Introduction:

This case study will analyse the fast moving consumer goods industry (FMCG) as well as perform firm level analysis for of PepsiCo, a leading global food and beverage company with over $66 billion in net average annual revenues, generated through a global portfolio of diverse and beloved brands.

The FMCG industry is a dynamic industry where value capture and value creation are a product of high productivity, strategic branding, strong distribution capacity, and in-depth marketing and communications strategies. The industry is mature and comprised of a number of competitors seeking to expand market share and improve competitive advantage.

Our analysis of PepsiCo, as well as the FMCG industry, will focus on a number of the primary elements including the company’s competitive positioning and the market forces that shape the industry. We will use Porter’s industry 5 forces analysis to review the elements that drive positioning. Additionally, PepsiCo’s position and competitive advantage within the industry will be analysed using the “Who, What, How” tools, “VRIO” analysis, “Industry life Cycle” analysis, “Value Chain” and “Value Curve” assessments.

INDUSTRY LEVEL ANALYSIS:

Fast moving consumer good is one of biggest industry globally it terms of its number of brands and awareness. It is an industry with love brands, i.e. the day to day brands that you love and known forever. The products that wide spread from kitchen to toilets and living rooms to bedrooms across the world.

FMCG industry is ranked #4 in the most attractive sector to work with as the sector remains powerful in attracting and retaining employees in most countries around the world. Worldwide, the sector poses its strength in financial health, environment & society, and the management strength itself.
Who, What, How Analysis:
Who what how for a wide industry level analysis wouldn’t be specific however we can bloadly classfy as follows: This classical example of Low margin high volume products has all population as target audience irrespective of age, gender or ethnicity. The products ranges from high necessity day to day must have basic necessity to good to have luxury products. In general, Industry segments vary from Food and beverage to personal care and home care. Characterized by both international and local players whereby distribution are either directly by the manufactures or through subsidiaries and distributors. End users range from infants to old aged and all income group.

Industry Forces & Competition Industry Dynamics
In FMCG, value is created and captured mainly in two ways
1) Having a product differentiation and increasing the willingness to pay for that specialized or differentiated product - further explanation can be seen in the appendix [fig 1]
E.g.: Distinction of Neutrogena as medicated soap thus enjoying a special segment
Placement of Sunbites as bread bites, Salad dressing, soup croutons and as crispy coat for the tempura increases the consumption occasion thereby per capita consumption and ultimately willingness to pay.

Strategic Positioning
FMCG has a unique position as highly dynamic industry as specialized for its products with a high shelf turn over, fastest product innovation, swift career progression. It’s a recession proof industry delivering what consumer wants and stays consumer centric.

Product Life Cycle in the industry:
FMCG products or fast moving consumer goods have a long product life cycle; people continue to buy the product for a number of years as long as it is in stock. Over the years people have observed many products are no longer available in the markets that they go to, this usually happens when the product has completed its lifecycle

The FMCG Industry life cycle is developing as the mandate for goods is increasing gradually. In recognizing the stage of the FMCG industry, we can identify how PepsiCo competes efficiently and how it keeps and accomplish competitive advantage.

Competitive advantage is challenging to uphold in high competitive industries, which why FMCG business always seek new and creative ways to gain, create and capture customer value. The more prosperous the company is, the more attractive it will be to others in the broad market. This attractiveness and towing of new players leads the FMCG industry into the growth phase, where these emerging participants increase competition, which in turn will result in higher product quality, intensification in advertisement and aggressiveness in selling strategies. As the mandate for the FMCG products begins to decrease the industry approaches its maturity stage. PepsiCo has realized this and is working of extending the growth cycle of it products by utilizing the cost advantage they have, and by product differentiation and product innovation. PepsiCo strategy in innovating and renovating products, and in the diversification of products they are eliminating the threat of entering the decline phase and re-shifting the curve from maturity to growth.- Further explanation can be seen in the appendix [fig 2]

Four Stages of a FMCG and evolution of performance delivered to buyers over time:
Introduction into the market: When a product gets introduced to the market, its demand needs to be high. It is achieved by doing remarkable product launch and giving the customer some samples so that they can try before they purchase the product. A consumer or shopper research could be done after the first month to understand the consumer’s point of view about the product and company will identify potential issues the product might have.
Growth Stage: After the launch phase the sales increases as the distribution and penetration to all channels will be active, people start to know about the product they buy as and when required, the shoppers and consumers will be aware of the product features and benefits at this stage.
Maturation Stage: The product might have reached its entire channel at this stage and the production costs usually reduce at this point sales reaches its zenith and Price of the product usually drops down during this stage. By now competitors will introduce their own products, which will be off similar characteristics.
Decline Stage: Either with the change in consumer eating habits or because of the flavour outdated the product would slow down its sales significantly. The product is then stopped when it reaches this stage.
Product portfolio management plays a major role in FMCG, as the name indicates the industry is fast and hence it manages a program of continuous introduction of new products. - Further explanation can be seen in the appendix [fig 3]
Value Curve:
Through Value curve we are explaining the value offered by different business models by Identifying competing industries and such industry models. Further explanation can be seen in the appendix [fig 3]

[need to add content regarding our analysis of the value curve]

PepsiCo Firm-Level Analysis
PepsiCo is a world leader in convenient snacks, foods and beverages
Geographic areas served: Worldwide
Revenue: $ 65.492 billion (2012)
Profit: $ 6.178 billion (2012)
Employees: 297,000
Within the FMCG industry the company we are choosing for this case study global food and beverage leader PepsiCo. Started in 1965 and with the merger of Pepsi-Cola and Frito-Lay, today PepsiCo has a very strong business model.

Who- What –How frame work:

PepsiCo’s has products that creates wish and need in nearly everyone, its target market audience is mainly individuals of all income level as the product portfolio starts from less than $ 1 products. Customer portfolio includes individuals, families, corporates, schools, government institutions and few products are also sold to the manufacturers of other food products, restaurants etc. PepsiCo sells complimentary food and beverages through the renowned 22 brands. Beverages include CSD (carbonated soft drinks) and NCB (Non-Carbonated healthy range fruit juice).Food brands include healthy breakfast cereal – Quaker oats to Lay’s baked multigrain chips.

These 22 brands are segmented into Fun for you, good for you and better for you portfolio. Fun range chips in various forms, shapes and flavours within the potato base to corn based tortilla chips within the brands, Lays, Cheetos, Doritos, quavers etc. Good for you range provides with nutritious food and beverages in line with global dietary requirements packed with great tastes, brands like-Tropicana, Quaker, Naked juice, Sunbites, Aquafina etc. Better for you range is to indulge without feeling guilty, it offers snacks baked with lower fat content, snacks made of whole grains, and beverages with fewer or zero calories and less added sugar e.g. :Pepsi Next, Pepsi Kick, Lays baked, Grainwaves etc.

Distribution Channels:- Products are made available to the end users through various channels like Retail distributions through hypermarkets and supermarkets, Groceries, convenience stores, schools, parks, beaches, pubs, clubs, cinemas, schools, hotels, restaurants, eateries, Airlines, whole sales, ship chandlers are few to name. A more detailed analysis of the core logic of its business model (Who, What, How) can be found in Appendix [fig 5].
Key interactions & interdependencies and Elements those are central to PepsiCo business model
PepsiCo operates globally through economic interdependence. Its products complement each other to create a perfect balance of interactions and interdependencies. These are the foods and beverages that fuel the body, the performance and the lifestyle.
PepsiCo delivers the Promise of Performance with Purpose, i.e. all activates are dedicated on delivering sustained value. It operates under a license from society, PepsiCo products are regulated by public authorities and has public and non-profit sector partnerships.
Knowing the importance of interdependence between the corporations and society PepsiCo was one of the first modern companies to express the agenda of ‘Performance with Purpose’ direction back in 2007. Performance with Purpose is the PepsiCo goal to deliver continued commercial performance by enriching its wide portfolio of foods and beverages, which varies from treats to healthy eats.
Elements that appear to be most central to the PepsiCo business is PWP - “Performance with Purpose” Performance with Purpose is built on three pillars: Human Sustainability -providing a safe and inclusive workplace for the employees globally; and respecting, supporting and investing in the local communities in which they operate.
Environmental Sustainability- PepsiCo is very strong in its environmental sustainability agenda, where they find ways to minimize the impact on the environment by lowering energy and water consumption as well as reduced use of packaging material.
Talent Sustainability- PepsiCo maintains strong Diversity and equality in terms of personality, lifestyle, thought processes, work experience, ethnicity, race, color, religion, gender, gender identity, sexual orientation, marital status, age, national origin, disability, veteran status or other differences
Major progress has been made in last 7 years in the PWP agenda, these progress that has led to the selection as one of the "World's Most Admired Companies" by Fortune, one of its most respected by “Barron's” and one of its most ethical by “Ethisphere”.
PepsiCo Structure and competition:
PepsiCo products are sold at a lower margin compared to other macro snack and beverage competitors, moreover high spend rate in Advertising & marketing, R&D and regular sponsorships add pressure to the company profit

High capital requirement for the factory and storage facility add to the cost. Costs of goods are very high for many of our products. Especially when taking into the fact the weightage of raw material required to produce certain finished goods. For e.g.: 1 Kg of potato yields only 0.29kg of potato chips.

PepsiCo have identified few major business imperatives to focus on like, building and extending their macro snack portfolio by adding products that are baked, that incorporate whole grains or contain fruits and vegetables.

Growing the beverage business is key for PepsiCo as it is highly profitable & accounting for 51% of the company’s revenues. Growing our core portfolio of much-loved brands, from the iconic Pepsi to Diet Pepsi, Pepsi Max, Mountain Dew, 7Up (International), Sierra Mist and Mirinda in carbonated beverages; Gatorade, Lipton Iced Tea, SoBe, Tropicana, Frappuccino and Naked Juice in the non-carbonated space.

PepsiCo deliver incredible benefits to the retail partners and consumers through Power of One, Insights shows 85 percent of the time, when a person eats a snack, he or she also reaches for a beverage. No company on earth is better positioned to fulfil both sides of that equation.

Building and expanding nutrition business is another Key focus for PepsiCo; its annual revenues from nutritious and functional foods have risen from $10 billion to nearly $13 billion. By developing a Global Nutrition Group, PepsiCo is harnessing the best by retaining the operating capability within each sector while centralizing the innovation and development of these increasingly in-demand healthier, wholesome and tasty products.
With the structured internal and external analysis we would identify the potential opportunity and can determine what holds PepsiCo back. - Further explanation can be seen in the appendix [fig 6]

PepsiCo Positioning and Competitive Advantage
PepsiCo enjoys the headship in the market leader through the diversification strategy that provides them a competitive advantage over its rivals. Beyond the company’s flagship beverage products, the company has diversified its revenues sources and currently more than 50% of its revenues are generated from non-beverage segments, such as snack foods. On the beverage side, PepsiCo’s main competitor is Coca Cola. As the second largest company in the fast moving consumer food product category, PepsiCo competes with a number of multi-national companies such as Modelez International, Hansen Natural Corporation, Kraft foods, CongAgra, and Nestle. The company has to deliver a diverse group of products that compete on price, quality, brand diversification, customer loyalty, and product distribution.

Value Curve Analysis:
PepsiCo is ahead of most of its competitors in the key value driving aspects of the industry. Its brands are recognized globally and they have a meticulous marketing agenda while spending billions of dollars annually to maintain its leading position as a global brand.

PepsiCo’s diversification strategy enables them to provide more value to its customers and retailers than any its competitors, by offering complementary products.
Further explanation can be seen in the appendix [fig 7]

Differentiated Positioning:
PepsiCo’s competitive advantage is related to its unique business strategy comprised of the following main objectives:
• Build a diversified product portfolio to drive long term sustainable growth
• Expand the company’s macro-snack product segment
• Continue to growth the beverage segment by focusing on customer preferences and develop unique products related to specific geographical tastes
• Build the company’s nutritional product base-currently approximately $13Billion of PepsiCo’s $60 Billion annual sales comes from healthy or functional products, such as oatmeal, fruit juice, dairy, and nuts.

Value Creation:
PepsiCo creates value by committing to improve the health and nutritional value of its products. The company uses medical professionals, nutritionists, and food scientists to develop new products. Additionally, the company continues to spend billion on research and development and has set the following targets for its products:
• Reduce the average saturated fat per serving in key global food brands in key markets by 15% by 2020
• Reduce the average added sugar per serving in key global beverage brands by 25% by 2020
• Reduce the average sodium per serving in key global food brands in key markets by 25% by 2015
• Increase the whole grains, fruits and vegetables, nuts, seeds and low fat dairy in its product portfolio

PepsiCo has its key drivers of competitive advantages like, Product Diversification, Extensive Distribution Channel, Mergers and Acquisitions and Complementarity of its Products. Further explanation can be seen in the appendix [fig 8]

Competitive Advantage of PepsiCo:

Company has seen the potential in the cross category sales, the power of complementary products of the same company that has helped reduce operating costs and has increased profitability. Resource and capability advantage that shared between the beverage and the snack business include the following:
• Marketing
• Processing
• Research & Development
• Power of one promotions
• Merchandising and positioning within retailers

PepsiCo is now working hard for being a consumer foods company with a focus on ready to eat breakfast cereals and well as being a horizontal integration into the value chain as a related diversification. The added advantage is that “good for you” and “better for you range” will give PepsiCo more credibility in the market and increasing the ‘”Willingness to Pay” factor for its products.
The key value-creating & WTP through Good for You products can be further explained in the appendix [fig 9]

Advantage of being BIG
PepsiCo enjoys category captainship in many of its key categories by leveraging its positional advantage as well as resource and capability advantage.

Valuable Rare Inimitable Organisation Specific
PepsiCo’s business expansions into nutritional range witness an increase in Willingness To Pay. Best complementary products beverage and snack is a rare combination seen within its competitors High Advertisement and Marketing spend is highly inimitable for competitors PepsiCo has shifted its playground from a Cola / Concentrated Soft drink category to a wider portfolio
PepsiCo has an undisputable distribution network. Competitors are not as well positioned to fulfil both sides of that equation – Snacks and beverage Spent billions in mergers and acquisitions which is not easy to be copied by its competitors The Asset and talents specialization in this area helps the company to grow as a best organization within the fast moving consumer goods industry
The revenue dependency in GFY/BFY increased from 11% to 21% in 10 years’ time. Growing its top and bottom line through the Power of One are sensationally undeniably. Blind test are done and its high preference in America is revealed through such product tastings and television commercial.

Product differentiation is critical to their business model and set itself apart from competitors PepsiCo has a unique business relationships in order to achieve its demanding distribution network Its wide variety of categories is inimitable for other manufacturers of same industry and is hard to catch up with the Company success formula. PepsiCo builds strong partnership with fast-foods chains, restaurants and hotels to convert into exclusive Pepsi account .It has improved its fountain market share through the acquisition of KFC and Taco Bell
All its new activities are protected by the source of competitive advantage Strategically positioned its brands with a “new generation” brand value
VRIO - Further explanation can be seen in the appendix [fig 10]

Key Value Creating Activities of PepsiCo

1. Unleash the power of Power of One
Through the campaign – “Planned together, Bought together and Consumed together” we leveraged the power of Power of One. Its results are tangible in terms of:
• In store cross merchandising
• Field structure collaborated with beverage and snacks (Turkey – 80% Share together)

2. Build and expand our nutrition businesses – Tropicana, Quaker Oats, and Gatorade
• WTP is high for the nutrition business and so are the brand image, loyalty and profitability. The result is measured in terms of:
• Rising consumer and government interest in health and wellness
• Ageing population need tasty healthy food
• Consumers globally turning to healthy food and beverage

3. Step up in productivity, Manage cash flow tightly, High cash returns and consistency.
Well defined and strong brand which is well communicated to obtain better brand value
Productivity and cash flow management are measured through the:
• Consumer reality pricing structure
• Manage cash flow tightly
• High returns on capital
• Consistency and growth for stake holders

4. Sustainably and profitably grow our beverage business worldwide - Push Pull strategy PepsiCo develops occasion-based marketing which is based on Right occasion, channel, brand, message and pack. Growth of the core is measured through the
• Market Share
• Diversified portfolio with 7 Up , Mountain Due, Gatorade, Ice Tea, Tropicana , MAX
• A&M Investment – The X Factor
• Leverage Social Media – 130 Million followers in FB, Youtube, etc

5. Build and extend our macro snacks portfolio – Increase the per capita consumption Growing the Per Capita consumption is the name of the game in developing our macro snack portfolio. New products and pack size are introduced to cater this demand. In US is
8.5 Kg per person while in other markets are very low like 0.3 Kg in MEA. Big room for growth
• Transition from unpackaged to packaged snack through rise of middle class
• Increased snack consumption on the go lifestyle
• Increase in Market Share

PepsiCo product Life Cycle

PepsiCo is in its growth and maturation state thus product innovation is key as its must win battle PepsiCo strategy is to focus on growing the core while introducing the innovation in order to keep the portfolio young and growing existing business through Marketing and technology advancement. Product proliferation is very high thus the exploitation of the core happens throughout. Continuous investment takes place for the innovation through specialized research and development. Thus a perfect balance in Organizational Ambidexterity is visible.

Competition within the current industry life cycle

While facing a radical shift in eating and drinking habits, incumbents often die during discontinuities. Although barriers to entry remain relatively low, the industry is typified by a few, large producers who fiercely compete for market share thus, restricting the number of new players entering the industry. Given a high level of saturation, it is imperative for PepsiCo to constantly introduce new products in the marketplace, so as to stimulate sales growth and differentiate themselves from their competitors

Discontinuity and expectation:

Direct effects of shocks/ trends change are very low in this industry.Threat of discontinuity for PepsiCo products could be the obesity consciousness, to deal with it they are shifting its portfolio from the core to latest range of nutritious products

PepsiCo products are always kept young through the trade activities and heavy advertisement and marketing. Its portfolio is rejuvenated with a number of new product introductions and innovative packaging and marketing initiatives

PepsiCo and the Organizational Environment:
PepsiCo’s complementary food & beverage portfolio enables it to provide more choices for customers, and drives lower costs, productivity enhancements and new capabilities. PepsiCo has a wide network globally while ensuring the geographic diversity.

Willingness to Pay: PepsiCo products are not price sensitive, the unique brand name and quality which stands out from the other products in the same category. Though products & logos are recognized across the globe, customizations are done to match the local wish and need like in Russia, Frito Lay flavor potato chip in red-caviar; In India we have a biscuit with wheat and lentils; and in China we have beverages with Chinese medicinal herbs as ingredients. WTP for our products are very high For e.g.: In the middle east we increased the beverage price up to 50% during 2012 and realized no reduction in volume. Enhancement of the portfolio with ‘better for you’ and ‘good for you’ product over established ‘fun for you’ range has shown tremendous success over the past 5 years. WTP for healthier alternatives was evident through the success of this portfolio. Though most of these products are 30% to 80% expensive than its similar established range, it has a huge consumer demand.

Organizational Environment Design
Six years ago PepsiCo was comprised of only two units, PepsiCo North America and PepsiCo International. Today it has been expanded into four sectors: PepsiCo Americas Beverages, PepsiCo Americas Foods, PepsiCo Europe, and PepsiCo Middle East and Africa. At PepsiCo we believe for any super good strategy, needs to be well implemented, and this implementation takes place in our organizational environment like Incentives, Culture, Structure, and people. Further explanation can be seen in the appendix [fig 11]

PepsiCo Financial resources Includes debt, equity, retained earnings, our Physical resources are our specialized Machines, manufacturing facility, storage facility, Warehouses, buildings etc. PepsiCo has strong human resources highly competitive in experience, knowledge, judgment, risk taking, wisdom and Organizational resources in terms of History relationships, trust and organizational culture, PepsiCo has a strong preference for internal candidates for any new openings.
Value of the combined portfolio has been greatest in the international markets, PepsiCo share many activities which will result in greater operating efficiency, speed to market and value. Acquisition of non-soft drink Tropicana and Frito Lay snack foods have expanded its network tremendously, it is vital to compete and rare among Coke or other food & beverage company.
Scale Economics:
PepsiCo is big enough to enjoy economies of scale in terms of position, resources and capabilities. PepsiCo is well- known all over the world about the soft- drink, beverage’s food and snack. Scale allows lower cost per unit of output.

Organizational Inertia
PepsiCo is big and hence its strengths could become its weakness at times, There is a natural tendency of extra focus and investments skewed towards the flagship brands like Pepsi and Lays versus brands like 7up, Sunbites, barrio etc. Though PepsiCo is good in ambidexterity there is a tendency to move from exploration and experimentation towards exploitation of the well established brands. Response to shock/ trends takes time vs smaller companies due to complex policies and procedures. There is a strong structural and cultural inertia, complacency at its performance and fear of cannibalizing existing established range is evident.

Organizational design to lead the accumulation of organization specific human capital: At PepsiCo we have a ‘accelerate’ program where by fresh graduates are placed under a one year management trainee program. At the successful completion of this fast track program these young talents would become a part of PepsiCo junior managers. PepsiCo network of FOBOs and COBOs i.e. Factory Owned Business model and Company Owned Business model helps to attract entry level talents. Such operations, Market units and Business units are designed in such a way that they feed-in the star performers to the regions, Sectors and even corporate office. Thus these young entry level talents fetched by the system become highly organizational specific as they have high value within the organization versus outside.

Resource Accumulation Process:
One of the Key pillars of PepsiCo performance with purpose is talent sustainability. It is achieved through maintaining a strong (D&I) Diversity and Inclusion in the company. We define diversity as the unique characteristics that make up each of us: national origin, ethnicity, race, color, religion, gender, gender identity, personality, lifestyle, thought processes, work experience, sexual orientation, marital status, age, disability, veteran status or other differences. Talent sustainability is designed to contribute to the accumulation of resources rather profit maximizing existing resources. Each employee at PepsiCo enjoys personal satisfaction and professional achievement through the flexibility of switching jobs within the system. Employees get to switch between Snacks and beverages in their various assignments and across various Market Units, Business Units, Regions and Sectors.

Conclusion

As one of the steps towards creating more better for you range of products On March 11, 2014, just a few days ago, PepsiCo signed a SWEET deal with Senomyx, the producer of Sweetmyx a sweetener which has been recognized as safe by the FDA. PepsiCo 2014 innovation plan focuses on the usage of Sweetmyx in its carbonated soft drinks and to regenerate growth.

“PepsiCo has exclusive rights to Sweetmyx in nonalcoholic drinks, and the Swiss company Firmenich has the rights to commercialize the flavor for food and alcoholic beverages.” "The new Sweetmyx flavor ingredient will enable the creation of lower-calorie beverages and foods that have reduced sweeteners without sacrificing taste," Senomyx CEO John Poyhonen told Reuters.

Therefore, Pepsi will have again delivered on its strategy in within each sector with innovation and development of healthier, wholesome and tasty products. By doing this Pepsi would have taken the advantage of a real disruption in the production of healthy carbonated drinks. PepsiCo’s maintains a competitive advantage through diversification. They not only target the beverage industry, but also the food industry (macro-snack) which gives them a competitive advantage over their main competition. Furthermore, they have introduced a focused approach to grow each business segment. Pepsi should continue to grow its product portfolio, potentially through mergers which has proven to be successful for PepsiCo in the past. Specific focus should be placed on increasing the healthy food and beverage product offerings to align with the rising demand in the segment. Finally, PepsiCo could further diversify by offering products in market segments that they currently do not participate in. For example, a joint partnership with alcoholic beverage manufacturers to produce an alcohol containing product that is comprised of traditional PepsiCo beverages and marketing to the North American, Asian and European markets.

PepsiCo strategy of diversification is good however they are not free from the organizational inertia.
The disadvantages of being big are evident in various areas like below; PepsiCo should be able to easily replicate the best practices and wide range certain geographies are proud of. Though the company was successful in diversification still it is in the shade of the flag brand Pepsi and consumers are not really aware all its brands and portfolios. Thus the marketing spend should be based on brands and increasing the awareness among both beverages and snacks.

Reference: www.Pepsico.com www.ibef.org http://www.sec.gov http://www.cbsnews.com/ http://online.barrons.com/article/SB50001424053111904628504579433530537511434.html?mod=BOL_hp_oe G. Rich, Investor’s Business Daily, “Senomyx Gets FDA Approval To Sweeten Pepsi Drinks” Posted March 11 2014, Viewed on March 12 2014,
http://news.investors.com/business/031114-692811-senomyx-sweetener-gets-approval-pepsi-gains-rights.htm