PepsiCo Inc was established in 1965 when Pepsi cola and Frito-lay shareholders agreed to a merger between the salty snack icon and soft drink giant. The company’s salty snacks business began in 1932 when Elmer doolin of san Antonio, Texas, began manufacturing and marketing Fritos corn chips and herman lay started a potato chip distribution business in Nashville.
During PepsiCo’s five years as a snack and beverage company, it introduced new products such as Doritos and Funyuns, entered markets in Japan and Eastern Europe and opened, on average, one new snack food plant per year.
The company began to pursue growth through acquisitions outside snacks and beverages as early as 1968, but its 1977 acquisition of pizza hut significantly shaped the strategic direction of PepsiCo for the next 20 years.
PepsiCo also strengthened it portfolio of snack foods and beverages during the 1980s and 1990s with acquisition of mug root beer, 7-up international, smartfood ready to eat, walker’s crisp, etc.
Quakers Oats was PepsiCo largest acquisition and gave it the number-one brand of oatmeal in the united states, with a 60 + percent category share; the leading brand of rice cakes and granola snacks bars; and other well known grocery brands such as cap’s crunch, rice a roni, and aunt jemima.
After the completion of the Quakers Oats acquisition in August 2001, the company focuses in integration of Quakers oats’ food, snack and beverage brands into the PepsiCo portfolio. Acquisition in 2006 totaled $522 million, about half the $1.1 billion it spent on acquisition in 2005. PepsiCo’s largest acquisition in 2005 was the $750 million acquisition of general mill’s minority interest in Snack Ventures Europe.
The Combination of acquisition with PepsiCo’s core snacks and beverage business from approximately $20 billion in 2000 to more then $35 billion in 2006
Roger Enrico was the chief architect of PepsiCo’s diversified business lineup as it stood in 2007, his successor, Steve Reinemund, and the company’s CEO in 2007, Indra Nooyi had emigrated to the United State in 1978 to attend Yale’s graduate school of business and had worked with Boston consulting group, Motorola, and Asea Brown Boveri before arriving at PepsiCo in 1994. She developed a reputation as a tough negotiator who engineered the 1997 spin-off of Pepsi’s restaurants, spearheaded the 1998 acquisition of Tropicana, and played a critical role in the 1999 IPO of Pepsi’s bottling operations.
In 2007, PepsiCo’s corporate strategy had diversified the company into salty and sweet snacks, soft drinks, orange juice, bottled water, ready to drink (RTD) teas and coffees, purified and functional waters, isotonic beverages, hot and ready to eat breakfast cereals, grain based products and breakfast condiments.
A relatively new element of PepsiCo’s corporate strategy was product reformulations to make snack foods and beverages less unhealthy. The company believed its efforts to develop good for you (GFY) or better for you (BFY) products would create growth opportunities from the intersection of business and public interest.
PepsiCo was the largest seller of liquid refreshment in the United States, with a 26 percent share of the market in 2006. Coca cola was the second largest non alcoholic beverage producer with 23 percent market share. Cadbury Schweppes and Nestle were the third and fourth largest beverage sellers in 2006 with market share of 10 percent and 8 percent, respectively.
During the mid 1990s, it looked as if coca cola would dominate the soft drink industry, with every Pepsi-cola brand except Mountain Dew losing market share to Coca cola’s brands. Coca cola CEO at the time, Roberto goizueta had stated that the company’s strategic intent by 2000; he seemed convinced PepsiCo could do little to stop the industry leader.
Pepsi Cola management engineered a dramatic comeback in the late 1990s and early 2000s by launching new brands like Sierra Mist and new flavors of existing brands such as Mountain Dew Code Red and by focusing on strategies to improve local distribution.
PepsiCo International
All PepsiCo also found that it could grow international sales through its power of one strategy. A Pepsi cola executive explained how to the company’s soft drink business could gain shelf space through the strength of Frito-Lay’s brands.
PepsiCo’s international management believed that further opportunities in other international markets existed. In 2006 the average consumption of carbonated soft drinks in the united states was 32 serving per month, while the average consumption of CSDs in other developed countries was 5 servings per month.
Frito-lay was the largest snack chip company in the world, with sales of approximately $ 7 billion outside the united states and a 40 percent share of international salty snack industry in 2006. developing an understanding of consumer taste preferences was a key expanding into international markets. Taste preferences for salty snacks were more similar from country to country than many other food items, which allowed PepsiCo to make only modest modifications to its snacks in most countries.
PepsiCo’s management team was dedicated to capturing strategic fit benefits within the business lineup throughout the value chain. The company shared marketed research information to better enable each division to develop new products likely to be hits with consumers, consolidated its purchasing to reduce cost and manufactured similar products in common facilities whenever possible.
The efforts to achieve synergies undertaken upon acquisition of Quaker Oats had delivered an estimated $ 160 million in cost savings by 2005 through the combined corporate wide procurement of product ingredients and packaging material.
PepsiCo’s financial managers expected the company’s lineup of snack beverage and grocery items to generate cumulative management operating cash flows of $15 billion between 2007 and 2009. The company priorities for free cash flow were to reinvest in its core business, provide cash dividends to shareholders and identify strategic growth opportunities that would provide attractive returns.
