Jo SunhwanSeo jonghyun

PepsiCo

Agenda

Part 1. Brief History of Successful StoriesPart 2. Business Strategy AnalysisPart 3. Korean Subsidiary

TimelineEarly historyCola warsPepsi ChallengeCola war II

Part 1. Brief History of Successful Stories

ColaWar II

Pepsi Timeline

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

ColaWar II

Early History

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1886, Coca-Cola was invented• Coca-Cola was invented by a Dr. John Pemberton. • Asa Candler acquired the formula and started brand

advertising of Coca-Cola.

ColaWar II

Early History

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1893, Pepsi-Cola was invented• Pharmacist Celeb Bradham invented Pepsi-Cola.• The name was came from ‘dyspepsia’ (indigestion)

ColaWar II

Early History

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1923-1932, Bankrupts1923, First bankrupt1932, Second bankrupt

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1934, Pepsi began to gain market share• Pepsi’s bargain campaign succeeded nationwide.• Pepsi sold a 12-ounce bottle for a nickel.• Pepsi’s cost saving features were irresistible, since it was

the midst of the Great Depression.

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1950, Market share of pepsi and coke• Coke’s share of the U.S. CSD market was 47%.• Pepsi’s share of the U.S. CSD market was 10%.

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1950, “Beat Coke”• Alfred Steele was named CEO and he set his theme as

“Beat Coke.”• He encouraged bottlers to focus on take-home sales

through supermarkets and introduced 26-ounce bottles to the market for family consumption.

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1963, “Pepsi Generation”• Donald Kendall, a new CEO, launched “Pepsi

Generation” campaign and targeted the young and “young at heart”.

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1960s, Pepsi and Coke Diversified flavor• Coke: Fanta (‘60), Sprite (‘61), low-calorie Tab (‘63)• Pepsi: Teem(‘60) , Mountain Dew (‘64), Diet Pepsi (‘64)

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1960s, Both Diversified into non-soft-drink industries• Coke: Minute Maid, Duncan Foods, Belmont Springs

Water• Pepsi: Frito-Lay

ColaWar II

The Cola War

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1970, Pepsi’s Market share doubled• Domestic soft drink consumption had reached 22.7

gallons per capita.• Coke believe market had saturated and focused on

overseas market.• Pepsi meanwhile battled aggressively in domestic market

and doubled its share between 1950-1970.

ColaWar II

The Pepsi Challenge

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1974, “Pepsi Challenge”• Blind test was conducted in Dallas, Texas.• Its result turned out that customers preferred Pepsi to

Coke.• After its sales skyrocketed in Dallas, Pepsi started to roll

out the campaign nationwide.

ColaWar II

The Pepsi Challenge

PepsiChallenge

ColaWar

EarlyHistory

1893 1932 1974 1999 Now

1979, Pepsi Overtook Coke in food store sales• Pepsi passed Coke in food store sales for the first time

with a 1.4 share point lead.

Cola is still most popular beverage in US- U.S. Beverage consumption, 2000

16%

1%1%1%3%

4%

6%

7%

9%12%

12%

29%

Source: Beverage Digest Fact Book, 2001

Carbonated soft drinks

Beer

Milk

Coffee

Bottled Water

Juice

Tea

Powdered drinks

WineSports drinks

Distilled spiritsAll others

200019981995199019851980

23%

Cola consumption is decreasing - U.S. Soft drink consumption trends, 2005

15%14%

7% 5%

-2%

2004

-2%

Source: USDA/Economic Research Service, 2005

0

7.5

15.0

22.5

30.0

37.5

45.0

1966 1970 1975 1980 1985 1990 1995 1998 2000

Coke Pepsi

Coke is still ahead of Pepsi- U.S. Soft drink Market share

Source: Beverage Digest Fact Book, 2001

0

10

20

30

40

50

60

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Coke Pepsi

Coke was overtaken by Pepsi- Return on Equity

Source: Company annual report, 2001

Coke’s growth comes from international- Soft drinks sales for Coca-Cola

$ millionsSource: Company annual report, 2001

1980 1985 1990 1995 1998 2000

17655

1,650

1,3371,640

7,8706,934

5,513

2,461

1,8651,486

12,58811,70312,5596,1252,6772,349

International Domestic Other

Coke’s growth comes from international- Soft drinks sales for Coca-Cola

$ millionsSource: Company annual report, 2001

1980 1985 1990 1995 1998 2000

17655

1,650

1,3371,640

7,8706,934

5,513

2,461

1,8651,486

12,58811,70312,5596,1252,6772,349

International Domestic Other

International soft drink sales drives growth

Pepsi’s growth is coming from Frito-Lay- Soft drinks sales for Pepsi

$ millionsSource: Company annual report, 2001

1980 1985 1990 1995 1998 2000

1,8422,385

3,0401,4893,289

8,266

7,427

5,035

2,7252,368

15,30711,6978,60010,9914,8603,607

Other Domestic International

Pepsi’s growth is coming from Frito-Lay- Soft drinks sales for Pepsi

$ millionsSource: Company annual report, 2001

1980 1985 1990 1995 1998 2000

1,8422,385

3,0401,4893,289

8,266

7,427

5,035

2,7252,368

15,30711,6978,60010,9914,8603,607

Other Domestic International

Other than soft drinks drives its growth

Pepsi bought Quaker Oats in 2001- Food and beverage sales

$ billionsSource: Company annual report, 2005

General Milles

Anheuser-Busch

Groupe Danone

Diageo

Coca-cola

Unilever

PepsiCo

Kraft

Nestle

0 10 20 30 40 50 60

Pepsi bought Quaker Oats in 2001- Food and beverage sales

$ billionsSource: Company annual report, 2005

General Milles

Anheuser-Busch

Groupe Danone

Diageo

Coca-cola

Unilever

PepsiCo

Kraft

Nestle

0 10 20 30 40 50 60

Pepsi became world’s third largest food and beverage company

Part 2. Business Strategy Analysis

Soft drink industry briefCorporate overviewCorporate vision and missionBusiness / Functional strategySWOT analysis from competitiveness and environmental analysis

Industry Brief- Concentrate producer, Bottler, Retail channel

ConcentrateProducers ...

• blend raw material ingredients, packaged it in plastic canisters, and shipped the blended ingredients to the bottler.

• are responsible for advertising, promotion, market research, and maintaining bottler relationship.

Bottlers ... • purchase concentrate, add carbonated water and high fructose corn syrup, bottled or canned the CSD, and delivered it to customer accounts.

• The bottling process is capital-intensive.• Gross profits often exceed 40%, but operating

margins are thin.

Retail Channels ...

• are food stores, fountain outlets, vending machines, convenience stores, and other outlets.

Corporate Analysis

2005 Sales $32.5 billion (11.3% growth)

2005 Net income $4 billion (3.2% growth)

2004 Employees 153,000 (7% growth)

CEO Steven S. Reinemund

Top CompetitorsCoca-Cola

Cadbury SchweppesKraft Foods

Forbes 2000 128th place (Coke: 144th place)

Corporate Mission

1. Care for customers, consumers and the world we live in

2. Sell only products we can be proud of

3. Speak with truth and candor

4. Balance short term and long term

5. Win with diversity and inclusion

6. Respect others and succeed together

Pepsi International35%

Quaker Oats5%

Frito-Lay32%

Pepsi28%

Pepsi Sales Analysis- Frito-Lay, Pepsi, Quaker Oats, Pepsi International

$ millionSource: Company annual report, 2005

Pepsi Brands- Frito-Lay, Pepsi, Quaker Oats

Business / Functional Strategy

1. Extend global snack leadership

2. Extend global beverage leadership

3. Expand “smart” choices

4. Sustain productivity for growth

SMART• Start with a healthy breakfast• Move more• Add more fruit, veggies & whole grains• Remember to hydrate• Try lower calories or fat

SMART Spot• Put green dots on package,

if product qualifies the criteria

Business / Functional Strategy- Expand “smart” choices

Weakness• lack of long-term strategy

Strength• Enough growth momentum

for short term.

Strength and Weakness- From Business / Functional Strategy

Competitiveness Analysis- Financial ratio comparison with major competitors

Pepsi Schweepers Coca-Cola Kraft

Market Capital 90.68B 20.38B 103.96B 57.44B

Net profit 14.27% 6.72% 22.07% 8.36%

ROE 33.02% 15.35% 32.47% 9.34%

EPS (5 yr.) 11.87% -6.16% 15.34% 5.26%

PER 22.37 25.35 21.56 21.35

% insider own 0.54% 1.00% 12.76% 84.02%

Payout Ratio 25.51% 58.69% 37.56% 48.49%

Source: SMIP, 2005

Weakness• Insider owns little amount of

the company’s stock.• Low payout ratio.

Strength• Close to Coca-Cola, the

1st player, in many numers like market cap., net profit, and EPS.

• Industry leading company in terms of ROE

• Pepsi is far above other competitors except Coca-Cola in terms of EPS 5-yr. growth

Strength and Weakness- From financial ratio analysis

Competitiveness Analysis- Major brands of Kraft

Competitiveness Analysis- Major brands of Coke

Competitiveness Analysis (Coke)- Non-CSD sales

PowerAdeGatorade

76%

15%

Sports Drinks$ 2.6 billion

NesteaLipton

38%27%

Tea-based drinks$ 3.5 billion

DasaniAquafina

13% 8%

Bottled water$ 6 billion

MinuteMaidTropicana

44%

20%

Chilled juice$ 3 billion

Source: Industry Analysts, 2001

Competitiveness Analysis (Coke)- U.S. CSD retail outlets

VendingFountainConvenienceStores

FoodStores

36%32% 31%

35%42%

25%

65%

21%14%

50%

40%

10%

Source: Industry Analysts, 2001

Schweepers

Pepsi

Coke

Competitiveness Analysis (Coke)- International soft-drinks market shares

Africa,Middle east

AsiaPacific

LatinAmerica

Europe, Eurasia

47%

15%

65%

15%

51%

20%

71%

30%

Source: Various sources, 1999

42%32%

NorthAmerica

Weakness• Weak international

distribution channel• Weak sales on fountain

Strength• Diversified product

portfolio• Strong sales on

convenience stores

Strength and Weakness- From products and distribution channel analysis

Environmental Analysis- Increasing number of megastores

Fountain / Vending11%

Convenience store13%

Food store43%

Megastore33%

$ millionSource: Company annual report, 2005

Megastores• Buying decisions are

centralized in the hands of a small core of managers at the retailer’s headquarter.

• Ask suppliers for special customized product.

• Smaller inventory space, frequent delivery.

Environmental Analysis- Potential demand in international market

1999, Consumption per capita (8-oz)• Worldwide average was 125 cans.

• U.S. average was 874 cans.• China average was 22 cans.• India average was 6 cans.• However, population of China was 5 times of U.S. and

population of India was 4 times of U.S.

Environmental Analysis- Obesity-concerned customers

Carbonated soft drinks consumption is shrinking• During the past decade, consumer demand for classic

soft drinks had declined, while sales of healthier options like juice and bottled water had skyrocketed.

Environmental Analysis- Obesity-concerned customers

Overweight children• 17 % of children were overweight (2004).• Coca-cola, Pepsi, Schweppes agreed to stop selling

these products in school.• Couple of weeks ago, Disney and McDonald’s

announced an end of their ten year alliance.• Kid advertisement guidelines

Environmental Analysis- Bottler consolidation

Bottler consolidation• Soft drinks market shrinking damaged independent

bottlers.• Independent bottlers were merged into one, big,

company-owned bottler, and later they spun off.• In 2000, Coke’s top 10 bottlers producing 94% of

domestic volume, while Pepsi’s and Schweppes’ top 10 bottlers produced 85% and 71% of the domestic volume, respectively.

Threat• Increased buying power and

volume of retailers• Decreasing soft drinks

demands from the young age• Less brand loyalty in non-

CSD beverage market.

Opportunity• Still low soft drinks

consumption in developing countries

• Increasing demand for “SMART” products

• Strategic alliance for international distribution with other beverage company

Opportunity and Threat- From environmental analysis

Part 3. Korean Subsidiary

Korean Subsidiary- Value chain

Pepsi International

Korea PepsiCola

Lotte Chilsung

Importconcentrate

Bottling and distributeproduct

Start in 1993 Start in 1970

Pepsi, Mountain Dew, Gatorade

Korean Subsidiary- Revenue

Korea PepsiCola

Lotte Chilsung

Revenue

Soft-drink sales

27B won 33B won

2005 2004

348B won

210B won

7.7%

369B won

239B won

7.24%

Material cost

Pepsi share

Korean Subsidiary- Pepsi market share in Korea

Korea PepsiCola

Lotte Chilsung

Market share

Market share

3.2% 3.1%

2005 2004

42.3%

210B won

7.7%

43.2%

239B won

7.24%

Material cost

Pepsi share inMaterial cost

CokeMarket share

19.8% 18.5%

Thank you