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... reduce the overall borrowing costs. (b) Foreign exchange rate and other international economic conditions: Operating in international markets involve exposure to movements in currency exchange rates, which typically affect the economic growth, inflation, interest rate, government actions and other factors. Once these changes occur, they will cause PepsiCo to adjust its financing and operating strategies. Changes in currency exchange rates that would have the largest impact on translating Pepsi Cos international operating profit include Mexican peso, British pound, Canadian dollar and Brazilian real. Through years, macro-economic conditions in Brazil, Mexico, Russia and across Asia Pacific have adversely impacted on Pepsi Cos operations. Especially, the economic turmoil in Russia which accordingly resulted in the devaluation of the ruble in 1998 caused the significant drop in the soft-drink demand. (c) Commodity prices that affect the cost of raw materials: PepsiCo is subject to market risk with respect to commodities because its ability to recover increased costs through higher pricing will be limited by the competitive environment in which it is operating. 2.
Technological Factor: Development of additives such as sugarless sweeteners, caffeine free products, and new flavorings enables PepsiCo to provide products that meet changing customer tastes and preferences. In addition, computerized manufacturing technologies are great contributions to higher efficiency and quality in bottling operations. For Pepsi, a critical business challenge is ensuring that the distribution processes can deliver the right products to the right place at the right time. According to Jerry Gregoire, Vice President, Information Services, The competitive advantage will go to the company that can apply technology to areas such as logistics, getting costs out of the distribution pipeline and getting products into the stores less expensively while increasing the availability of sales information. Pepsi NAs data communication network is an important element in the companys efforts to address sales and distribution challenges with technology. Connecting nearly 330 manufacturing, distribution, and sale sites around the U.
S. and Canada, the Pepsi NA network transports data help management in controlling inventory. For instance, sales data helps managers identify regions where certain products are not selling well, and move any excess inventory to areas where those products are in demand. Sales data also helps Pepsi's managers make decisions about products before they reach the freshness date and must be pulled from the shelf and discarded. 3. Political/Legal Factors: (a) The Human Right Issue: Few years ago, PepsiCo did business in Burma (Myanmar) under the brutal SLORC regime, the State Law and Order Restoration Council. As the SLORC moved to attract international investment, two millions people have been forced to work for no pay under brutal conditions to rebuild Burma's long neglected infrastructure.
What PepsiCo did at the time was patronizing the SLORC regime in what they called rebuild the countrys infrastructure. PepsiCo also said it helps the economy by buying "products such as mung beans, sesame seeds and rattan from small, local farmers. " The issue addressed is whether these products were made by forced labors. In fact, PepsiCo must export their products for hard currency because it cannot use Burma's nearly worthless currency to buy imports of supplies for its bottling plants. As the result, PepsiCo had lost contracts at Harvard, Stanford, Colgate and other universities because it refuses to name the sources of these farm products. (b) FDA Regulation: As a food product manufacturer, PepsiCo is under the control of the Food and Drug Administration. For example, the FDA tests and certifies new ingredients such as high-intensity sweeteners before they are allowed to be used in soft drink production. (c) Waste Management and Public Concerns: Growing environmental awareness is leading to increasing legislation. The companys operation is affected by federal legislative proposals that address the four objectives: -Minimize the quantity of packaging material entering the nations solid waste system -Minimize the consumption of scarce natural resources -Maximize the recycling and reuse of packaging materials -Protect human health and the natural environment from adverse effects associated with the disposal of packaging materials.
For example, Connecticut has already passed a law that regulates packaging to increase its recyclability. 4. Socio-cultural Factor: Consumers today are not as much joyous to cola products as they were before. Age and ethnicity are two main characteristics that affect consumer preference for soft drinks and alternative beverages. With age, health concerns become more of a factor when choosing a beverage. To illustrate, some studies show that cola products or soft drink in general may cause kidney stones and other related diseases.
In contrast to older consumers, younger consumers particularly teens and those in their twenties have less attention spans for products and are more likely to prefer products that seems to be fun and different. Although PepsiCo is the number one seller in carbonated beverages, it lost is market share in 2000 as consumers seek for alternative beverages. As the matter of fact, PepsiCo switches to non-cola products such as bottle-water, ready-to-drink tea and sports drinks. In turn, bottled water gained the market share up to 12. 8 % in unit sales.
B. Task Environment: 1. New Entrants: It is important when PepsiCo can identify what costs potential entrants to enter the soft drink industry. The production technologies required for manufacturing soft drinks is widely available for the potential entrants. However, competing on a national or global scale requires the ability to manufacture and distribute a well-recognized brand.
Therefore, not only PepsiCo is the one who have to spend a tremendous fund on advertising campaigns, other companies such as Coca-Cola and Cadbury Schweppes have to go on the same path. According to the Beverage Industry, PepsiCo had a great number of commercials during the super-bowl. Coca-Cola Co. , PepsiCo, and Cadbury Schweppes spent a total of $ 469. 1 million on media advertising in the U. S. market between January and September 1996. Will new entrants be able to spend a tremendous amount to advertise themselves, or in other words, to create their big names in order to deprive the market shares from PepsiCo or Coca-Cola.
Another aspect is the distribution challenging in some Asian countries such as China, Indonesia and India, where poor road conditions and other infrastructure problems may prevent the effective delivery by trucks. The question is whether PepsiCo can have a competitive advantage to overcome these difficulties, then it will be difficult for the new companies who want to distribute their products. 2. Existing Companies: The U. S. and global soft drink industries are quite concentrated. Long dominated by two companies, Coca-Cola Co.
and PepsiCo, the industry saw the emergence of a third significant player when Cadbury Schweppes acquired the Dr. Pepper and 7 UP brands in 1995. Table below shows that the top three firms accounted for 90 % of the U. S. soft drink market in 1998 vs. 2000. The top one is still Coca-Cola with market share of 44 % in 2000, next would be PepsiCo with 30. 9 % share.
Dr. Pepper & 7 UP goes down slightly in 2000 at 14. 4 %. There are some changes on market shares to other companies but the changes are not significant. U.
S Soft Drink Market Share in 1998 vs 2000 Gallons Market Volume Company Rank Millions (1998) Millions (2000) 1998 Share 2000 Share Coca-Cola Co. 1 6, 223. 90 4, 491. 5 43. 80 % 44. 0 % PepsiCo Inc. 2 4, 370. 20 3, 157. 4 30. 80 % 30. 9 % Dr. Pepper& 7 UP 3 2, 060. 40 1, 473. 1 14. 50 % 14. 4 % Cott 4 357 300 2. 50 % 2. 9 % National Beverage 5 270 214. 0 1. 90 % 2. 1 % Royal Crown 6 254. 6 106. 3 1. 80 % 1. 0 % Monarch 7 138. 5 11. 8 1. 00 % 0. 1 % Big Red 9 32 26. 7 0. 20 % 0. 3 % As discussed in Social-cultural Factor part, consumers tastes change over the time. Instead of drinking cola products, consumers switch to water or fruit juices. Competitors may take this advantage to market their products. One example is the agreement between Ocean Spray Cranberries Inc.
and Beijing Huiyuan Beverage Group, which is the largest juice company in China. Ocean Spray grants a ten-year license to Huiyuan manufacture, market and distribute its products. 3. Trends: The market for soft drink is expected to grow at a slower rate in the next four years, according to a series of new global soft drink reports published by Beverage Marketing Corporation. The industry had a five-year compound annu...
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