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I attached the assignment here smgnt_new_eos_assessment_jun_2020_end.docx__1_.docx Unformatted Attachment Preview Submission Deadline Marks and Feedback Before 6pm on: 15 working days after deadline (L3, L4, L5 and L6) xx working days after deadline (Foundation Programme) 03/06/2020 Click or tap to enter a date. Module title & code Strategic Management & BC31-3 Assignment number and title 2A (WR-I) Assessment type Individual Report Weighting of assessment 40\% Module learning outcomes 1. Discuss the relevant theories, concepts and frameworks underpinning strategic management. 2. Use relevant theories, concepts and frameworks to evaluate strategic issues facing organizations and work collaboratively to formulate appropriate corporate level strategies within the context of a scenario/ case study. What am I required to do in this assignment? You are required to read the case “PepsiCo’s Strategy” and write a report addressing the following tasks: • Critically analyze the directions of strategic development followed by PepsiCo over different periods. • Assess the reasons for PepsiCo’s decision to use acquisition strategies as a means to achieve strategic competitiveness. • Using the suitability, acceptability and feasibility criteria, undertake an evaluation of the strategic options of PepsiCo. PepsiCo’s Strategy PepsiCo was the world’s largest snack and Beverage Company, in 2014, with net revenues of approximately $66.7 billion. The company’s portfolio of businesses in 2015 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft-drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe, Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complementary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, and Doritos and a Mountain Dew might be part of someone’s lunch. In 2015, PepsiCo’s business lineup included 22 $1 billion global brands. The company’s top managers were focused on sustaining the impressive performance through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. Newly introduced products such as Mountain Dew KickStart, Tostitos Cantina tortilla chips, Quaker Real Medleys, Starbucks Refreshers, and Gatorade Energy Chews accounted for 15 to 20 percent of all new growth in recent years. New product innovations that addressed consumer health and wellness concerns were important contributors to the company’s growth, with PepsiCo’s better-for-you and good-for-you products becoming focal points in the company’s new product development initiatives. |In 2014, PepsiCo’s nutrition business accounted for about 20 percent of the company’s net revenue. In addition to focusing on strategies designed to deliver revenue and earnings growth, the company maintained an aggressive dividend policy, with more than $53 billion returned to shareholders between 2003 and 2012. The company bolstered its cash returns through carefully considered capital expenditures and acquisitions and a focus on operational excellence. Its Performance with Purpose plan utilized investments in manufacturing automation, a rationalized global manufacturing plan, reengineered distribution systems, and simplified organization structures to drive efficiency. In addition, the company’s Performance with Purpose plan was focused on minimizing the company’s impact on the environment by lowering energy and water consumption and reducing its use of packaging material, providing a safe and inclusive workplace for employees, and supporting and investing in the local communities in which it operated. PepsiCo had been listed on the Dow Jones Sustainability World Index for seven consecutive years and listed on the North America Index for eight consecutive years as of 2014. Even though the company had recorded a number of impressive achievements over the past decade, its growth had slowed since 2011. In fact, the spikes in the company’s revenue growth since 2000 had resulted from major acquisitions such as the $13.6 billion acquisition of Quaker Oats in 2001, the 2010 acquisition of the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion, and the acquisition of Russia’s leading food and beverage company, Wimm-Bill-Dann (WBD) Foods, for $3.8 billion in 2011. Company History PepsiCo, Inc., was established in 1965 when Pepsi-Cola and Frito-Lay shareholders agreed to a merger between the salty-snack icon and soft-drink giant. The new company was founded with annual revenues of $510 million and such well-known brands as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Cheetos, Ruffles, and Rold Gold. PepsiCo’s roots can be traced to 1898 when New Bern, North Carolina, pharmacist Caleb Bradham created the formula for a carbonated beverage he named Pepsi-Cola. The company’s salty-snack business began in 1932 when Elmer Doolin, of San Antonio, Texas, began manufacturing and marketing Fritos corn chips and Herman Lay started a potato chip 2 distribution business in Nashville, Tennessee. In 1961, Doolin and Lay agreed to a merger between their businesses to establish the Frito-Lay Company. During PepsiCo’s first five years as a snack and beverage company, it introduced new products such as Doritos and Funyuns, entered markets in Japan and eastern Europe, and opened, on average, one new snack-food plant per year. By 1971, PepsiCo had more than doubled its revenues to reach $1 billion. The company began to pursue growth through acquisitions outside snacks and beverages as early as 1968, but its 1977 acquisition of Pizza Hut significantly shaped the strategic direction of PepsiCo for the next 20 years. The acquisitions of Taco Bell in 1978 and Kentucky Fried Chicken in 1986 created a business portfolio described by Wayne Calloway (PepsiCo’s CEO between 1986 and 1996) as a balanced three-legged chair. Calloway believed the combination of snack foods, soft drinks, and fast food offered considerable cost sharing and skill transfer opportunities, and he routinely shifted managers among the company’s three divisions as part of the company’s management development efforts. PepsiCo strengthened its portfolio of snack foods and beverages during the 1980s and 1990s with the acquisitions of Mug Root Beer, 7-Up International, Smart food ready-to-eat popcorn, Walker’s Crisps (United Kingdom), Smith’s Crisps (United Kingdom), Mexican cookie company Gamesa, and Sun chips. Calloway added quick-service restaurants Hot-n-Now in 1990; California Pizza Kitchens in 1992; and East Side Mario’s, D’Angelo Sandwich Shops, and Chevy’s Mexican Restaurants in 1993. The company expanded beyond carbonated beverages through a 1992 agreement with Ocean Spray to distribute single-serving juices, the introduction of Lipton ready-todrink (RTD) teas in 1993, and the introduction of Aquafina bottled water and Frappuccino ready-to-drink coffees in 1994. By 1996 it had become clear to PepsiCo management that the potential strategic-fit benefits existing between restaurants and PepsiCo’s core beverage and snack businesses were difficult to capture. In addition, any synergistic benefits achieved were more than offset by the fast-food industry’s fierce price competition and low profit margins. In 1997, CEO Roger Enrico spun off the company’s restaurants as an independent, publicly traded company to focus PepsiCo on food and beverages. Soon after the spinoff of PepsiCo’s fast-food restaurants was completed, Enrico acquired Cracker Jack, Tropicana, Smith’s Snack food Company in Australia, SoBe teas and alternative beverages, Tasali Snack Foods (the leader in the Saudi Arabian salty-snack market), and the Quaker Oats Company. The 2001 Acquisition of Quaker Oats At $13.9 billion, Quaker Oats was PepsiCo’s largest acquisition and gave it the number-one brand of oatmeal in the United States, with more than a 60 percent category share; the leading brand of rice cakes and granola snack bars; and other well-known grocery brands such as Cap’n Crunch, Rice-A-Roni, and Aunt Jemima. However, Quaker’s most valuable asset in its arsenal of brands was Gatorade. Gatorade was developed by University of Florida researchers in 1965, but it was not marketed commercially until the formula was sold to Stokely-Van Camp in 1967. When Quaker Oats acquired the brand from Stokely-Van Camp in 1983, Gatorade gradually made a transformation from a regionally distributed product with annual sales of $90 million to a $2 billion powerhouse. Gatorade was able to increase sales by more than 10 percent annually during the 1990s, with no new entrant to the sports beverage category posing a serious threat to the brand’s dominance. PepsiCo, Coca-Cola, France’s Danone Group, and Swiss food giant Nestlé all were attracted to Gatorade because of its commanding market share and because of the expected growth in the isotonic sports beverage category. PepsiCo became the successful bidder for Quaker Oats and Gatorade with an agreement struck in December 2000, but the merger would not receive U.S. Federal Trade Commission (FTC) approval until August 2001. The FTC’s primary concern over the merger was that Gatorade’s inclusion in PepsiCo’s portfolio of snacks and beverages might give the company too much leverage in negotiations with convenience stores and ultimately force smaller snack-food and beverage companies out of convenience store channels. In its approval of the merger, the FTC stipulated that Gatorade and PepsiCo’s soft drinks could not be jointly distributed for 10 years. Acquisitions after 2001 After the completion of the Quaker Oats acquisition in 2001, the company focused on integration of Quaker Oats’ food, snack, and beverage brands into the PepsiCo portfolio. The company made a number of “tuck-in” acquisitions of 3 small, fast-growing food and beverage companies in the United States and internationally to broaden its portfolio of brands. Tuck-in acquisitions in 2006 included Stacy’s bagel and pita chips, Izze carbonated beverages, Netherlands based Duyvis nuts, and Star Foods (Poland). Acquisitions made during 2007 included Naked Juice fruit beverages, Sandora juices in the Ukraine, New Zealand’s Bluebird snacks, Penelopa nuts and seeds in Bulgaria, and Brazilian snack producer Lucky. The company also entered into a joint venture with the Strauss Group in 2007 to market Sabra - the top-selling and fastest-growing brand of hummus in the United States and Canada. The company acquired the Russian beverage producer Lebedyansky in 2008 for $1.8 billion, and in 2010 it acquired Marbo, a potato chip production operation in Serbia. In 2010 and 2011, the company executed its largest acquisitions since the 2001 acquisition of Quaker Oats. In 2010, PepsiCo acquired the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion in cash and PepsiCo common shares. The acquisition was designed to better integrate its global distribution system for its beverage business. In 2011, it acquired Russia’s leading food and beverage company, Wimm-Bill-Dann Foods, for $3.8 billion. The combination of acquisitions and the strength of PepsiCo’s core snacks and beverages business allowed the company’s revenues to increase from approximately $29 billion in 2004 to more than $66 billion in 2013. Building Shareholder Value in 2014 Three people had held the position of CEO since the company began its portfolio restructuring in 1997. Even though Roger Enrico was the chief architect of the business lineup as it stood in 2007, his successor, Steve Reinemund, and Indra Nooyi, the company’s CEO in 2007, were both critically involved in the restructuring. Nooyi joined PepsiCo in 1994 and developed a reputation as a tough negotiator who engineered the 1997 spin-off of Pepsi’s restaurants, spearheaded the 1998 acquisition of Tropicana, and played a critical role in the 1999 IPO of Pepsi’s bottling operations. After being promoted to chief financial officer, Nooyi was also highly involved in the 2001 acquisition of Quaker Oats. Nooyi was selected as the company’s CEO upon Reinemund’s retirement in October 2006. Nooyi had immigrated to the United States in 1978 to attend Yale’s Graduate School of Business, and she worked with the Boston Consulting Group, Motorola, and Asea Brown Boveri before arriving at PepsiCo in 1994. In the eight years under Nooyi’s leadership, PepsiCo’s revenues had increased by nearly 90 percent, and its share price had grown by 50 percent. In 2014, PepsiCo’s corporate strategy had diversified the company into salty and sweet snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and coffees, purified and functional waters, isotonic beverages, hot and readyto-eat breakfast cereals, grain-based products, and breakfast condiments. Most PepsiCo brands had achieved number one or number two positions in their respective food and beverage categories through strategies keyed to product innovation, close relationships with distribution allies, international expansion, and strategic acquisitions. The company was committed to producing the highest-quality products in each category and was working diligently on product reformulations to make snack foods and beverages less unhealthy. The company believed that its efforts to develop good-for-you and better-for-you products would create growth opportunities from the intersection of business and public interests. PepsiCo was organized into six business divisions, which all followed the corporation’s general strategic approach. Frito-Lay North America manufactured, marketed, and distributed such snack foods as Lay’s potato chips, Doritos tortilla chips, Cheetos cheese snacks, Fritos corn chips, Grandma’s cookies, and Smartfood popcorn. Quaker Foods North America manufactured and marketed cereals, rice and pasta dishes, granola bars, and other food items that were sold in supermarkets. Latin American Foods manufactured, marketed, and distributed snack foods and many Quaker-branded cereals and snacks in Latin America. PepsiCo Americas Beverages manufactured, marketed, and sold beverage concentrates, fountain syrups, and finished goods under such brands as Pepsi, Gatorade, 4 Aquafina, Tropicana, Lipton, Dole, and SoBe throughout North and South America. PepsiCo Europe manufactured, marketed, and sold snacks and beverages throughout Europe, while the company’s Asia, Middle East, and Africa division produced, marketed, and distributed snack brands and beverages in more than 150 countries in those regions. Frito-Lay North America As of 2015, three key trends that were shaping the industry were convenience, a growing awareness of the nutritional content of snack foods, and indulgent snacking. A product manager for a regional snack producer explained, “Many consumers want to reward themselves with great-tasting, gourmet flavors and styles. . . . The indulgent theme carries into seasonings as well. Overall, upscale, restaurant influenced flavor trends are emerging to fill consumers’ desires to escape from the norm and taste snacks from a wider, often global, palate.” 1 Most manufacturers had developed new flavors of salty snacks such as jalapeno and cheddar tortilla chips and pepper jack potato chips to attract the interest of indulgent snackers. Manufacturers had also begun using healthier oils when processing chips and had expanded lines of baked and natural salty snacks to satisfy the demands of health-conscious consumers. Snacks packaged in smaller bags not only addressed overeating concerns but also were convenient to take along on an outing. In 2013 Frito-Lay owned the top-selling chip brand in each U.S. salty-snack category and held more than a 2-to-1 lead over the nextlargest snack-food maker in the United States. Frito-Lay’s 36.6 percent market share of convenience foods sold in the United States was more than five times greater than runner-up Kellogg’s market share of 6.9 percent. Convenience foods included both salty and sweet snacks, such as chips, pretzels, ready-to-eat popcorn, crackers, dips, snack nuts and seeds, candy bars, and cookies. PepsiCo’s Performance with Purpose goals applied to all of its business units. Frito-Lay North America’s (FLNA’s) revenues increased by 3 percent during 2013, but its net revenue increased by 4 percent and its operating profit increased by 6 percent. The division’s management believed that growth in snack foods remained possible since typical individuals, on average, consumed snacks 67 times per month. On average, consumers chose Frito-Lay snacks only eight times per month. To increase its share of snack consumption, FLNA was focused on developing additional better-for-you (BFY) snacks like Baked Cheetos and Doritos packaged in smaller portion sizes. Between 2008 and 2013, improving the performance of the division’s core salty brands and further developing health and wellness products were key strategic initiatives. The company had eliminated trans fats from all Lay’s, Fritos, Ruffles, Cheetos, Tostitos, and Doritos varieties, marketed a wide variety of gluten-free products, and was looking for further innovations to make its salty snacks more healthy. The company had introduced Lay’s Classic Potato Chips cooked in sunflower oil that retained Lay’s traditional flavor but contained 50\% less saturated fat. Goodfor-you (GFY) snacks, such as Flat Earth fruit and vegetable snacks, offered an opportunity for the company to exploit consumers’ desires for healthier snacks and address a deficiency in most diets. Americans, on average, consumed only about 50 percent of the U.S. Department of Agriculture’s recommended daily diet of fruits and vegetables. Other GFY snacks included Stacy’s Pita Chips, Sabra hummus, salsas and dips, and Quaker Chewy granola bars. In 2013, FLNA manufactured and marketed baked versions of its most popular products, such as Cheetos, Lay’s potato chips, Ruffles potato chips, and Tostitos Scoops! tortilla chips. Quaker Foods North America Quaker Foods produced, marketed, and distributed hot and ready-to-eat cereals, pancake mixes and syrups, and rice and pasta side dishes in the United States and Canada. The division recorded sales of approximately $2.6 billion in 2013. The sales volume of Quaker Foods products decreased by nearly 1 percent annually between 2011 and 2013 with Quaker Oatmeal, Life cereal, and Cap’n Crunch cereal volumes competing in mature industries with weak competitive positions relative to Kellogg’s and General Mills. Sales of Aunt Jemima syrup and pancake mix and RiceA-Roni rice and pasta kits also declined between 2011 and 2013. Quaker Oats was the star product of the division, with a commanding share of the North American market for oatmeal in 2013. Rice-A-Roni also held a number-one market share in the rice and pasta side-dish segment of the consumer food industry. More than one-half of Quaker Foods’ 2013 revenues was generated by BFY and GFY products. 5 Latin American Foods PepsiCo management believed international markets offered the company’s greatest opportunity for growth since per capita consumption of snacks in the United States averaged 6.6 servings per month while per capita consumption in other developed countries averaged 4 servings per month and in developing countries averaged 0.4 serving per month. PepsiCo executives expected China and Brazil to become the two largest international markets for snacks. The United Kingdom was estimated to be the third-largest international market for snacks, while developing markets Mexico and Russia were expected to be the fourth- and fifth-largest international markets, respectively. Developing an understanding of consumer ... Purchase answer to see full attachment