As one of the largest beverages and snack companies in the world, and with more than 22 brands worth more than $2 billion, PepsiCo competes in diverse markets and industries around the world. Since its emergence in 1965, PepsiCo has reached tremendous levels of success by focusing on product innovation, international presence, the acquisition of strategic firms, and building strong partnerships with its distribution channels.
PepsiCo’s mission is to “be the global leader in convenient foods and beverages by winning with purpose.” A great portion of PepsiCo’s brands are either the global market leader or the runner-up in terms of market share and revenues. PepsiCo seeks to provide the best quality in each of its offerings while consistently increasing its attention towards the healthiness of its products. A few of PepsiCo’s product portfolio include Frito-Lay, Quaker, Pepsi soft-drinks, Tropicana, Gatorade, and Aquafina. Throughout its marketing and operations strategies, PepsiCo thinks and acts globally.
PepsiCo is able to provide innovative, high-quality, and performing products at a level that exceeds that of customers’ price expectations. Through PepsiCo’s core competencies and differentiating attributes – such as its Performance with Purpose program and its innovative approaches to offer healthier products – its unmatched efficiency when dealing with distribution channels, and its superior value chain configuration, PepsiCo is able to entice and capture markets all around the globe.
Challenges the Company Has Been Facing Recently:
Yet, despite PepsiCo’s efforts to adapt to consumer trends by focusing on improving its product portfolio through healthier and less caloric offerings, the company has been undergoing a series of challenges that has threatened its market leadership position.
PepsiCo seems to be struggling to effectively deal with the current shifts in consumer trends. For instance, the fact that consumption of carbonated soft drinks has been in slow, but steady decline in recent years has been troubling PepsiCo’s management. Lower consumption of carbonated soft-drinks poses a serious threat to the company, as PepsiCo’s carbonated soft drinks’ low profit-margins rely on huge sales-volume to maximize the PepsiCo’s overall profitability.
Revenues for PepsiCo has also been growing very slowly. Aside from its Frito-Lay North America business division, PepsiCo has been struggling to boost its revenue streams. The firm is increasingly reliant on its Frito-Lay North America division, a clear sign that its corporate strategies are failing to add value to the firm. Since 2013, the company’s revenues have stagnant and the results are visible on PepsiCo’s lagging stock price.
PepsiCo’s inability to boost its revenue streams and overall profitability perhaps signal that PepsiCo is failing to adapt to shifting consumer trends. Such facts should be a clear warning sign for PepsiCo’s leadership.
Yet, PepsiCo’s struggles also signals a sign for opportunity. Perhaps the rough patch the company is undergoing reveals to PepsiCo that it’s time to forge a new path and embrace some changes. Perhaps it signals that PepsiCo should abandon some of its struggling brands and capture new, trendy, and more appealing brands.
The following restructuring plan will detail which four brands PepsiCo should divest from due to both poor performance and mediocre future market potential. At the same time, the restructuring strategy will detail which four brands should PepsiCo acquire in order to capture attractive strategic fits to boost PepsiCo’s economies of scale, enhance productivity by maximizing efficiency within its operations, and boost its revenue growth.
Four Brands PepsiCo Should Divest From:
1. MUG ROOT BEER
Through MUG Root Beer, PepsiCo seeks to entice customers with the rich foam and sweetness of its ice-cold refreshment. However, as market research by Mintel suggests, root beer consumption is in heavy decline. Since 2015, the consumption of this beverage has been decreasing – suggesting that consumer trends and preferences are shifting towards other beverage options. Moreover, MUG Root Beer does not quite fit with PepsiCo’s focus of innovating its product line to offer customers healthier and more attractive offerings that better appeals towards consumers’ health and well-being.
As a result, PepsiCo should divest from its MUG Root Beer brand and focus its effort on brands with greater market potential.
2. CAP’N CRUNCH CEREAL
The cereal market, as we know, is a cutthroat market where competitors fiercely compete for razor thin margins. Companies’ competing in the industry have to heavily focus on its pricing strategies to entice customers. As a result, companies’ profitability margins are minimal.
Moreover, Cap’N Crunch faces stiff competition and is failing to stand out. General Mills and Kellogg’s are currently dominating the market with much more popular brands such as Cheerios, Corn Flakes, and Froot Loops. Cap’N Crunch’s poor market share and weak positioning makes it an unattractive brand for PepsiCo’s overall business performance.
Moreover, according to Mintel reports, the cereal industry in the US is currently in decline, as customers are opting for healthier choices such as Greek yogurt and healthier snack options for breakfast. While at one-point cereals where a standard in America’s breakfast table, it’s starting to lose its popularity – suggesting that the cereal industry has little potential for future growth.
3. RICE-A-RONI & PASTA RONI
Through Rice-A-Roni and Pasta Roni, PepsiCo offers a fast and simple-to-make side dish customers can easily prepare. This brand is a popular treat from San Francisco, California. However, the brand is failing to stand out to competitors and its consumption has been, for the past few years, in slow but steady decline.
At the same time, the brand sells on the basis that its offering is easy-to-make and prepare. However, all pasta and rice products sold today are easy-to-make and prepare. Therefore, the apparent competitive advantage disappears. Moreover, the brand does not necessarily fit PepsiCo’s corporate strategy of focusing on product innovation to keep delighting customers with healthier offerings that align with the current consumption trends.
4. SIERRA MIST
Sierra Mist, PepsiCo’s lemon lime flavored refreshment has, as AdAge’s picture below illustrates, gone through consistent re-branding and packaging strategies in less than a decade. Such fact suggests that PepsiCo has been struggling to capture customers’ attention and build brand awareness with Sierra Mist.
Furthermore, PepsiCo faces stiff competition from Sprite – a brand whose popularity and branding strongly appeals to customers. Sprite, owned by The Coca-Cola Company, is currently the market leader in the lime-flavored soft-drink segment. 7up, owned by Dr. Pepper, dominates the second largest portion of the market, leaving Sierra Mist with a poor and unattractive portion of the market.
At the same time, Sierra Mist’s sales volume, according to AdAge, has been decreasing since 2014. Sprite and 7up, on the other hand, have been slightly increasing its revenues. Consequently, PepsiCo should, rather than continue investing in rebranding Sierra Mist to boost its sales and market position, which will further confuse customers, focus its efforts on more attractive and trending products.
Four Brands PepsiCo Should Acquire to Capture Strategic Fits:
PepsiCo should purchase the following brands for either the same or very similar reasons detailed below:
- Quest Nutrition
- IQ BAR
- CLIF Bar & Company
As the pie chart below illustrates, when it comes to snack, nutrition, and performance bars, PepsiCo currently holds the 5th place in the market share pie – led by General Mills, Kellogg, CLIF Bar, and Kind, in that specific order .
However, market research reports by Mintel suggests that consumption of snack, nutrition, and performance bars are increasing in the US – making this industry an attractive and compelling market for PepsiCo to enter through strategic acquisitions.
Furthermore, Mintel’s market research, however, also illustrates the trend each brand is undergoing – whether their sales are increasing or decreasing. Currently, PepsiCo’s sales of snack bars have been decreasing, which is a negative sign for PepsiCo’s management, as it suggests that its snack bars (Quaker Chewy and others) are performing poorly related to its competitors.
However, the graph also illustrates that sales of CLIF, Kind, and Quest Bars are increasing. Such trend signals that they enjoy strong market acceptance, attractive market positioning and brand awareness, and that they hold true future market potential.
Given that Cliff Bar, Kind Bars, and Quest Bars have disrupted the snack, nutrition, and performance bars industry through innovative, healthy, and delicious offerings, their brands will align with PepsiCo’s “good for you and better for you” program. At the same time, the fact that Kind, Cliff Bar, and Quest also have a strong social mission, increases the brand’s attractiveness to PepsiCo – as their social mission will align with PepsiCo’s “Performance with Purpose” program, the company’s CSR campaign to reduce the ecological, social and environmental footprint of its operations while boosting the diversity and inclusiveness of its workplace.
The above analysis illustrates three key takeaways that PepsiCo’s management should emphasize. One, that PepsiCo is losing market share, positioning, and attractiveness in the snack, nutrition, and performance bars industry. Second, that the industry is growing and that the future looks bright for the segment, as customers find these products highly appealing. And lastly, that while PepsiCo’s current snack brands are lagging performance, attractive market options such as CLIF, Kind, and Quest are increasing its sales and market positioning.
IQ Bar, on the other hand, is among the snack, nutrition, and performance bars that is slowly but steadily growing in sales and market share. The fact that IQ Bars offer clean-label ingredients, attractive both protein and fiber servings while limited carbs makes its brand highly attractive to the growing number of conscious buyers. By promoting consumer’s health and wellbeing, IQ Bar aligns with PepsiCo’s focus on product innovation to entice customers with healthier offerings.
All these data-based insights signal that PepsiCo should go after these brands in order to capitalize upon the strategic fits that these brands provide.
Company struggles arise to signal leaders that the time to embrace change has come. As a result, business leaders have the opportunity to create opportunity out of struggles by trailing a new path.
John C. Maxwell said it in his time: “Change is inevitable, growth is optional.”
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Team, Trefis. “Why Frito-Lay North America Is PepsiCo’s Most Valuable Segment.” Forbes, Forbes Magazine, 23 Mar. 2018, www.forbes.com/sites/greatspeculations/2018/03/23/why-frito-lay-north-america-is-pepsicos-most-valuable-segment/#7e70b6001d6f.
Sozzi, Brian. “Brands That PepsiCo and General Mills Should Get Rid Of.” TheStreet, 10 July 2015, www.thestreet.com/investing/brands-that-pepsico-and-general-mills-should-get-rid-of-13214409.
“Product Information.” PepsiCo, Inc. Official Website, www.pepsico.com/brands/product-information.
Schultz, E.J. “Sierra Mist Is Changing Its Name and Look — Again.” Ad Age, 18 Dec. 2015, adage.com/article/cmo-strategy/sierra-mist-changing/301864.
Maidenberg, Micah, and Jaewon Kang. “Cereal Makers Try Again to Jump-Start Stale Sales.” The Wall Street Journal, Dow Jones & Company, 20 Aug. 2019, www.wsj.com/articles/cereal-makers-try-again-to-jump-start-stale-sales-11566293404.
Various Mintel Reports