Pepsico's 'Focus' Strategy

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Case Details:

Case Code : BSTR118
Case Length : 15 Pages
Period : 1996-2004
Organization : Pepsico
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Consumer Packaging

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Aftermath

Through the spin-off of the restaurant business and bottling operations, PepsiCo aimed to bring consistency in financial performance and improve market performance. In the fiscal 1998, Pepsi Cola's volume grew by 7% worldwide with a growth of 10% in North America.

This growth was attributed to the strong sales of Pepsi One, Mountain Dew, Brand Pepsi, Aquafina, and Lipton Brisk. The volume growth of Frito-Lay was 5%, in the same year. Although the restructuring resulted in lower sales for the first year it led to higher profits. The margins and return on investment were also high. After spinning-off the bottling business, PepsiCo's return on equity increased from 17% in the fiscal 1996 to 30% in the fiscal 1998. According to the executives of the company, the company had strengthened its financials and wanted to concentrate on innovations and productivity improvements. PepsiCo seemed to have strengthened its position in the 'cola wars,' in the late 1990s. In 1998, the company witnessed soft-drink volume gains of 6%, which was the biggest gain since the fiscal 1994...

Pepsico - Gaining Ground

Even though PepsiCo had spun off its unrelated businesses, a few analysts argued that PepsiCo needed to further strengthen its competitive position in the beverages business, which made up about one-third of the company's total revenues in the fiscal year 1998-1999.

In its efforts to enhance the revenues from its beverages business, PepsiCo acquired a majority equity stake in SBBC in October 2000. SBBC had emerged as one of the successful companies in the non-carbonated beverages industry after the launch of its brand SoBe. SBBC offered a variety of drinks with herbal ingredients and SoBe was one of the fastest growing brands in the non-carbonated beverages market. PepsiCo, in December 2000, acquired Quaker Oats, a leading food and drinks company, in a deal worth $13.4 bn. In an all-stock deal, one share of Quaker was swapped for 2.3 shares of PepsiCo, up to a value of $105 for each Quaker share. According to analysts, this acquisition was expected to increase PepsiCo's beverages revenues significantly...


Exhibit I: Pepsico's Consolidated Statements of Income (1996-99)
Exhibit II: Pepsico's Business Segments Performance
Exhibit III: Pepsico's Restaurants Business Spin-Off
Exhibit IV: Pepsico's Acquisition of Quaker - Key Benefits
Exhibit V: Pepsico's Consolidated Statements of Income
Exhibit VI: Pepsico's Business Segments Performance
Exhibit VII: Pepsico's Stock Price Chart (May 1994 - April 2004)


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