Pepsico Business Model and Growth Strategy

Carbonated soft drinks are on the decline. More than 60% of Americans today say that they are actively avoiding soda because they want to improve their health. This has forced the soft drink maker to look at other options within the food and beverage industry to keep profits sustainable. As the PespiCo business model has shifted away from sparkling beverages and into snack foods, their revenues have started to edge out the competition.

In 2013, PepsiCo’s food products accounted for 52% of their total revenue, which was $66.4 billion in total. What has this company learned that the competition has not learned? That customers who purchase snacks, especially salty ones, will also purchase a beverage at the same time. With brand loyalty in play, PepsiCo looks to double up on the chances of making a sale.

Knowing Your Market Segment Is Important

Here’s an interesting fact to consider: when households purchase Doritos tortilla chips, there is a 60% chance that they will also purchase Mountain Dew. PepsiCo also knows that when Fritos and PepsiCo sparkling beverages are sold together that the sales of both products increases. The only way they can find this information, however, is to research their customer segments and have demographic information at the ready.

PepsiCo also uses its size and brand reputation to its advantage. If it is trying to leverage category strength in a new market, then the products are more likely to make an impact in an emerging market because of the company’s history of sales in the past. This is something that every business can do, but only if time is taken to begin building up a solid reputation.

PepsiCo also has an advantage in the fact that they control their entire distribution network. From direct store delivery to warehousing and other forms of distribution, this company stays in control of their product from start to finish. This helps them product a more consistent product for their consumers because there isn’t any third-party control involved in the business.

Why Is Leverage So Important For PepsiCo?

The PepsiCo business model uses its size to create favorable supplier relationships. Because of their large scale of operations and history of strong sales, they are able to negotiate large amounts of shelf space in retail outlets. This allows PepsiCo to influence shopping habits, drive out the competition because of the space they can command, and still provide a good revenue stream for their retail outlets.

PepsiCo also takes this leverage into the area of licensing. This company has manufacturing and distribution rights from other competitive brands, including the making of Dr. Pepper, and even the manufacturing rights to certain juice products under popular brands like Ocean Spray. Because of their ability to distribute products to retail outlets more efficiently, they have a tremendous advantage on the competition and this helps them to be able to met the needs of each segment more efficiently.

PepsiCo Has Also Expanded Where It Makes Sense

In the beverage industry, soft drinks may be on the decline, but healthier options like tea, smoothies, or even bottled water have all seen increases of consumer interest. Instead of letting this opportunity pass them by, the PepsiCo business model has also included non-carbonated drinks that are directly branded as a way to earn revenue as well.

Take the Farmstand 100% juice products that are sold under the company’s Tropicana brand. This juice product has 1 serving of vegetables and 1 serving of fruit in every 8 ounces that is consume. New flavors of non-carbonated products are also entering the market that include Omega-3 oils, added soluble fiber, and even green vegetables.

The only way that these changes could be included in their business profile is through proactive research and marketing. PepsiCo classifies their products into three categories.

  • Good For You.
  • Fun For You.
  • Better For You.

This allows individual consumers to select the products that they want at any given time. Fun For You products would include soft drinks or Cheetos. Better For You products would be items that contained more whole grains, fewer calories, or baked instead of fried components. The Good For You categories is for food products that have fruits, vegetables, and strict limits on salt, sugar, and saturated fat – the three bad S’s.

By analyzing the PepsiCo business model in full, it is easy to see how this company is successful. They move proactively in their market, leverage their size, and keep their distribution channels in-house to make sure their products are consistent. This allows them to achieve the greatest level of profitability, which is a lesson that every business can adapt to their own profile.

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