History and Background
PepsiCo is a food and beverage company operating on a global level and possessing numerous brands. It poses itself as leading in the field, and its revenue increased in 2019 compared to the previous year (PepsiCo, 2020). The company is present in all major world regions, totaling 200 countries, although it still wishes to expand intensively through improved infrastructure and technologies (PepsiCo, 2020). Product-wise, PepsiCo is moving towards healthy drinks and a bigger emphasis on snacks, which account for more revenue than beverages (PepsiCo, 2020).
New acquisitions such as BFY Brands, Pioneer Foods, Be & Cheery, and CytoSport will facilitate those trends, with the first three contributing to the latter and the last item assisting the former (PepsiCo, 2020). The company has no plans to exit a region, although regional divisions are subject to reorganization (PepsiCo, 2020). PepsiCo reports no Labor Law or privacy violations, although the subsidiaries had several incidents in 2019 concerning workplace safety, labor relations, and employment screening. Overall, the company is a dominant figure in the respective industry with a global presence and continuing product expansion, but it is not without Labor Law-related issues.
While PepsiCo is a dominant company, it is not the only major player in the industry. By its admittance, PepsiCo’s main competitor remains Coca-Cola, primarily in the beverage department (PepsiCo, 2020). In the food and snack industry, the company competes with Campbell Soup Company, while Keurig Dr Pepper and Nestlé S.A. are among other competitors in the beverage industry (PepsiCo, 2020). According to Porter’s Five Forces, the competition level is high, as the company admits it loses to Coca-Cola in some departments, and it also has to compete in two industries with established players simultaneously (PepsiCo, 2020).
Considering that customers are well-aware of PepsiCo’s rivals, they can easily switch to them in the case of growing prices or other changes that will be viewed as transgressive, making buyer power high (Smithson, 2017). The company has many supply options and robust supply chains with backup options, which makes the supplier power relatively weak (PepsiCo, 2020). Thus, the competition and buyer power are strong for the company and the industry alike, while the suppliers have limited influence.
The strong competition enables an increased threat of substitution and a decreased threat of low entry. The former is evident, as the competitors can offer products of equal quality and compensate for a low variety or high prices, and the simultaneous presence in two industries complicates the issue (Smithson, 2017). On the other hand, PepsiCo is an established company, so new entries are unlikely to have an impact, even for the food and snack department (Smithson, 2017).
As for the regulation issues, the company lists the inability to comply with new packaging standards, although PepsiCo strives for sustainability to avoid it (PepsiCo, 2020). Altogether, while the company faces tough competition in the industry, it is established enough to weather new entries, choose suppliers, and address regulation changes.
PepsiCo’s consistent success can be attributed to many factors, including its supply chains and innovations. The company highlights product promotion, technologies, advertising, pricing, and brand recognition as the pillars of success (PepsiCo, 2020). It also emphasizes the low costs of production and a stable supply chain as important components of PepsiCo’s operation (PepsiCo, 2020).
The company wishes to grow and attract talent through investments and continue to expand its portfolio by reducing costs for new ventures and applying next-generation technologies (PepsiCo, 2020). PepsiCo also places great importance on distribution networks, including direct-store-delivery, third-party distributors, and e-commerce, which also considerably contribute to the company’s success (PepsiCo, 2020). Thus, the company is successful due to a sum of many essential factors, and it is difficult to highlight one as decisive.
Due to the strong competition in the industry and impending regulations, PepsiCo highlights many potential risks it may face. They include changes in demand and laws, the inability to compete effectively, protect the information system, and hire new staff, and other cases, such as reputation damage and climate change (PepsiCo, 2020). In a Manager’s Discussion from this year, the company acknowledged that it was not prepared for the pandemic, which posed a significant risk to operations (Thomson Reuters, 2020).
However, according to Infront Analytics (n.d.), PepsiCo has a low risk of losing its stock attractiveness. It could mean that the company is careful and prepared for various circumstances by facilitating sustainability and gathering new talent, but the priority should be given to unexpected threats, such as COVID-19.
Considering the conclusions drawn regarding other aspects of the company’s analysis, it would seem that its management is effective at addressing critical issues and developing the strategy. However, despite PepsiCo’s desire to reduce costs, they increased compared to 2018 in such departments as research and development, distribution, and advertising, while decreasing for software (PepsiCo, 2020). Simultaneously, the revenue also had an increase, and it appears that the company is in a transitional period, as the current costs are directed at the innovations to reduce future costs (PepsiCo, 2020).
As for risk management, the current issue is COVID-19, which was addressed in the Manager’s Discussion (Thomson Reuters, 2020). The temporary answer was to rely on supply chains by maximizing their potential and the company’s staff, which is expected to quickly adapt to the situation (Thomson Reuters, 2020). The strategy’s effectiveness will be clearer once the new report is released. In conclusion, the management effectiveness is difficult to determine due to the transitional period and the inconclusiveness caused by the pandemic.
Infront Analytics. (n.d.). Risk analysis of PepsiCo Inc. (PEP | USA). Web.
PepsiCo. (2020). Annual Report 2019. Web.
Smithson, N. (2017). PepsiCo five forces analysis (Porter’s model). Panmore Institute. Web.
Thomson Reuters. (2020). Edited transcript: PEP – Q1 2020 PepsiCo Inc earnings pre-recorded management discussion. PepsiCo. Web.