Description of Industry
Industry analysis is an important tool that helps analysts the organization and performance of a company with respect to its peers in a particular industry. The performance of an organization is greatly influenced by the industry it is aligned to and consequently, industry analysis is critical in making important decisions strategic-wise. Having a good understanding of the underlying forces driving a particular industry as well as the critical factors of success are important factors to gauge the overall attractiveness for an organization to venture into any business. Notably, it is vital that the internal operational and growth strategies of organizations be in line with the industry environment that they operate in for them to be successful. For instance, it is important that organizations understand competitive forces within their industry of operation for them to stand a chance of remaining relevant both in the short term and long term (Manalisha, 2020).
PepsiCo Inc. is an American company headquartered in the Donald M. Kendall Sculpture Gardens, Newyork that deals with the entire value chain of beverages, snacks and other food-based products. The food and beverage company was formed in 1965 after the Pepsi-Cola Company, a beverage Company founded in 1919, merged with Frito-Lay Inc., a snacks and food products company. The merger was driven by distribution and product synergies between the two companies that saw an opportunity in the combined marketing of beverages and food products. As at 2019, PepsiCo Inc. had an estimated employee base of 271,000 persons and operates in more than 200 countries worldwide. The company is listed on the NASDAQ and was ranked 48th in the Fortune 500 companies 2019 raking revenues worth $ 64.7 billion in the same year. The firm made net profits worth $ 12.5 bn and had an asset base of $ 77.6 bn as at 2019 (Fortune Data Store, 2020).
PepsiCo operates in the fast moving consumer goods (FMCG) industry and employs an aggressive marketing strategy due to the competitiveness of the industry.
PepsiCo’s overall market share was estimated to be 44.3% as at Q1’ 2020 while net sales in 2019 stood at $ 29.7 billion in 2019. The company’s main customers include Walmart Inc., Dollar Generation Corporation, The Kroger Co. and Safeway Inc (Statista, 2020). With regards to the non-alcoholic beverage sector, the company has majorly played second fiddle to its main rival, Coca Cola which is the biggest company by brand value. As at 2019, Pepsi’s brand value was approximated at $ 10.5 billion compared to Coca-Cola’s $ 68 billion. According to the latest statistics, the firm has a share of 8% in the U.S non-alcoholic beverage market share (CSI Market, 2020)
PepsiCo’s non-alcoholic beverage market share in the United States has been on a decline since 2004, with the company registering a 24.9% share in 2018, which was a decline from the 25.6% recorded the previous year. In 2004, the company’s market share in the non-alcoholic beverage market was 31.7% (Statista, 2020).
However, PepsiCo’s food brands, Frito-Lay and Quaker Oats hold a significant market share in the U.S accounting up to 39% of the market share in terms of sales as per 2019 statistics (CSI Market, 2020). The company’s main rival in this segment is Kraft Foods which is estimated to have a market share of about 11% in the U.S snack food industry.
PepsiCo operates in highly competitive industry notwithstanding the marketing and product success of its archrival, the Coca Cola Company. One of the key tenets of PepsiCo.’s marketing strategy relates to emotional branding that allows the firm to connect its customer base with its core values and attributes that sync its products to the target market’s psychological feelings. Another strategy employed by the conglomerate relates to the the use of influencers and celebrity endorsement to push its brands to its target market. Other important pillars of PepsiCo’s competitive advantage in its marketing strategy are;
- Strict control of costs
The firm’s marketing strategy is aimed at cutting down costs which is made possible by its wide product portfolio in both the beverages and food products segments, and consequently, economies of scale. Reduction in marketing costs was one of the fundamental principles that contributed to the merger of Pepsi-Cola Company and Frito-Lay Incin 1965, and continues to be an important leveraging tool against competitors. The company also outsources many of its operations as a way of reducing costs.
- Participative client relationships
The company is adept in recognizing changing customer attitudes and needs which it uses to tailor its marketing campaigns. Furthermore, these campaigns are in many cases designed to be participative which is important in forming collaborative relationships with its customer base (Bhasin, 2019). Collaborative marketing campaigns include competitions and sponsorships.
- Product marketing strategy
The firm has incorporated a diverse packaging framework for its products which gives them a competitive advantage over its rivals. For example, the Pepsi beverage is marketed in various quantities using different packaging materials such as regular bottles, disposable bottles, tins and other forms.
- Physical and perceptual position
Another important competitive tool used by PepsiCo as part of its marketing strategy relates to its physical and perceptual positioning. The company has positioned its products to be easily available in all parts of the world, in different sizes and quantities to the convenience of the customer. PepsiCo’s marketing strategy also aims to build a healthy and refreshing perception of its products which are critical aspects that determine the acceptability and success of products in the FMCG sector (Bhasin, 2019).
- Pricing and differentiation
PepsiCo differentiates most of its products from other market offerings as being of superior quality, healthier and sweeter. The firm also projects its products to have added valued and well-priced compared to its competitors in the various segments of operations.
Long Term Outlook
In as much as PepsiCo may not be considered by many investors to be a high growth The long term prospects of the company are bright based on the following factors;
- The company has maintained organic sales growth
PepsiCo has portrayed a stable organic growth rate for the past 3 years with the company recording growth of organic revenues of 4.5% in 2019 compared to 2.3% and 3.7% in 2017 and 2018 respectively (Sun, 2020).
- PepsiCo is well diversified
Another important basis for the company’s positive long term outlook lies in its diversification strategy. PepsiCo has a rich diversified portfolio of strong brands such as Pepsi and Mountain Dew in the beverages sector, and Frito-Lay in the snacks sector (Oakley, 2020). The company’s global operations in major markets is also an important factor that enables it to withstand large shocks in the consumer market.
- The firm has put a lot of emphasis on research and development
Research and development are key tenets of any company that seeks to remain competitive in the long term. PepsiCo continues to be an important product innovation leader in the FMCG marker both organically and acquisition of new brands e.g. the stubborn soda brand acquired after acquisition of the Naked Juice Company.
In this regard, we expect PepsiCo to continue being an important player in the food and beverage industry going forward. Furthermore, the company’s fundamentals are solid which supports its stock value and hence shareholder value both in the short term and long term.
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