies in the world. Dominant market position anddiversif ied brand portfolio are its strengths. Further, the rebellion demand for bottled piddle and strategic acquisitions couldensure a strong future. However, poor profitability and overdependence on a few customers are areas of concern to thecompany. Highly emulous market and growing demand for private articulate products coupled with global economicalslowdown could also impede the companys crop.PepsiCo, Inc. StrengthsStrength Strong Growth ProspectsThe company was trading at a price/earnings (P/E) ratio of 16.16 at the end of fiscal year 2009. This was above the SP500 companies average* of 9.2. A higher(prenominal) than SP 500 companies average P/E may indicate that the company may havehigh growth prospects which is reflected in its stocks premium pricing. Investors may be expecting higher earnings growthin the future compared to other companies in the SP 500 index.Strength Efficient Use of ResourcesThe companys return on equity (ROE) was 35.4% for fiscal year 2009. This was ab ove the SP 500 companies average*of 12.9%. A higher than SP 500 companies average* ROE may indicate that the company is efficiently using the regionholders gold and that it is generating high returns for its shareholders compared to other companies in the SP500 index.Strength Expanding Operating MarginThe companys operating bound was 18.61% for the fiscal year 2009. This was above the SP 500 companies average* of14.7%. A higher than SP 500 companies average* operating margin may indicate efficient cost management or a strongpricing system by the company. The companys operating profit was USD 8,044.00 million during the fiscal year 2009, anincrease of 15.59% over 2008 while the net profit was USD 5,946.00 million, an increase of 15.64% over 2008. Theoperating margin has increased 252 basis points (bps) over 2008, which may indicate managements high focus onimproving profitability.Strength Strong RD ActivitiesPepsiCo has a strong RD arm that focuses on motley activities, which c ould help the company in cost reduction andprocess improvement, quality assurance, process control, and system development. The company also places emphasison evolution new manufacturing methods, improving on the existing manufacturing processes, new product developingand improving the existing products. For the fiscal year 2008, the company spent USD 388 million on its RD initiatives,against USD 364 million in 2007. Thus, such a strong focus on RD activities provides the company with an edge over itscompetitors in generating higher operational performances. New product and technology innovations also strengthen thecompanys innovating capabilities and provide a source of future taxs for the company.Strength Diversified Brand PortfolioPepsiCo boasts of a broad brand portfolio in the beverages and snacks categories, which helps it cater to the diverseneeds of its customer base. The top 18 brands of the company generate USD 1 billion or more than each in annual sell sales.Some of the major brands offered by the company include Pepsi, luck Dew, dieting Pepsi, Gatorade, Tropicana PurePremium, Aquafina irrigate, Sierra Mist, Mug, Tropicana juice drinks, Propel, SoBe, Slice, Dole, Tropicana Twister andTropicana Seasons Best. This diversified brand portfolio of the company provides it with the economic stability and anedge in attracting and retaining a diverse customer base. It also helps the company to mitigate the risks associated withoverdependence on a particular brand or product category.Strength Dominant Market PositionPepsiCo enjoys a leading market position that helps it attract and serve a diverse customer base. The company is one ofthe leading snack and beverage companies in the world. It is engaged in manufacturing, marketing and sale of a variety ofsalty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods. The companysells its products in more than 200 countries. It is the market leader in the US savory sna cks market with a market share ofabout 39%. It is also the leader in the US liquid refreshment beverage category with a market share of 25%. Furthermore,the company occupied 52nd position in the Fortune 500 rankings in 2009. The Frito-Lay brand is the worlds leadingmanufacturer of snacks. This dominant market position helps the company diversify its risks associated with the cyclicalnature of most of these markets and puts the company at an expediency over its rivals while expanding its product epithelial ducts.PepsiCo, Inc.PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code GDCPG35119FSAPage 3PepsiCo, Inc. WeaknessesWeakness Declining Market Share in SectorThe companys compound annual growth rate (CAGR) for revenue was 7.34% during 2005-2009. This was below the SP500 companies average* of 11.1%. Further, the company cut acrossed revenue of USD 43,232.00 million during the fiscal yearended December 2009, a decrease of 0.04% from 2008. A lower than SP 500 compa nies average* revenue CAGR mayindicate that the company has underperformed the average SP 500 companies growth and lost market share over the lastfour years. The companys underperformance could be attributed to a weak competitive position or inferior products andservices crack or lack of innovative products and services.Weakness Overdependence on Few CustomersOverdependence on a few customers has been a major area of concern to the company. A prodigious portion of thecompanys revenues are generated from few customers. For instance, in 2008, sales to Wal-Mart and Sams West, Inc.represented 12% of the companys net revenue. The top five retail customers represented about 32% of its 2008 NorthAmerican net revenue, of which Wal-Mart (including Sams) accounted for about 18%. The loss of one or more of the topcustomers in any of these segments could have a material adverse effect on the results of these segments. Due tooverdependence on a few customers, the company may not be able to f ind suitable alternatives to sell its products in time ifany of these customers is unable to buy the products on terms favorable to the company.Weakness Geographical ConcentrationPepsiCos overdependence on the US market for its revenues exposes the company to various risks associated withgeographical concentration. Though PepsiCo has operations in various geographic regions, a majority of its revenues stillcomes from the US. During the fiscal year 2008, the company generated 52% of its total revenue from the US region.Further, during the fiscal year 2009, PepsiCo generated over 71% of its revenues from North America. This dependence onthe US could doctor its operational and financial performance in the outlet of any economic, political or climatic change. Italso could restrict its market share and growth opportunities.PepsiCo, Inc. Opportunitiesluck Huge Potential in the Emerging MarketsThe company could benefit from the growing markets in the Asia Pacific region. According to the World Bank, the GDPgrowth rate of high income countries came down from 2.6% in 2007 to 0.4% in 2008. The economies of these countries are evaluate to have contract by 3.3% in 2009. Despite the global economic slowdown, the emerging and developingeconomies recorded a GDP growth rate of 8.1%, 5.6% and 1.2% during 2007, 2008 and 2009, respectively. Growth in theEast Asia and Pacific region (especially China) as well as in South Asia (especially India) has been resilient. This wasmainly due to the massive fiscal stimulus megabucks in China and Indias skillful macroeconomic management. Chinas GDPgrew at 9% in 2008 and 8.4% in 2009, while Indias grew at 6.1% and 6% respectively, during the period. The growingeconomy in these countries has generated new employment opportunities for the residents and has provided a boost totheir earnings. Rise in disposable income has changed their buying behavior. Now more and more people are buying prodigality and lifestyle goods unlike in the past w hen they used to confine their spending to basic necessities. Customers in theemerging countries are becoming more brand aware and prefer to buy branded goods. With competition at its peak andmarkets getting saturated, the company can look out for new growth avenues in these regions.Opportunity Increasing Bottled Water MarketThe strong growth in the bottled water market is emerging as a major boon for the company. The global bottled waterindustry has been witnessing strong growth over the past few years, especially in the US. Bottled water is sold mostly in theindustrialized countries where it costs among USD 500 and USD 1,000 per cubic meter, compared to USD 0.50 formunicipal water in states such as California, US. With the strong profitability offered by the segment, many players havestarted foraying into the bottled water business. The demand for bottled water has also been on the rise in emergingcountries. PepsiCos established presence in the bottled water segment, along wit h its strong brand image puts thecompany at a competitive edge over its rivals in attracting and retaining a loyal customer base. The strong distributionne twainrk also helps the company to cater to a geographically diverse customer base.Opportunity Growing Organic Foods MarketThe company has a significant opportunity to grow as the demand for natural food is set to rise by an average of 18% inthe US by 2010, according to the Organic Trade Association (OTA). Rising wellness consciousness in the US has made theorganic foods segment one of the fastest growing segments in the food retailing industry. Though, the organic foodsegment represented a mere 2.8% of the US food and beverage market, the organic food market in the region generatedUSD 21.2 billion in 2007. According to a recent report from the OTA, the global demand for organic products has beengrowing at USD 5 billion a year. PepsiCo offers its all natural and organic product line under the Tropicana and Quakerbrands in the US . The company can thus capitalize on its distribution network and organic food offerings to increase itsmarket share and revenues.PepsiCo, Inc.PepsiCo, Inc.- Financial and Strategic Analysis Review Reference Code GDCPG35119FSAPage 4Opportunity Strategic AcquisitionsStrategic acquisitions offer a strong growth opportunity for the company, especially while foraying into new markets orlaunching new products or services. The company has grown over the years by acquiring or merging with some of themajor brands like Frito Lays, Quaker Oats, Gamesa and Sabritas. Further, in October 2009, the companys Pepsi BottlingVentures, LLC signed a Letter of Intent to acquire the assets of Pepsi Cola Bottling Company of Conway-Myrtle Beach,Inc., the Pepsi-Cola franchise bottler based in Conway, South Carolina. Earlier, in August 2009, PepsiCo Inc. entered intodefinitive merger agreements with its two largest bottlers, The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc.(PAS). Under the agreem ent, PepsiCo will acquire all of the outstanding shares of common stock of these two bottlers.Currently, the company owns 33% and 43% of the outstanding shares of PBG and PAS respectively. During the sameperiod, the company also announced an agreement to acquire Brazils largest coconut water company, Amacoco NordesteLtda. and Amacoco Sudeste Ltda. (Amacoco). Earlier, in April 2008, PepsiCo acquired the UK based vitamin water brand,V Water. These mergers and acquisitions offer a steady revenue source, apart from geographical expansion for thecompany.PepsiCo, Inc. ThreatsThreat Highly Competitive MarketGrowing competition could impact the business operations of the company. The company faces stiff competition from thevarious companies that are in the business of beverages, snack and food products. Key competitors include General Mills,Inc., Groupe Danone, Hershey Foods Corporation, come near S.A., Coca-Cola Company, The Procter Gamble Company,The Kraft Foods, Inc., National Bevera ge Corp., Jones Soda Co. and Kellogg Company. away from the established playersin the developed countries, the players from emerging countries too are competing hard to garner utmost market sharein their respective regions. If the company fails to maintain product quality and consumer loyalty, this intense competitioncould reduce the sales volume of the company, thereby hampering its market position.Threat Private Label Brands Gaining MomentumThe growing demand for private label products has been a major area of concern to the company. According to a report bythe Confederation of the Food and Drink Industries of the EU (CIAA), there is a shift in the consumer spending towardsprivate label products. Also, it is observed that the private label products have reached as high as 48% in traditionalretailers and 94% in discounters. In the UK, almost all the top 30 retailers witnessed an increase in the private label sharein 2008. Private labels may become even more popular due to the cu rrent economic slowdown. Apart from low prices, theincreasing quality of private label products has been driving away the sales of branded products. Thus PepsiCo faces amajor challenge from these private label manufacturers in sustaining its growth.Threat Global Economic ConditionsThe company faces a major challenge in sustaining its revenue growth due to the slowdown in the global economy,especially the US. The banks have tightened their credit lending process thereby affecting the consumers shopping ability.Even the market volatility concerns have made them shop yet for basic and essential goods, thereby creating a majorchallenge to the goods manufacturers whose sales have been on the decline. According to The World Bank, overall globalGDP contracted by 2.2% in 2009, with 1.2% growth rate in the developing economies well below the 5.6% growth rate in2008. In 2009, the GDP growth in the US weakened to -2.4% while in the Eurozone, GDP contracted more sharply by 3.9%from 0.5% in 2 008. Further, the global output is expected to expand by 2.7% in 2010, and 3.2% in 2011 still below the 5%generated in 2007. Thus, adverse economic conditions could adversely affect the demand for the companys products,which poses a major challenge to the company in sustaining its revenue growth.Growth strategiesTransforming its beverage portfolioPepsiCo sought to transform its beverage portfolio by increasing the health andwellness quotient of its products through RD. It has strengthened. its carbonated softdrinks (CSDs) segment, comprised of Pepsi, Diet Pepsi and Mountain Dew. In 2007, itlaunched Diet Pepsi Max in the US. It is a zero calorie energy drink and targets youngmen. It also introduced the high caffeine Mountain Dew Game Fuel in 2008, aimed atvideo gamers. PepsiCo has also introduced new carbonated juice drinks such as Izze,which is free of caffeine, refined sugars and artificial ingredients and is by naturesweetened with fruit juice. Izze fruit juices primarily target s carbonates customers whowant alternatives to artificially sweetened soft drinks.Growth through partnershipsPepsiCo concentrates on partnerships and joint ventures to expand its operations. In2007, it broad the scope of its partnerships with Starbucks and Unilever on RTDbeverages, and is expanding into other categories through acquisitions. In January2008, it announced plans to acquire Penelopa nuts and seeds in Bulgaria, and in 2006,it purchased Duyvis nuts business. Also In 2006, the company entered the flavour snacksbusiness in New Zealand with the acquisition of Bluebird Foods, and expanded itssnacks business in Brazil with the purchase of Lucky snacks.