PepsiCo was the world’s largest snack and beverage company with 2017 net revenues of approximately $63.5 billion. The company’s portfolio of businesses in 2018 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe, Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complementary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, Stacy’s pita chips and Sabra hummus might make a nice snack, and Doritos and a Mountain Dew might be part of someone’s lunch. In 2018, PepsiCo’s business lineup included 22 $1 billion global brands.

The company’s top managers were focused on sustaining the impressive performance that had been achieved since its restructuring through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. Newly introduced products such as Mountain Dew Ice, Doritos Blaze tortilla chips, Sweet Potato Sun Chips, LIFEWTR functional waters, Lemon Lemon sparkling lemonade, and the 1893 premium line of flavored colas accounted for 15%-20% of all new growth in recent years. New product innovations that addressed consumer health and wellness concerns were important contributors to the company’s growth, with PepsiCo’s better-for-you and good-for-you products becoming focal points in the company’s new product development initiatives. .

In addition to focusing on strategies designed to deliver revenue and earnings growth, the company maintained an aggressive share repurchase and dividend policy, with a planned $7 billion returned to shareholders in 2018 through share repurchases of $2 billion and dividends of approximately $5 billion. The company bolstered its cash returns through carefully considered capital expenditures and acquisitions and a focus on operational excellence. Its Performance with Purpose plan utilized investments in manufacturing automation, a rationalized global manufacturing plan, and reengineered distribution systems to drive efficiency. In addition, the company’s Performance with Purpose plan was focused on minimizing the company’s impact on the environment by lowering energy and water consumption and reducing its use of packaging material, providing a safe and inclusive workplace for employees, and supporting and investing in the local communities in which it operated. For example, PepsiCo had expanded access to safe water to nearly 16 million people in water-stressed parts of the world between 2006 and 2018. In addition, Performance with Purpose planned to reduce average sugars, saturated fat, and sodium in its food and beverage portfolio each year through 2025 and saved more than $600 million in operating expenses by 2016.

Even though the company had recorded a number of impressive achievements over the past decade, its growth had slowed since 2011. In fact, the spikes in the company’s revenue growth since 2000 had resulted from major acquisitions such as the $13.6 billion acquisition of Quaker Oats in 2001, the 2010 acquisition of the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion, and the acquisition of Russia’s leading food-and- beverage company, Wimm-Bill-Dann (WBD) Foods, for $3.8 billion in 2011. Since 2011, the company had favored targeted “tuck-in” acquisitions of leading brands in popular new healthy food categories. Nevertheless, PepsiCo’s revenues continued to decline as annual consumption of carbonated soft drinks fell each year and its international business units struggled.

Assignment Questions

1. What is PepsiCo’s corporate strategy? Briefly identify the business strategies that PepsiCo is using in each of its consumer business segments in 2018.

2. What is your assessment of the long-term attractiveness of the industries represented in PepsiCo’s business portfolio?
3. What is your assessment of the competitive strength of PepsiCo’s different business units?
4. What does a 9-cell industry attractiveness/business strength matrix displaying PepsiCo’s business units look like?
5. Does PepsiCo’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see?

6. Does PepsiCo’s portfolio exhibit good resource fit? What are the cash flow characteristics of each of PepsiCo’s six segments? Which businesses are the strongest contributors to PepsiCo’s free cash flows?
7. Based on the preceding analysis, what is your overall evaluation of PepsiCo’s business portfolio in 2018? Does the portfolio provide the company’s shareholders with an opportunity for above-average market returns?
8. What strategic actions should PepsiCo management take to improve the corporation’s financial and market performance? Should its free cash flows be used to fund additional share repurchase plans, pay higher dividends, make acquisitions, expand internationally, or for other purposes? What other strategic actions should be pursued by corporate level management?