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Industry Analysis Pepsi Cola Co

01 Aug 2016Economics Essays

The point of view taken in this case is the firm or decision maker's point of view. Since the case will be used to analyze the status of PepsiCo in the bottling industry, the capacity to perform certain actions and decisions was taken into consideration in this analysis. As of 2006, statistics show that there are 16 competitors of PepsiCo in product retail and services. With this large number of competitors in the industry, the market is offered with a greater variety of choices as based on consumer's preference and the services offered by each co-competitor.

According to the Intraday Performance Summary of the Viewed Processed and Packaged Goods Industry Center under the sector of Consumer Goods in the industry of Processed and Packaged Goods, PEP shows a 0.51% change in performance as of 4:00 pm on September 22, 2006.

The trend shows that the performance of PepsiCo for that day on that aspect increased by 0.51% as compared to its previous performance which was recorded at 2:00pm of the same date. It was also documented that the Day's Range performance of the company is 64.05-64.59 which meets the goal of every capitalistic entity which is in line with minimizing the cost on the side of manufacturers and firms. This is tagged in the statistics as Low Trade Pricing.

Finance Analysis

According to the Financial Press Release of PepsiCo as a public review of the 2005 annual report of the company, PepsiCo reported their revenues to have reached almost $33 billion. This figure encompasses the revenues of the principal businesses which are Tropicana, beverages, and the company's sports drinks- Gatorade and Quaker. The 17 brands that are also under the umbrella of PepsiCo are reported to have generated an approximation of more than $1 billion in terms of retail sales.

In addition, the company also released to the public that the firm's net revenue reached 12% increase in the third quarter of the current year. Also stated in the report was that almost 10% of the company's service was offered globally. This incident has been recorded as the "top-line" increase of revenue among all the businesses under the principal business of the company.

Seeing the figures provided, it may be concluded that the company is exhibiting stability on its financial aspect. Financial stability creates credibility of the company towards its consumers. Also, it sets the security among the employees as well as motivating the workforce for a better production and performance of the company which in any phase is good for the company's status.

Competition Analysis

The top two and most prominent competitors of PepsiCo. in the industry are Coca-Cola Co and Kraft Foods Inc. Hereunder are the financial and the managerial aspects of each competitor which will enable comparison and evaluation of their performance and competitive advantages.

Coca-Cola Co - An Overview

Coca-Cola beverage, also known as Coke, uses the tagline in the market "Coke is it"-it means being the top choice in the soft-drink industry. Included in the soft-drink line of business are Diet Coke, Sprite, Fanta, and Coca-Cola which are considered to be the four in the top line brands of soft drinks marking four out of five brands. Also under the Coca-Cola umbrella are Barq's, Minute Maid, Fruitopia, Dasani water, and Powerade. Also, Coca-cola has Crush, Schweppes, and Dr. Pepper beyond North America, Australia, and Europe. The company also caters other beverages aside from soft drinks. some of these are sports drinks, teas, juices, and coffees worldwide.

In spite of the data provided with regard to the business in beverages that Coca-Cola is in, Coca-Cola does not cover bottling itself. Coca-Cola Co. holds only 36% of the Coca-Cola Enterprises which is now the largest bottler of Coke globally. Coca-Cola Enterprises serves as a collaboration of all Coca-Cola products and services.

Coca-Cola also has a credible image in the public eye due to the award it earned last year. Coca-Cola was given 86 as a score in "HRC's 2005 corporate equality index". This covers the company's promotion of equality on the sexual aspect of the employees. The company's efforts for marketing sponsorship, philanthropy, and domestic benefits were also recognized.

Kraft Foods Inc. - An Overview

Kraft Foods Inc. claims that they are the US's top food company. It was spun off in 2001 by Altria Group which then was known as Philip Morris Companies. Kraft Foods International covers the North America's largest name in cheese sales and production (Kraft) as well as the world's largest business in cookies (Nabisco). Cereals are also catered by this company (Oscar Mayer and Post cereals).

Table 1. Key financial points of Kraft taken from "Hoover: A D&B Company" (Sept 2006)

Company Type

Public (NYSE: KFT)

Fiscal Year-End

December

2005 Sales (mil.)

$34,113.0

1-Year Sales Growth

6.0%

2005 Net Income (mil.)

$2,632.0

1-Year Net Income Growth

(1.2%)

2005 Employees

94,000

1-Year Employee Growth

(4.1%)

As we can see, the two companies are both engaged in the food industry but excelled in different aspects somehow. Thus, the competition between PepsiCo and Coca-Cola is not parallel with regard to the competition between PepsiCo and Kraft Foods Inc. because the prior is engaged in the food production. Still, the revenues and the credibility between the three companies do not have that significant difference considering the fact that an intraday excellent performance may dramatically change the economic status of each company since all companies serve the worldwide market.

Table 2 shows the data for the figures for each direct competitor of PepsiCo. Also included is the legend of each business name and the "Doing Business As" (DBA) of each company.

  • PEP- PepsiCo
  • CSG- Cadbury Schweppes plc
  • KFT - Kraft Foods Inc.
  • KO - Coca-Cola Co

Table 2. Direct Competitor Comparison

DIRECT COMPETITOR COMPARISON

 

 

PEP

CSG

KO

KFT

Industry

Market Cap:

105.98B

21.74B

103.04B

56.57B

354.97M

Employees:

157,000

58,581

55,000

94,000

1.09K

Qtrly Rev Growth (yoy):

11.70%

22.50%

2.60%

3.40%

10.70%

Revenue (ttm):

34.08B

13.57B

23.29B

34.46B

477.20M

Gross Margin (ttm):

56.05%

48.67%

64.87%

36.01%

29.01%

EBITDA (ttm):

8.13B

2.58B

7.75B

6.23B

47.36M

Oper Margins (ttm):

18.20%

15.53%

26.77%

15.55%

5.99%

Net Income (ttm):

4.34B

1.06B

5.09B

3.14B

7.34M

EPS (ttm):

2.564

4.39

2.147

1.874

0.47

P/E (ttm):

25.07

9.58

20.49

18.28

23.49

PEG (5 yr expected):

1.97

2.42

2.40

2.51

2.04

P/S (ttm):

3.13

1.63

4.45

1.63

1.04

 

CSG = Cadbury Schweppes plc

KO= Coca-Cola Co.

KFT= Kraft Foods Inc.

Industry= Processed & Packaged Goods

Hereunder is the ranking of companies which are also in the same industry with PepsiCo. As presented below, each company is ranked according to sales volume converted into the percentage for a better view of the differences.

Table 2. Food Manufacturers Ranked by Food Sales

FOOD MANUFACTURERS RANKED BY FOOD SALES

Company

Price

Change

Market Cap

P/E

Kraft Foods Inc.

345.00

0.00%

N/A

N/A

Unilever Frito-Lay, Inc.

34.25

0.82%

56.57B

18.28

Tyson Foods Inc.

15.95

0.44%

5.66B

N/A

ConAgra Foods Inc.

23.50

-0.76%

12.00B

22.90

Groupe DANONE

29.67

-0.10%

35.93B

17.05

Smithfield Foods Inc.

27.31

-0.98%

3.04B

20.63

SWOT ANALYSIS

It is a known strength that the company has maintained its stability for a significant number of years already. In addition, the employees' welfare, benefits and the philanthropic image of the company was a good strategy for the company not only to manage well the workforce of the firm but also to create a humble touch to the consumers. The reflection it has created to the public has been indispensable. Setting a credible image to the market makes the market patronize the new and other products offered by the company. In return, the company gets to stay in the top line of the industry.

The weakness is basically within the production cost. The management cannot lessen the salary of the employees. There are some instances wherein the employees will need some motivation as driven by the material or monetary compensation as provided by the company. This is something that is somehow is inevitable in a business entity. The reward and punishment style of control is somehow beneficial. If the company decides to take on the reward style of control, there will be a more lax atmosphere in the workplace. However, the punishment style is more assuring of the profit which is also beneficial for the company. Since it is an established policy in the company to look after the welfare of the employees, it has been reported that they were the management takes the risk through their commodities. They cannot lessen the quality of their products since the competition is high. So they just risk their profit in accordance with the response of their customers.

Since the company is already established, there is a bigger possibility that the products it will introduce to the market will easily penetrate the market. The image it has created to the public creates a significant mark in such a way that the public recognizes and will eventually try those products as seen in the advertisements since these products will be known as something that represents the company's name. Therefore, continuous patronization with additional products would mean additional profits for the company.

The high competition in the market is one of the greatest threat that the company faces. These companies are abled enough to produce the same product that PepsiCo has. They can also mass publicize their products through advertisements since they as well have the same or are near the financial stability of PepsiCo. Tha managerial and workforce aspect of these companies are also not in the grave condition to the scenario that might cause cease in production or flaw in management which in return would affect the performance and name of the company in the global market.

Strategic Recommendations:

  • Since the company is highly patronized by the global market, it may engage in the increase in production but the management should make sure that the demand again meets the supply. Promotional packages or advertisements are two possible ways on how to attract the public.
  • New products from the company will generate profit for sure for the company since it is already given that the public is already aware of the company's capacity and stability in the industry. Thus, innovations may be easily accepted by the consumers.
  • Decentralization of the supply is recommended. If PepsiCo realizes that the demand in a particular area is decreasing, extending its coverage or redirecting the company's supply to areas wherein the demand is much more stable or increasing will be a good step.

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