PEPSI’S NEW STRATEGIC FORMULA.. The high stakes rivalry between Pepsi-Cola and Coca-Cola is being played out in supermarkets, restaurants, and convenience stores all over the world. Pepsi-Cola has worked for years, with limited success, to catch up to market-leader Coca-Cola, trying strategy after strategy to regain ground in the United States and abroad. In 1965, Pepsi sought growth through diversification by acquiring Frito-Lay, which makes popular snacks such as Lay’s Potato Chips and Doritos. This diversification proved so lucrative that the company, renamed Pepsico, decided to diversify into fast-food restaurants- thought to be good outlets for soft drinks and snacks- through the purchase of Pizza Hut, Taco Bell and Kentucky Fried Chicken. By the mid – 1990s, however, snack sales were increasing but growth in soft drinks. So in 1997, PepsiCo changed its strategy, spinning off the restaurants as a separate business to concentrate on exploring the synergy between itssnacks and its soft drinks. By now,snacks had become PepsiCo’s main source of profits - a complete reversal from soft drinks had dwarfed profits from snacks. Next, PepsiCo introduced its “Power of One” strategy to boost both beverage and snacks sales in U.S supermarkets. Visiting with the CEOs of the twenty-five top chains, PepsiCo’s CEO compared the stores’ 9 percent profit margins on PepsiCo products with the typical 2 percent margins earned on other items. He stressed that the stores could increase sales and profits by giving PepsiCo Products more shelf space and displaying PepsiCo drinks with Frito-Lay’s snacks. “Power of One” paid off, giving Frito-Lay’s and PepsiCola more domestic market share. It also gave PepsiCo drinks a huge sales boost in smaller grocery stores throughout Mexico. There, Frito-Lay’s Sabritas brand is the runaway market leader, thanks to a low-cost strategy that keeps retail prices as low as sixteen cents per snack. PepsiCo continued to diversify by buying Tropicana, the leading orange juice brand, and Cracker Jack, a perennial favorite that had lost profitability. By adding more peanuts and offering a four-ounce bag in addition to small single-serving and large family-size packages, PepsiCo returned Cracker Jack to profitability within a year. In addition, through aggressive marketing, the company made best-sellers of its bottled waters and bottled teas. Now PepsiCo’s Lipton Iced Tea holds a commanding lead over Coca-Cola’s Nestea bottled teas. Pepsi-Cola’s sales still lag Coca-Cola’s sales in the United States, but PepsiCo’s Mountain Dew recently pulled ahead of Diet Coke to become the country’s third-largest-selling soda. Outside the United States, PepsiCo’s new soft-drink strategy is to focus on building sales and share in developing countries such as India, where Coca-Cola is not yet the undisputed market leader. This strategy reverses PepsiCo’s previous strategy of doggedly battling Coca-Cola in every market. Populas Asian nations such as China and Japan are particular targets for PepsiCo’s snack business. Although Frito-Lay holds just a tiny share of the snack market in those countries today, PepsiCo’s CEO sees them as the cornstone of future growth. Case Questions: (Figure is mandatory if it is related with the concept) Where in the Miles and Snow typology does the “Power of One” strategy fit and how?
PEPSI’S NEW STRATEGIC FORMULA..
The high stakes rivalry between Pepsi-Cola and Coca-Cola is being played out in supermarkets, restaurants, and convenience stores all over the world. Pepsi-Cola has worked for years, with limited success, to catch up to market-leader Coca-Cola, trying strategy after strategy to regain ground in the United States and abroad. In 1965, Pepsi sought growth through diversification by acquiring Frito-Lay, which makes popular snacks such as Lay’s Potato Chips and Doritos. This diversification proved so lucrative that the company, renamed Pepsico, decided to diversify into fast-food restaurants- thought to be good outlets for soft drinks and snacks- through the purchase of Pizza Hut, Taco Bell and Kentucky Fried Chicken.
By the mid – 1990s, however, snack sales were increasing but growth in soft drinks. So in 1997, PepsiCo changed its strategy, spinning off the restaurants as a separate business to concentrate on exploring the synergy between itssnacks and its soft drinks. By now,snacks had become PepsiCo’s main source of profits - a complete reversal from soft drinks had dwarfed profits from snacks.
Next, PepsiCo introduced its “Power of One” strategy to boost both beverage and snacks sales in U.S supermarkets. Visiting with the CEOs of the twenty-five top chains, PepsiCo’s CEO compared the stores’ 9 percent profit margins on PepsiCo products with the typical 2 percent margins earned on other items. He stressed that the stores could increase sales and profits by giving PepsiCo Products more shelf space and displaying PepsiCo drinks with Frito-Lay’s snacks. “Power of One” paid off, giving Frito-Lay’s and PepsiCola more domestic market share. It also gave PepsiCo drinks a huge sales boost in smaller grocery stores throughout Mexico. There, Frito-Lay’s Sabritas brand is the runaway market leader, thanks to a low-cost strategy that keeps retail prices as low as sixteen cents per snack.
PepsiCo continued to diversify by buying Tropicana, the leading orange juice brand, and Cracker Jack, a perennial favorite that had lost profitability. By adding more peanuts and offering a four-ounce bag in addition to small single-serving and large family-size packages, PepsiCo returned Cracker Jack to profitability within a year. In addition, through aggressive marketing, the company made best-sellers of its bottled waters and bottled teas. Now PepsiCo’s Lipton Iced Tea holds a commanding lead over Coca-Cola’s Nestea bottled teas. Pepsi-Cola’s sales still lag Coca-Cola’s sales in the United States, but PepsiCo’s Mountain Dew recently pulled ahead of Diet Coke to become the country’s third-largest-selling soda.
Outside the United States, PepsiCo’s new soft-drink strategy is to focus on building sales and share in developing countries such as India, where Coca-Cola is not yet the undisputed market leader. This strategy reverses PepsiCo’s previous strategy of doggedly battling Coca-Cola in every market. Populas Asian nations such as China and Japan are particular targets for PepsiCo’s snack business. Although Frito-Lay holds just a tiny share of the snack market in those countries today, PepsiCo’s CEO sees them as the cornstone of future growth.
Case Questions: (Figure is mandatory if it is related with the concept)
- Where in the Miles and Snow typology does the “Power of One” strategy fit and how?
- Which of Porter’s generic strategies is Frito-Lay’s Sabritas brand pushing in Mexico? Which is PepsiCo pursuing with the soft-drinks strategy?
- Consider the product life cycle concept and specify each step take by PepsiCo according for each stage of PLC.
- Is PepsiCo doing any diversification? How?
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