PepsiCo (2)

PepsiCo Inc. External Analysis

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Contents

TOC o “1-3” h z u Introduction PAGEREF _Toc68667271 h 3Internal and External Factor Evaluation Matrix PAGEREF _Toc68667272 h 4SWOT Matrix PAGEREF _Toc68667273 h 7TOWS Matrix PAGEREF _Toc68667274 h 9SPACE Matrix PAGEREF _Toc68667275 h 12PepsiCo’s Porter Model (Force Analysis) PAGEREF _Toc68667276 h 14Financial Ratios PAGEREF _Toc68667277 h 15Conclusion and Recommendations PAGEREF _Toc68667280 h 16References PAGEREF _Toc68667281 h 17List of Appendices PAGEREF _Toc68667282 h 18

IntroductionPepsiCo Inc. is an American-based multinational beverage, food, and snack company with headquarters in Harrison, New York. Incorporated on August 28th, 1998, the company also has interests in marketing, manufacturing, and distribution of grain-based beverages, foods among other products. PepsiCo adopted its name in 1965 following a merger between Pepsi-Cola Company and Frito-Lay Inc. This led to what would soon become one of the leading food and beverage businesses in the world. PepsiCo has over 200 locations worldwide. In 2017, PepsiCo recorded 63, 525 billion in revenue an increase from 62, 799 billion in 2016 (Beba & Church, 2020). In 2019, PepsiCo generated over 67 billion dollars owing to its diverse complimentary beverage and food portfolio which includes Gatorade, Tropicana, Pepsi-cola, Quaker, and Frito-Lay. The company’s vision is to become a global leader in convenient beverages and foods by winning with a purpose. The overall mission is ensuring the increasing value of their stakeholders’ investments through cost controls, sales growth, and putting resources in wise investments. In the early years of the 21st century, PepsiCo was hell-bent on expanding operations to various countries including Russia which by then accounted for its second-biggest market. In 2008, PepsiCo acquired the controlling interest in Russia’s largest manufacturer, JSC Lebedyansky and in three years, it has acquired complete acquisition of another company, Wimm-Bill-Dann (Kalinová, & Tlustý, 2021). PepsiCo’s main competitors include the Coca-Cola Company, Kellogg Company, Hansen Natural Corporation, Monster Beverage Corporation, National Beverage Corporation among other snack and food companies. The purpose of this text is to conduct an external analysis of PepsiCo to determine threats and opportunities in areas that will drive its growth, volatility, and profitability.

Internal and External Factor Evaluation MatrixExternal Factor Evaluation (IFE) Matrix

External factors evaluation matrix is s strategic management tool used to evaluate the current condition of a business or a company. This matrix has proved successful in prioritizing and visualizing threats and opportunities affecting a business. Although it is rather similar to the internal factors matrix, the difference is that external factors evaluation focuses solely on external factors while the internal factors evaluation matrix is solely focused on internal factors. In external factors evaluation, factors that are taken into consideration are those that are subjected to social, political, and economic factors among other external factors.

Key External Factors Weight Rating Score

Opportunities

Growing snacks and beverage consumption in emerging markets 0.18 4 0.72

Potential to increase company profits 0.10 2 0.20

Promoting products through sponsoring 0.15 3 0.45

Market for less costly products and lower price than competitors 0.15 3 0.45

Total 0.58 1.82

Threats

Change in customer pattern and lifestyle 0.15 4 0.60

Fierce competition from Coca-Cola change in customer pattern and lifestyle 0.08 2 0.16

Changes in consumer rates 0.11 3 0.33

Water scarcity 0.08 2 0.16

Total 0.42 1.25

Grand Total 1.00 3.07

Table 1: External Factor Evaluation Matrix of PepsiCo.

The table above indicates that PepsiCo’s total score from the external factor evaluation matrix stands at 3.07. Essentially, this means that the company’s evaluation value is beyond average and that is put into consideration high value as opposed to average values. Further, we can see from the table that PepsiCo scores above average when it comes to overcoming threats and exploiting new opportunities. Additionally, PepsiCo has a higher weight score of 0.72 for the increasing snacks and beverages within emerging markets. The high score in weight is an indication of the main opportunities the company has.

Internal Evaluation Matrix

Internal matrix refers to the evaluation of the internal factors as a strategic tool for evaluating the internal weaknesses and strengths of a company. The internal factors matrix is used to evaluate internal factors of a corporation, company, or business unit including finance, human resource, marketing, corporate affairs, information technology, business development, legal and compliance, procurement, and operations. The internal organizational structure is dependent on the industry and the size of the organization. The Internal factor matrix represents a summary step for carrying out PepsiCo’s internal strategic management audit. The strategies are formulated tools for summarizing and assessing major weaknesses and strengths within the functional areas of business.

Strengths Weight Rating Weighted Score

Strong brand 0.09 4 0.36

Strong marketing and advertising of products worldwide 0.07 3 0.28

Products availability 0.08 3 0.24

Revenue and profits 0.08 3 0.24

Market Share 0.07 3 0.21

Competent workforce 0.05 3 0.15

Wide variety of products 0.05 3 0.15

Earnings per share 0.02 4 0.08

Weaknesses

High debts 0.07 2 0.14

Health Issues 0.08 1 0.08

Low sales of some products 0.09 2 0.18

Product recall causing negative brand impact 0.10 1 0.1

Taste differentiation 0.05 1 0.05

High Operating Expense 0.10 1 0.1

Total Weighted Score 1.0 1 2.36

Table 2: Internal Factor Evaluation Matrix of PepsiCo.

From the results of the Internal Factor Evaluation (IFE) matrix, PepsiCo has a grand score of 2.36, and being that it is below 2.50, it is considered to be below the average evaluation value. This points to the fact that PepsiCo does not understand its current weaknesses and strengths. Additionally, the internal evaluation factor increases within the broadened product and outstanding brand which has a weight score of 0.36. Essentially, the high weight score is an indication of the main strengths of PepsiCo.

SWOT MatrixSWOT analysis or matrix refers to a strategic planning technique employed by individuals or organizations to point out its strengths, weaknesses, opportunities, and strengths. While strengths and weaknesses are measured as internal influences, threats and opportunities are termed as external factors. Most businesses and organizations use SWOT analysis to evaluate their current position before deciding on the new approach to take. This way, they are better placed at finding out what works well and what does not work. This way, they can easily identify their goals and devise ways of getting there.

Strengths Weaknesses

Strong brand image

Strong advertising

Effective distribution channels

Diversified strategic business unit

Focus is on food items

It has ownership of the bottler

Alliances and acquisitions

Strong financial positions Low productivity

Coca-Cola in Pakistan has overtaken PepsiCo’s strategies

Huge costs in advertising

Fewer market shares than coke

High revenue from Snakes products compared to beverages

Loss encountered with beverages

Opportunities Threats

Putting brand image diversification to use

Beverage preferences for the youth

Investing in China and Russian markets

Expanding business to products without coca

Rising juice demand

The social status of the middle-class people Competitors

Health issues

Government policies/regulations

Change in taste and preferences of consumers

Reduced demand in drinks that have been carbonated.

Table 3: PepsiCo. SWOT analysis

TOWS MatrixTOWS is an acronym that stands for threats, opportunities, weaknesses, and strengths. It is a modified version of SWOT analysis. TOWS matrix assesses the external threats and opportunities of a given business and compares them to its weaknesses and strengths. This analysis is what provides a basis to form tactics and strategies that are actionable. Essentially, the TOWS matrix is interpreted as a framework for creating, assessing, comparing and coming up with business strategies. TOWS Matrix is an invention of Heinz Weirich, an American business professor developed in 1982 to assess business carried out by individuals and organizations from a practical approach concerning marketing and administration (Quan, 2020). This evaluation is conducted through amalgamating external threats and opportunities with their weaknesses and strengths.

TOWS matrix starts with auditing the external opportunities and threats. This scrutiny provides a clear insight regarding the adoption of strategies that are long-term. Afterwards, the internal weaknesses and strengths of the company are taken into consideration. In the next phase, internal analysis is intertwined with external analysis hence coming up with a strategy. This matrix goes beyond the standard SWOT analysis and helps the organization to remain a step ahead of the competitive and ever-changing landscape. The TOWS matrix is also useful in generalizing ideas that relate to decision making, fruitful marketing strategies, opportunities, protection against threats, overcoming weaknesses, diminishing threats, and awareness to do with any potential shortcomings. Despite external and internal factors being incompatible features, there is a balance between them. Strengths and weaknesses are categorized as internal factors and consist of manufacturing processes, human resource policies, manufacturing processes, attributes of products and services, goals and objectives, work culture, staff, core values, and company fundamentals. On the other hand, threats and opportunities are categorized as external factors and comprise the dynamic nature of markets, government policies, customer preferences, fluctuation rates of raw materials needed for production.

Internal

External

Strengths

Strong brand image

Strong advertising

Effective distribution channels

Diversified strategic business unit

Focus is on food items

It has ownership of the bottler

Alliances and acquisitions

Strong financial positions Weaknesses

Low productivity

Coca-Cola in Pakistan has overtaken PepsiCo’s strategies

Huge costs in advertising

Less market shares than coke

High revenue from Snakes products compared to beverages

Loss encountered with beverages

Opportunities

Putting brand image diversification to use

Beverage preferences for the youth

Investing in China and Russian markets

Expanding business to products without coca

Rising juice demand

The social status of the middle-class people Strengths/Opportunities (SO)

A strong image and marketing skills.

Finding international growth

Weaknesses/Opportunities (WO)

Innovation in distribution networks.

Ecommerce, partnerships, and acquisitions.

Threats

Competitors

Health issues

Government policies/regulations

Change in taste and preferences of consumers

Reduced demand in drinks that been carbonated.

Strengths/ Threats (SO)

Minimizing competitive threats

Partnerships

Weakness/ Threats (WT)

Reducing dependence on US markets mainly.

International commerce will help reduce losses affiliated with economic fluctuations

Table 4: PepsiCo TOWS analysis

PepsiCo has strong advertising which increases the preferences for beverages among the youth. This is a combination of strength 2 and opportunity 2. From strength 2 and opportunity 3, it is evident that investing in China and Russian markets was a possibility because PepsiCo has an effective distribution channel. By employing the advantage of diversification, PepsiCo becomes more diverse about brand image. From weakness 3 and opportunity 1, employing more brand diversification reduces expenditure and improves the portfolio of the product which is an advantage. From weakness 1 and opportunity 4, if PepsiCo decides to expand its businesses and introduce more drinks without cola, the company’s productivity will increase. A combination of strength 1 and threat 1 reveals that brand image is the most effective and strong avenue of hiding and eliminating health reacted issues. A combination of strengths 3 and 8 and threat 2 points to a strong financial position and a distribution channel network of its own. As such PepsiCo can take advantage by putting its strong financial position to use. Weakness 4 and threat 1 point to the notion that first PepsiCo should solve health issues. They should compare it to the less market shares and invest in the health department more as it can help resolve various issues. Weakness 3 and threat 5 points to a decreased expenditure in investing and advertising on carbonated drinks which leads to increased demand for carbonated drinks.

SPACE MatrixThe SPACE matrix refers to a management tool employed in analyzing companies. SPACE stands for Strategic Position & Action Evaluation matrix. It focuses on a strategy formulation with the competitive position of a company. SPACE matrix simplifies the process of making strategic decisions, choices and creating a plan for the senior management in a company. The internal and external environments play a significant role in SPACE analysis.

Financial Stability (FS)

Return of investment

Revenue increase

Liquidity

Efficiency ratios

Cash flows Ratings

5

5

4

5

4 Environmental Sustainability

Inflation rates

Technological changes

Demand variability

Competitive pressure

Barriers to entry Ratings

-2

-3

-3

-5

-2

Financial stability (FS) average 4.6 Environmental Stability (ES) average -3

Competitive Stability (CS)

Market share

Product Quality

Customer Loyalty

Brand Image

Manufacturing expenses Ratings

-1

-2

-3

-1

-2 Industry Stability (IS)

Growth potential

Financial stability

Barriers to entry

Resource utilization

Industry profits

Ratings

5

4

3

2

3

Competitive Stability (CS) Average -1.8 Industry Stability (IS ) Average 3.4

Table 5: Space Matrix of PepsiCo

From the above table, we can tell that (1.6, 1.6) is the coordinate of the space matrix which points to the fact that PepsiCo suitably applies to the aggressive strategy. PepsiCo is financially stable and it is better placed to attain competitive advantages within stable and growing markets. Under the internal strategic position is competitive and financial stability. Financial stability has an average of 4.6 which is a positive number while competitive stability has an average of -1.8 which is a negative number. Under external strategic positions, there are two points namely industry stability and environmental stability. Environmental stability has an average of -3 while industry stability shows a positive number of 3.4.

PepsiCo’s Porter Model (Force Analysis)Competition Customers bargaining power Suppliers bargaining power Threats/Substitution Threats of New Entrants

High aggressiveness displayed by firms -strong force Low switching costs strong force High overall supply-weak force High performance of the substitutes-strong force Reduced switching costs-strong force

Reduced switching costs-strong force Increased access to product information-strong force Reduced forward interaction with suppliers-weak force Low switching costs-strong force Average customer loyalty-moderate force

A high number of firms-moderate force Increased availability of substitutes-strong force The average size of individual suppliers-moderate force High availability of substitutes-strong force The increased cost of brand development-weak force

Table 6: PepsiCo’s Porter Model

Michael Porter’s force analysis model uses five forces to evaluate the most significant external factors of a given firm. PepsiCo’s international success is linked with its strong business capabilities particularly in overcoming the challenges mentioned in the above analysis. Many firms in the beverage and food industry are quite aggressive in marketing and innovation. This exerts a powerful strong force for the company. Competitive rivalry is strong because customers can switch providers with ease. This shift increases the ability of customers to influence the company and substitutes give consumers more reasons, not to consumer PepsiCo’s products. As such, to maximize its resources PepsiCo must capitalize on customer satisfaction.

Financial RatiosPepsiCo Financial Ratios for 2020

Annual Data 2020

Current ratio 0.9841

Long-term Debt/Capital 0.7487

Equity ratio 3.2578

Gross margin 54.8158

Operating margin 14.3239

EBIT margin 14.3239

EBITDA margin 17.9446

Pre-Tax Profit Margin 12.8872

Net Profit margin 10.1177

Asset turnover 0.7574

Inventory Turnover Ratio 7.6215

Receivable turnover 8.3736

Day sales in receivables 43.5892

Return on equity 52.9442

Return On Tangible Equity -29.2618

Return on Assets 7.7219

Return on Investments 13.3063

Book value per share 9.8203

Operating Cash Flow per share 0.7664

Free Cash flow per share 0.6469

Table 7: PepsiCo’s Financial RatiosFinancial ratios including market, liquidity, debt, activity, and profitability are used to evaluate the performance of a company and compare it with businesses of similar nature in the industry. They measure the relationship existing between various components of financial ratios. According to the financial ratios above, it is clear that Pepsi is doing rather well compared to other companies within the same industries. It takes leads and is globally renowned as a food and beverage companyConclusion and RecommendationsDespite facing numerous challenges ranging from increased competition from competitors, low sales due to inflation, market tensions, and government-related regulations, PepsiCo Inc. has the advantage of the best global brand. It is also renowned for high diversity in brands, market dominance, and strong global dominance. The beverage and food industry faces many hurdles that have to do with changing trends in lifestyles, environmentalism, and aggressive competition. PepsiCo should employ its strengths in dealing with its weaknesses. It can take real action to improve its growth by adopting recycling efforts that favor the environment, penetrating developing markets, minimizing risk to exposure, and building product health to attract more diverse consumers.

ReferencesBeba, U., & Church, A. H. (2020). Changing the game for women leaders at PepsiCo: From local action to enterprise accountability. Consulting Psychology Journal: Practice and Research, 72(4), 288.

Kalinová, E., & Tlustý, M. (2021). An Analysis of the Time Series of the PepsiCo, Inc.(PEP) Share Price and a Prediction of its Development. In SHS Web of Conferences (Vol. 91). EDP Sciences.

Quan, J. (2020). The Trend of PepsiCo by Comparing PepsiCo’s Financial Reports in 2018 to 2019 Based on Harvard Analytical Framework. In 2020 5th International Conference on Modern Management and Education Technology (MMET 2020) (pp. 162-166). Atlantis Press.

List of AppendicesAppendix 1

Table 1: External Factor Evaluation Matrix of PepsiCo……………………………………….4

Appendix 2

Table 2: Internal Factor Evaluation Matrix of PepsiCo………………………………………..6

Appendix 3

Table 3: PepsiCo. SWOT analysis………………………………………………………………7

Appendix 4

Table 4: PepsiCo TOWS analysis……………………………………………………………..9

Appendix 5

Table 5: SPACE Matrix of PepsiCo …………………………………………………………..12

Appendix 6

Table 6: PepsiCo’s Porter Model……………………………………………………………..13

Appendix 7

Table 7: PepsiCo’s Financial Ratios……………………………………………………………15