SWOT Analysis is helpful in evaluating the inner strengths and weaknesses of a company along with its opportunities and threats with respect to its external environment (Ommani, 2011).
Strengths
Strong Brand Image (due to loyal customer base): PepsiCo, Inc. consists of 22 brands in terms of food, beverages and snacks reflecting the diversification of the products offered by the company (PepsiCo, 2015). In spite of such a varied portfolio, the company has been successful in maintaining uniformity among them. The high sales in each of the brand depict that they have been successful in creating a loyal customer base contributing significantly to the competitive advantage of the company in international arena.
Extensive Global Production and Distribution Network: The company’s integrated production and distribution network provides the much needed support so that PepsiCo, Inc. can achieve growth internationally. This helps in reducing external dependence in terms of logistics thus, maintaining uniformity across all sectors of the business. Pepsi Logistics Company, Inc. (PLCI) is responsible for managing the entire distribution of the products manufactured by the company (PLCI, 2016).
Effective Leadership: Indra Nooyi’s ascent to become PepsiCo’s CEO has been highly favourable to the company. The company had been successful in accomplishing an organic growth of 5% resulting in a cash flow of $8.1 billion in the financial year 2015. This depicts the effectiveness in Nooyi’s leadership style (Fortune, 2015.). PepsiCo, Inc. is one of the most suitable examples of achieving successful business growth through mergers and acquisitions, which illustrates that the company has overcome cultural differences across borders directly contributing to its long-term growth.
Weaknesses
Over dependence on Walmart and other supermarkets: 13% of PepsiCo’s revenue is generated from its tie up with Walmart ensuring substantial buyer’s power to Walmart. This arrangement makes it difficult for the company to leave Walmart because then it will have to forego 13% of its revenue (PepsiCo, 2014).
Low pricing strategy: In order to retain its market position, PepsiCo, Inc. follows the strategy of low pricing for its products. This does not provide much help to the company during financial crisis.
Over dependence on the US market: As much as 56 % of the company’s business is based in the United States (US), which puts PepsiCo, Inc. at risk (PepsiCo, 2015). For example, any change in economic condition of the US market can adversely affect the entire business (revenue) of the company.
Opportunities
Product diversification: PepsiCo, Inc. can counter its weaknesses with products diversification, which will provide more sources of revenue while distributing risks. For example, its purchase of Russian leading Juice manufacturing company, Lebedyansky and further expansion in UK market with acquisition of V Water (PepsiCo, 2008; The Economic Times, 2008). These acquisitions provide quicker access to market and helps in developing a new product line with an existing customer base.
Greater penetration in developing markets: The developing markets offer higher market expansion opportunities and will reduce its high dependence in the US market. The company has already revealed its plans for investing $5 billion in India by the year 2020 as a part of its expansion on developing countries (The Wall street Journal, 2013).
Threats
Fall in demand for carbonated drinks: The growing consciousness related to health and impacts of carbonated drinks in increasing obesity and other health complications have led to the fall in demand for PepsiCo’s beverages.
Intense competition: The intensified competition from Coca-Cola Company has led the company to think of innovative strategies that can increase its competitive advantage.
Impact of international exchange rate: Being a multinational company, PepsiCo. faces uncertainties related to fluctuations in the international market.
Water scarcity: The issue of water scarcity has attracted global attention with increasing number of countries finding it hard to maintain their fresh water consumption. This will have a strong influence on the business of PepsiCo, Inc. because water is one of the prime raw materials needed in its production.
Risk Analysis
Political factors: The stability of government in countries where PepsiCo, Inc. is engaged in business plays an important role in facilitating its growth. PepsiCo, Inc. participates in lobbying so that it can influence political factors to its advantage. It has been observed that the annual expenditure to finance lobbying has increased manifolds as illustrated in the following figure.
Figure 1: Annual expenditure in lobbying by PepsiCo.
(Source: Open secrets.org, 2016)
Economic factors: The inflation and rate of unemployment has direct impact upon the business of PepsiCo, Inc. as it affects the purchasing power of customers. The exchange rate fluctuations also pose a threat to the stability of PepsiCo’s business. For example, it was reported by the company executives that PepsiCo. had been experiencing a decline in its profits margin since the beginning of 2016 owing to appreciation of US dollar value (Fortune, 2016).
Social and cultural factors: Over the last decade, more and more people have been aware of impact of unhealthy and busy lifestyle. It is up to the company to view it as a threat or as window of opportunity. This requires the company to engage more in production of products, which is ready-to-eat and healthy at the same time.
Technological factors: PepsiCo, Inc. can achieve a lot from investment in research and development, as it will directly improve its existing efficiency level. The company should exploit the advantages of knowledge management systems like, incorporation of strategic decision-making. Investment should be made to increase the share of automation and improvement in the state of technology used in the concerned production process.
