Competitive Strategy Assignment: Discussing Strategic Management Process Of PepsiCo

Question

Task: This competitive strategy assignment aims at ensuring that students are knowledgeable and can apply at least one significant case study and are able to apply the “strategic management process” and relevant foundational strategy development models that are applicable to the case.

Answer

Abstract
PepsiCo, selected for the current analysis on competitive strategy assignment, was the largest snack and beverage company around the world and has been sustaining efficiently despite potential threats and forces from the external environment due to its effective strategies and competitiveness. The company’s business portfolio is strong and wide to attract a wider customer base while addressing their health and wellness concerns. However, it has been identified that the political, economic, and legal factors possess significant threats to the company whereas the social, technological, and environmental factors have potential opportunities. In other words, each of the external factors possesses threats and opportunities for PepsiCo which the company must exploit to mitigate the threats. Other than that, it has been identified that threat of substitutes, competitive rivalry, and bargaining power of buyers exert a strong force against the company whereas the bargaining power of suppliers and the threat of new entrants possess a weak and moderate force against the company.

Introduction
The Peps Bottling Group, Inc. has been the largest bottler of Pepsi-Cola beverages in the global world due to its effective business and competitive strategies. In addition, the company accounted for approximately $66.4 billion net revenues in the business year 2013. Its wide range of portfolio of business and impressive performance in terms of product innovation, strategic acquisitions, close relationship with suppliers, and internal expansion has assisted the company to sustain in this competitive business world. Other than that, the company’s sustainable initiatives have further assisted to increase its share price by 50% over the years under the leadership of Indra Nooyi. Based on such context, this report highlights the strategic management process of PepsiCo with regards to the case study by applying relevant foundational strategy development models in terms of business strategy and competitiveness to apply to the facts of the case.

Business strategy and macro-environment of PepsiCo
As opined by Jallow, 2021, p12(2), business strategy and tactics of a brand can be well analysed by the application of the PESTEL analysis as it indicated external factors including political, economic, social, technological, legal,and environmental factors that directly impact the business of a brand. In addition, it assists to comprehend market dynamics and reflects potential scope for improvement in businesses. Based on such context, the below section highlights the PESTEL analysis of PepsiCo for analysing the brand in terms of its business strategies and tactics. As a result, potential opportunities and critical threats have been well indicated.

PESTEL analysis
Political factors

• Governments are external factors that require companies to comply with significant considerations of laws and policies.The major part of revenues of PepsiCo comes from the European Nations and other parts of the USA. In addition, as PepsiCo is FDA verified (Beba and Church, 2020, p288(2)), the company enjoys significant popularity in developing countries like China, India, UAE, Egypt, and Saudi Arabia in terms of its beverages and snacks. As a result, the company experiences minimal interferences or interventions from political barriers. (Opportunity)
• On the contrary, the increasing awareness and concern towards health initiatives by the government including unhealthy foods and aerated cold drinks can directly impact the business of PepsiCo in every international market. This requires effective compliance with relevant laws and government policies. In addition, the need to overcome these threats by changing its products in terms of carbonated drinks or aerated drinks is essential. (Threat and Opportunity)

Economic factors

• The performance of every company is directly linked to the economy, (Stoyanova and Angelova, 2018, p2(1)). It has been identified that PepsiCo earns a good share of its revenue from seven business segments including PepsiCo Beverages North America, China, Frito Lay North America, New Zealand, Quaker Foods North America,Europe, Africa, Middle East, and South Asia, and the Asia Pacific and Latin America. However, any changes or fluctuations in the raw materials and economic slowdown can adversely affect the financial prospects of the company and dampen its growth. (Threat)
• With the covid-19 crisis, the global world has been facing an economic slowdown which has affected the value of the dollar along with increased tax charges, (Yee et al, 2020, p52(3)). In addition, increasing covid-19 restrictions and protocols can directly affect distribution and supply chain management for companies like PepsiCo that has more than 200 plants, 120,000 service routes, and 3500 distribution systems around the world. This can directly impact the profitability and growth of PepsiCo in the international markets at a significant level. (Threat)

Fig: 1 (PepsiCo’s distribution of net revenue globally, 2020)
Source: (Jan, 2021)

Social factors

• As put forward by (Marquardt and Yeo, 2020, p63(1)), customer’s taste preferences are rapidly changing which requires international firms to develop an understanding of such patterns for expansion and sustainability. However, it has been identified that PepsiCo makes modest modifications to its snacks and other food items based on the taste preferences of customers from country to country. This reflects growth opportunities for companies like PepsiCo but must align with the needs and demands of customers. (Threat and Opportunity)

Fig: 2 (Changes in overall wellness in major countries)
Source: (Mckinsey.com, 2021)

The covid-19 pandemic and increasing awareness of customers towards healthy food and dietary plans have reshaped the snacks and beverages industry at an extensive level, (Mckinsey.com, 2021). This means companies like PepsiCo need to focus on new product innovations that can address consumer health and wellness concerns for accomplishing growthand success in this competitive business environment. Hence, this factor offers scope for a potential growth opportunity for companies like PepsiCo to accomplish wider market share and financial stability. (Opportunity)

Technological factors
Technology has reshaped the global business world. In addition, the need for companies to focus on quality advertising to attract potential customers has become one of the major aspects for companies like PepsiCo. It has been well indicated by (Guttmann, 2021), PepsiCo has spent around 224 million US dollars on advertising for its Pepsi brand alone in the years 2019 in the US and devotes around 3 million US dollars to advertising and branding its product every year. This is a potential opportunity for the company to market its product globally and attract a wider market share. (Opportunity)

On the other hand, the need for innovation has also become evident in the present market and the need for companies like PepsiCo to invest in R&D is significant. However, in the business year 2020, the company PepsiCo has spent over 719 million US dollars on R&D that has resulted in 54% worldwide net revenue over the past nine years, (Jan, 2021). This means the need for product innovation offers an opportunity for companies like PepsiCo to comply with the technological trend. (Opportunity)
Other than that, the growth of knowledge management systems has become evident in this present business world as it supports various business processes, (Štofová and Kop áková, 2020, p40(2)). Likewise, it has been identified that PepsiCo focused on product innovation and strategic decision-making but the need for the company to exploit the benefits associated with knowledge management systems and automated processes is essential. This can enhance business performance and business competitiveness in eth global business world. (Opportunity)

Environmental factors
With increasing concern and awareness about environmental sustainability, it has become imperative for every business to comply with sustainable measures, (Maamoun, 2020, p9(1)). Companies like PepsiCo had been listed on the North America Index for 8 years and Dow Jones Sustainability World Index for seven consecutive years as accounted in the business year 2013. This means that corporate sustainability measures and ethical business practices by businesses can offer companies growth opportunities and competitiveness. (Opportunity)
On the other hand, customers at present are highly inclined towards purchasing products from brands that are environmentally sustainable. However, the financial capabilities of companies to integrate sustainable measures are immense which can put significant pressure. However, companies like PepsiCo are highly focused on minimising the impact of the company on the environment in terms of safe packaging, lowering energy and water consumption. As a result, it can be stated that sustainability has become an essential factor driving growth and success for companies. (Threat and Opportunity)

Legal factors

• It has been well stated by (Jallow, 2021, p22(1)), people also go about using them as pesticides thus creatingpotential legal issues in the past for companies like PepsiCo and other cola drinks. This in turn can result in tarnished brand image and a lack of customer base. Therefore, it is essential for companies like PepsiCo to comply with health standards and offer quality products to customers that can enhance their brand image. (Threat)
• Other than that, the increasing concern in terms of labor laws can directly impact the brand image and financial capabilities of companies in the snacks and beverage industry, (Kalinová and Tlustý, 2021, p91(3)). Hence, it has become imperative for companies like PepsiCo to comply with labour laws and other taxation laws while operating in the different international markets for safeguardingthe company’s brand image and financial aspects. (Opportunity and threat)
• In addition, the need for compliance with health and product safety regulation along with regulations on GMO ingredients has become essential for every company in the food and beverage industry. This offers PepsiCo to reduce its use of GMO ingredients and can comply with regulations to sustain itself in this business environment. (Opportunity)

Competitive Dynamics of PepsiCo
As suggested by (Hussain and Jahanzaib, 2018, p237(3)), Michael Porter developed the Five Forces analysis model for analysing the most essential external factors that directly influence companies. As PepsiCo is a global brand in terms of its business, it faces varying external factors within its business or industry environment. In addition, the application of the Five Forces analysis of PepsiCo can assist to reflect upon the impacts of competition as well as influences of substitutes and consumers. In order to maintain its market position as the 2nd biggest food and beverage company in the world, the company needs to address the significant issues identified in this five forces analysis. Based on such context, the overall impact of these factors is summarized in the below section with indicators of the intensities of their forces on the company PepsiCo.

PORTER Five Forces analysis
The threat of substitutes (Strong force)
In terms of consumer preferences as well as other relevant variables, PepsiCo’s products can be substituted. As per (Nagy et al, 2018, p.3491(1)), the influence of substitution of a firm’s industry and business environment are well analysed in this component of the Five Forces analysis. Based on such context, it has been identified that this component exerts a strong threat against PepsiCo. It has been identified that most of the substitute products of the company are satisfactory. For instance, customers easily enjoy brewed coffee products and real fruit juices instead of drinking Pepsi or Tropicana products. Other than that, customers of PepsiCo can shift to these substitute products at ease which is practically affordable, (Sherman et al, 2018, p7(1)). In addition, these substitute products are easily and widely available in every grocery store or other provider which creates a strong force against PepsiCo. Hence, in terms of this component, it can be stated that there exists a strong threat of substitution facing PepsiCo. The threat of new entrants (Moderate force)

The possibility of new firms competing against PepsiCo is significant which requires the firm to remain strong. In addition, new entrants have the capabilities to threaten PepsiCo as customers can shift from one brand to another at ease due to low switching costs. On the contrary, as PepsiCo has moderate customer loyalty, it acts as a protection from new entrants. In addition, the high cost of brand development, marketing, and research and development facilities makes it highly difficult for new entrants to compete directly with established and reputed brands like PepsiCo, (Gregory, 2018, p328(1)). Therefore, it can be stated that the threat of new entrants is a secondary concern for PepsiCo’s management.

Bargaining power of buyers (Strongforce)
Since it is easy for consumers to switch from brand to brand, it automatically forces PepsiCo to work on their customer base and enhance production, marketing and financial plans.On the other hand, the level of awareness among the customers has increased extensively in terms of product information, (Fatima and Nobanee, 2019, p2016(1)),hence enabling the consumers to make inter-choices among the competitor products. Additionally, the high availability of substitute products exerts a strong force on PepsiCo which can result in a lack of customer base. Therefore, in terms of this component of the Five Forces analysis, it can be stated that PepsiCo needs to ensure customer satisfaction for retaining them and to maximisetheir returns on investments.

Bargaining power of suppliers (Weak force)
As put forward by (Stoyanova and Angelova, 2018, p1(1)), it is essential for every company to maintain profitable relationships with their suppliers as it directly influences pricing and competitive strategy of firms. Likewise, PepsiCo experiences weak bargaining power suppliers due to its extensive warehouses, distribution centers, plants, and service routes around the world. Owing to thisamplified supply, the options available for the organisationin terms of procuring raw materials further leading to reduction in the supplier’s bargaining power.Other than that, this power is also weakened due to low forward integration that limits control of suppliers of PepsiCo, (Novoselova and Gomez, 2018, p6(6)). In addition, the moderate size of individual suppliers also posses limited bargaining power of suppliers towards the company. However, it can be stated that this force is a low priority for PepsiCo.

Competitive rivalry (Strongforce)
It has been well indicated by Economist.com (2020), the major rival or competitor of PepsiCo is the Coca-Cola Company. However, certain firms like Dr Pepper and Mondelez who are big names in the same industry act aggressively for product innovations and marketing strategies applying a strong force on PepsiCo.

Fig: 3 (Top rivals of PepsiCo)
Source: (Economist.com. 2020)

On the other hand, as the switching costs are relatively low in this industry, the competitive rivalry is a string as customers can easily shift from one brand to another. Furthermore, PepsiCo further faces a strong competitive force from small and medium companies as well. Hence, it can be stated that the competitive environment surrounding PepsiCo is relatively strong and aggressive.

Conclusion
In conclusion, it can be stated that PepsiCo had been a reputed brand in global terms due to its effective strategy in terms of product innovation, strategic acquisitions, close relationships with suppliers, and internal expansion. Additionally, it has been further comprehended that there are potential opportunities for the firm with regards to its external environment that can complement its business strategy and tactics at a significant level. However, the threats associated with the external environment need to be well assessed by the company to exploit the opportunities and experience potential growth in the global business environment. Lastly, it has been identified that the competitive environment of PepsiCo is aggressive and the forces exert strong pressure on the sustainability and competitiveness of the company in the global market. Hence, the company needs to comprehend all the factors and forces to accomplish growth and business objectives in this present competitive era.

References
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