• See PepsiCo Porters Five Forces and BCG Matrix Analysis 2017
• See Coca Cola Pestle & Swot.
•  See Nestle Pestle & Swot.

1.0 Introduction

PepsiCo is an American based multinational corporation that is engaged in the manufacture, marketing, and distribution of a broad range of snack foods and beverage brands including the iconic Pepsi Cola, which was formulated in 1898 by a pharmacist who founded The Pepsi-Cola Company. It became PepsiCo in 1965 after a merger with Frito-Lay, Inc. PepsiCo owns 22 billion dollar brands, referring to individual brands each generating annual retail revenue in excess of US$1billion (Annual Report 2016). These include Pepsi-Cola, Frito-Lay, Doritos, Gatorade, Quaker, Tropicana etc. The company is headquartered in Purchase, New York. Net revenue for the year ended 31st December 2016 was US$62.8 bn on operating income (pre-tax profit) of US$9.7bn (Annual Report 2016).

2.0 PepsiCo Pestle Analysis 2016-2017(Opportunities and Threats)

2016 was a challenging year for the United States carbonated soft drinks (CSD) market, which has continued to decrease for nine straight years as total sales and volume of sugary sodas consumed by Americans, has continued to decline for 11 consecutive years. According to Kell (2017), this is part of a long-term trend driven by consumer fears over the use of high-calorie sugars and artificial sweeteners such as high fructose corn syrup and aspartame, two of the most controversial artificial sweeteners often used in diet colas. The use of such sweeteners is also the reason why sales of even diet sodas, supposed to be the industry saviors, continued to dip in 2016 with Diet Pepsi seeing a volume decline of 9.2% compared to 4.3% for Diet Coke as consumers opt for healthier options (Kell 2017). 

With carbonated drinks like Pepsi Cola losing market share to non-carbonated drinks such as bottled mineral water, many food and beverage firms including PepsiCo are remaking their brand portfolios either through innovative reformulations of existing products or adding new product categories in order to tackle new food and beverage trends (Kell 2017b).

In the following section, we will identify the major food and beverage trends that are driving PepsiCo’s external market environment including the US soft drinks industry in general. This will help us understand how the beverage firm can utilize its brand competencies so as to take advantage of macro environmental opportunities while at the same time neutralizing emerging threats that may undermine its progress.

2.1 Political environment

PepsiCo and other beverage firms including Coca Cola are currently embroiled in a battle over proposals by a number of US states over the introduction of a soda tax on artificially sweetened beverages such as diet soda. The soda tax which was first introduced in Berkeley in 2015 was also adopted by Philadelphia taking effect from January 2017. The tax which raises soda prices by 3 cents per ounce in the Philadelphia has recently been successfully passed in four other state cities including San Francisco, Oakland, Seattle in Washington and Boulder Colorado (Esterl 2017). If more states successfully follow through with similar proposals designed to reduce soda consumption, it will hurt Pepsi sales at a time when unit case volume sales are already in decline as carbonated drinks lose their popularity among health-conscious consumers. Soda taxes have already been shown to reduce soda consumption with a UC Berkeley study in August 2016 showing a 26% drop in the consumption of soda among low-income Berkeley neighborhoods after the Californian city introduced a soda tax in the previous year (Anwar 2016; Cohen 2016).

2.2 Economic environment

A stronger dollar in 2016 put significant pressure on PepsiCo revenues derived from overseas businesses (Kell 2017). Foreign-exchange swings saw the company spinning off its Venezuela operations from its accounts due to an inability to exchange the local currency (Yuk 2016). The strong dollar in conjunction with broader negative trends in soda consumption in PepsiCo’s core North American market meant 2016 revenue fell by 0.4% from US$63.1billion in 2015 to US$62.8 in 2016 (Annual Report 2016). 

2.3 Social environment

The macro-social environment can include changes in people’s lifestyles, fashion, labour composition, social mobility, and other demographic trends that have the potential to either threaten PepsiCo or avail opportunities to them. One such lifestyle change with the future potential to affect Pepsi sales dramatically is consumer-focus on healthy beverages. With soda consumption in the United States falling to a 30 year low in 2016 (Sun 2017), bottled water consumption finally managed to overtake soda to become the largest beverage category by volume (see figure 1). Americans are now drinking more bottled water than sugary drinks amid increased concern over their impact on health, in particular, Type 2 diabetes and obesity rates, which have risen to among the highest levels in the world (Purdy 2016). 

Figure 1: the US beverage market growth 2015-2016

The good news is that PepsiCo like rival Coca Cola seems to have long been aware of consumer trends to cut back on sugar intake and has embarked on remaking its brand portfolio either through innovative reformulations of existing products or adding new product categories in order to tackle these social trends driving food and beverage consumption. The launch of Tropicana Essentials Probiotics was for instance, a move to tap into the rapidly growing healthy juices category. It has also introduced to the market reduced sugar versions of 7Up, and it is currently poised to generate millions from its new premium water brand LIFEWTR (Kell 2017b).

2.4 Technological environment

When it comes to the technological factors affecting PepsiCo in the macro environment, it is the digital revolution, more specifically the emergence of online marketplaces, which is proving to be revolutionary in its impact on the way legacy beverage companies such as PepsiCo transact with consumers (Annual Review 2016). The pace of retail technological change especially the growing acceptance of digital bots, artificial intelligence, driverless delivery networks, 3-D printing and other technologies with a focus on speed, convenience and ubiquity are enabling shoppers to operate seamlessly across and between all retail channels. According to CEO Indra Nooyi, mobile technology and e-commerce present a great opportunity for the firm to communicate with customers directly on a more personalized level. The company is already looking at launching select online grocery stores as a way to expand the deliverability of its beverage and snack product portfolio (Gee 2017).

2.5 Legal environment

PepsiCo recently agreed to revise labels on Naked Juice drinks following a lawsuit filed in 2016 by consumer advocacy group the Center for Science in the Public Interest (CSPI). The lawsuit alleged that PepsiCo deliberately deceived consumers, misleading them about the actual ingredients in Naked Juice. The lawsuit aimed to prove that PepsiCo was using misleading statements like "no sugar added" and "only the best ingredients" (Addady 2016).  The company agreed to revise labels on Naked Juice drinks with statements that accurately reflect ingredients and will emphasize key facts such as “Fruit Juice is Not a low-calorie food” as well as emphasize that juice is much higher in sugar content than vegetable juice (Morran 2017).

2.6 Environmental factors

The transition to a low carbon and resource-efficient future is underway, affecting almost every sector of the global economy. However, for the world’s biggest soft drinks brands, the biggest environmental issues they continue to grapple with local environmental considerations especially the impact of their waste from all the plastic bottles and aluminium cans for their drinks. According to Greenpeace (2017), the top six global soft drinks firms; Nestle, PepsiCo, Coca Cola, Suntory, Danone and Dr Pepper Snapple use a combined average of just 6.6% recycled plastic in their bottles with Coca Cola alone producing more than 100bn plastic bottles annually, much of it ending up in the world’s oceans rather than plastic recycling systems (Taylor and Laville 2017).

Figure 2: PepsiCo pestle analysis 2016-2017

3.0 PepsiCo SWOT analysis 2017

3.1 Strengths

• Second biggest food and drinks company in the world after Nestle and ahead of Coca Cola which it surpassed recently (McGrath 2017).

• PepsiCo has a more diversified portfolio that is broader hence less reliant on beverages compared to rival Coca Cola. Snack food sales, in fact, contributed 52% to 2016 global revenue compared to 48% captured by beverages (Annual Report 2016; Walsh 2016).

• Strong and rising brand portfolio. Ranked 1st by Kanter Retail’s 2016 “Power Ranking® Survey” for Best-in-class manufacturer.  Advantage Report® retailers named Pepsico first overall among fast moving consumer goods suppliers. This recognized the fact that in 2016, the company was actually the biggest driver of growth for food and beverage retailers in the US with its diverse product portfolio contributing 18% of total food and beverage retail sales growth (Annual Report 2016).

• Boasts 22 brands that earn annual retail revenue in excess of US$1billion.

• Growing premium and sugar-free product portfolio

• NFL and NBA sponsorship deals will drive marketing and brand recognition going forward.

3.2 Weaknesses

• Too reliant on North American sales (USA & Canada) which amounted to US$39.4bn or 63% of PepsiCo’s annual global revenue (Annual Report 2016).

• Consumption of carbonated sodas has been in decline steadily over the years in the US reaching a 30 year low in 2016 (Walsh 2016; Kell 2017). 

3.3 Opportunities

• Lucrative NFL and NBA sports sponsorship deals will drive marketing and brand recognition at a time when soda consumption is not only declining but when offers such as Diet Pepsi are losing market share to non-carbonated drinks (Walsh 2016).

• The divestiture of a minority stake in Britvic will help PepsiCo transform its portfolio to ensure it has more reduced sugar options (Gee 2017).

• Growth in lower-calorie beverages such as value-added bottled water (e.g. sparkling, flavored, and "vitamin" waters), coffee, teas and other high growth healthy beverages.

• As part of its initiative to diversify away from sugary drinks and towards healthier options, PepsiCo has been engaged in talks to acquire All Market, the global leader in coconut water and the owner of Vita Coco (Reuters 2017).

• According to CEO Indra Nooyi, mobile technology and e-commerce present a great opportunity for the firm to communicate with customers directly on a more personalized level. The company is already looking at launching select online grocery stores as a way to expand the deliverability of its beverage and snack product portfolio (Gee 2017).

3.4 Threats

• Lots of US cities and states are reviewing proposals to implement a soda tax, a tax that already has been shown to reduce soda consumption wherever it’s introduced.

• The brand value of Pepsi dropped by 4% in 2016 to $18.2bn according to Brand Finance (2016).

Figure 3: PepsiCo SWOT Analysis 2017

Conclusion

From the above analyses, we look at how various macro factors have affected the growth of Pepsi, for example, new soda tax rates in the US will affect the profitability of Pepsi. However, the increased focus on healthy beverages by consumers gives Pepsi a wider market for its products. In the Swot analysis, we look at Pepsi's strengths, weaknesses, opportunities, and threats with competitor Coca-Cola being Pepsi's major threat. In the Porters analysis, we look at how competitive rivalry, buyer power, and supplier power are most likely to affect the profitability of Pepsi. 

References

Rerences available upon request.

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