essay about pepsi company

Pepsi Company Advantages and Disadvantages Essay

Introduction.

PepsiCo is a multinational company that makes food and beverages. It markets and distributes snack foods, among others. The company was formed in merger between Frito-Lay and Pepsi-Cola. Over the years, it has expanded its operation with acquisition of other brands such as Tropicana, Gatorade and Quaker Oats. In addition, it is considered to be among the best in production of snacks, beverages and foods.

It employs more than 285000 workers all over the world. Moreover, it has received various awards for participation in business development. It is also quite important to note that it generates over $60 billion annually. This paper will explore PepsiCo, its background, problems, advantages and disadvantages (PepsiCo Inc., 2011, p. 1).

This company began as Pepsi back in 1890s when its recipe was first made. This development was made by Caleb Bradham and New Bern. In 1898, it was named Pepsi-Cola and then registered in 1902. Later on, in 1919, it was incorporated in Delaware. Ownership of the business changed hands between 1920 and 1940.

Further expansions in 1960s led to the merger with Fritos in 1965. This changed its name to PepsiCo. The company has acquired several companies during this period. These include Yum, Tropicana and Gatorade, among others (PepsiCo Inc., 2011, p. 1).

PepsiCo employs the strategy of acquisition to its advantage. In addition, the company has expanded its lines of operations with involvement in food snacks, and beverages, foods, as well as soft drinks. This gives them the ability to serve a wider range of customers and hence improve profitability. This is quite evident in their recent revenues results, which surpassed that of Coca Cola. PepsiCo is now considered as one of the largest food industries in the globe (Heizer & Render, 2011, pp.).

The company has instituted several activities aimed at giving back to society. These are community development initiatives such as PepsiCo foundation, among others. The foundation funds several initiatives. These include disaster response, associate programs and grants.

Others include funding of education, provision of safe water and community empowerment. Further developments include environmental awareness. PepsiCo values environmental sustainability. In this regard, it has initiated projects, which include preservation of water resources, minimization of land pollution, and reduction of carbon footprint, as well as responsible usage of natural resources (Heizer & Render, 2011, pp.).

Disadvantages

The company receives criticism over its environmental conservation plan. This is mainly because of the plastic bottles used in packaging their products. Further improvement on this is required for justification of claims. Moreover, management strategies have raised concern over its reaction to criticism on health and environmental issues.

PepsiCo is a multinational company that deals in snack food manufacturing and beverages, among others. It also markets and distributes these products. The company began as Pepsi back in 1890s when its recipe was first made. The founders of this recipe were Caleb Bradham and New Bern.

Further expansions in 1960s led to merger with Fritos in 1965. The company has acquired several companies during this period. These include Yum, Tropicana and Gatorade, among others. In essence, PepsiCo employs acquisitions to its advantage. The company funds initiatives such as education provision of safe water, and empowerment of community. However, it also receives criticism over actions in environmental awareness (PepsiCo Inc., 2011, p. 1).

Reference List

Heizer, J. & Render, B. (2011). Operations management (10th ed.). Boston, MA: Prentice-Hall.

PepsiCo Inc. (2011). PepsiCo Foundation . pepsico. Web.

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Corporations

Pepsi Company Analysis

Updated 19 September 2023

Subject Corporations

Downloads 26

Category Business

Topic Company

Introduction

Recognized as one of the most significant foods and Beverage Company, PepsiCo has grown from a humble start to become a multinational company, operating in more than 200 nations all over the globe. PepsiCo Inc. is an American beverage corporation, food, and snack multinational. The company adopted its well-known name ‘PepsiCo’ in 1965 when Frito-Lay, Inc. merged with the then Pepsi-Cola Company. Despite increased globalization and competition from other beverage companies across the globe, PepsiCo has remained a key player in the beverage industry. This essay provides an introduction to the company (PepsiCo), its mission and vision statements, overall company strategy, significant competitors, target market, positioning and product mix.

PepsiCo was started in 1965, as a result of a merger between two well-known companies Pepsi-Cola and Frito-Lay. However, its establishment dates back to 1893 when Bradham Caleb invented the formula making his drinks. After the positive reception, Caleb advertised the drink naming it Pepsi-Cola, and the company Pepsi-Cola was established in 1902. The company grew further expanding its production to other regions. However, in 1923, the company collapsed and was reorganized into Pepsi-Cola Company in 1941. 1964, one of the company’s products in the name of diet coke was introduced (PepsiCo., 2013). In 1965, the current company PepsiCo was established after the Frito-Lay/Pepsi-Cola company merger.

Mission and Vision

The success story of the PepsiCo globally has been attributed to its active mission and vision statements. According to PepsiCo Inc., (2017), the company’s mission statement focuses on the effort to become the world’s leading company for consumer products, as well as focused on beverage and foods. The company also focused on offering financial rewards to its investors as they offer opportunities for enrichment and growth for its employees, business partners and the community in which the company operates. And in all its operations, the company focuses more on fairness, honesty, and integrity. “Our mission is to be the world's premier consumer Products Company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness, and integrity” (PepsiCo Inc., 2017). On the other hand, the company’s vision statement addresses its primary responsibility, its focus on improving the environment, social as well as economic improvement of the region they operate, and in turn focused on creating a better tomorrow. "PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today" (PepsiCo Inc., 2017).

Competitors and Strategy

Becoming an internationally recognized beverage and food company, PepsiCo has had no smooth ride as it has faced competition in the market globally. One of the PepsiCo main competitors is Coca Cola with other competitors such as REED, Dr. Pepper Snapple Group, Mondelez International, Inc. and Kraft Foods among other competitors across the market (Yong, 2018). The company’s business/general strategy is based on performance with purpose and further linked with different principles which include; focusing on achieving growth, establishing strategic alliances globally, focusing on emerging markets, organizational culture. Also, the company’s strategy is driven by being innovative in marketing initiatives and promoting the idea of One PepsiCo. In the case of the management team, the company is inspired by the 5C’s framework which entails commercial, capabilities, costs, collaboration and capital (PepsiCo Inc. SWOT Analysis, 2017).

Target Market and Positioning

PepsiCo has well been known due to its aggressive marketing strategy. The primary target markets for the company has been identified as the teenagers and the young adults. Additionally, the company targets other groups of people such as athletes and overweight. The company has products that target different regional places, culture, and religion (PepsiCo., 2013). For example, products like Nimbooz is for Indians targeting the demand for lemon drinks or the Manzanita Sol a product designed for the Mexican market.

Marketing Strategies

PepsiCo has over the years applied different marketing strategies to reach out to its customers globally. The company uses mass marketing, to reach to the desired groups of customers of different geographical areas and different demographics. Segmentation has been an essential strategy in the company’s marketing approach, as it helps in reaching to the specific groups of customers with varying offerings. PepsiCo mainly segments their target market regarding the demographic aspects such as age, income, and size of the family (Yong, 2018). The company’s adoption of behavioral segmentation has been a success. In the field of non-alcoholic beverages market, the company has positioned itself as a vibrant, young and passionate brand.

Product Mix

The product mix has been regarded as one of the PepsiCo strengths. According to (), product mix refers to the entire products an organization offers to its customer from its production lines. Concerning PepsiCo, the company has a wealth product mix comprising of drinks and food products. Some of the company’s products entail; Doritos, Cheetos, Fritos, Ruffle potato chips, Diet Pepsi, Izze, Jazz, Josta, Smartfood Popcorn, Pepsi mountain dew, Gatorade among many other assorted products both in drinks and food (PepsiCo Inc., (2007). In summary, PepsiCo remains a world leader in snacks, beverage, and food industry. Through its mission and vision, the company is on the believe that, being responsible to its customers by doing the right thing for the business. Coupled with the company values and philosophy, the company has grown to a world beater.

PepsiCo. (2013). Progressive Grocer, 92(11), 54.

PepsiCo Inc. (2017). 1-36.

PepsiCo Inc SWOT Analysis. (2017). PepsiCo, Inc. SWOT Analysis, 1-8.

Yong, D. (2018). PEPSICO. Fortune, 177(1), 65.

PepsiCo Inc. (2007). Leadership Development Strategy: PepsiCo, 67-79.

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Executive Summary

Pepsi Company is a globally recognized multinational soft drink company with a presence across the globe. Incorporated in Delaware in 1919 an later reincorporated in North Carolina in 1986, its presence spans across the globe and it has ventured into soft drinks, mineral water and foods. The company is has had to contend with the stiff competition from the tough rival in the form of coca cola. The Chief executive officer Indra K Nooyi is also the chairman and he has earned more than 9 million Dollars per annum in the last the years. The CEO is backed by a team of twelve directors several of who also hold high profile positions in various other institutions of reputable financial worth.

In the year 2009 the employees met in a general meeting and voted on four items among which was a review of the companies progress. The company has many shareholders among who are corporate bodies as well as private individuals among who is the CEO. The company has been involved in several corporate social responsibility events including sponsoring the Chinese Red Cross society. These activities have been used in giving back to the society as well as promoting the brand.

The company’s ratios are quite impressive with a good return on Equity specifically has been quite impressive in the last three years. The year 2008 return on equity for example was 34% as compared to that of Coca Cola at 29% implying ability to pay share holders high dividends for their investment into the company. The return on assets as is also quite impressive with the highest being 2007 at 16.88%. The company has also an enviable average collection period more so their current ration point towards a high degree of credit worthiness. The company has a high level of stability demonstrated by its high liquidity ratio of 1.23 as opposed to that of Coke at 0.95. This implies that their ability to service their debts is higher than that of their main competitor- Coke

The competitor’s ratios however do not paint such a good picture meaning the company is well placed to take over market leadership. The company is faced by the risk of the volatile market outlook as well as their competition trying to win over its chunk of the market shares. The major challenge that the company faces as far as business is concerned is that since they deal with consumer products, they need to ride on the customer demand to make profits. They must therefore ensure that they have products that are attractive to the consumer. Any sudden changes in the market would therefore mean a fall in demand and this could have serious impact on the market. To ensure that they remain a force in the market, Pepsi has dedicated sufficient resources to marketing and advertisement campaigns to ensure that they attract a sufficient number of customers and also ensure that they keep relevant in the market. However such investments call for a cautious approach since the changes in the market can not be accurately forecasted. The market Beta of the Pepsi share is at a quite stable level of less than one which indicates that it is a quite safe investment for the external investors as well as a clear sign of market stability.

Considering that no company is perfect, Pepsi also needs to diversify its product range to reach a more diverse market and make inroads in an effort to ensure that they can ward off any stiff challenges from the competition since their varied products will mean increased source of revenue. Despite all this the company is low risk and its equity is quite an attractive buy for most market speculators.

Describe the primary business of the company, including its products, customers and competitors.

The PepsiCo, Inc. was incorporated in Delaware in 1919 and was reincorporated in North Carolina in 1986. Pepsi Company is a global beverage, snack and food company. They manufacture and/or use contract manufacturers, market and sell a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods in roughly 200 countries.

Pepsi Company has organized the company into three business units, they are as follows:

Pepsi Company is well known for their other brands as well which includes and limited to offering to the world below is table lists products;

They hold long-term licenses to use valuable trademarks in connection with other products, including Lipton, Starbucks, Dole and Ocean Spray. In order to hold these licenses Pepsi Company must comply with the trademarks rules and regulations.

Their customers include authorized bottlers and independent distributors, including food service distributors and retailers. Pepsi Company competitively in extremely competitive markets is up against global, regional, local and private label manufacturers based on price, quality, product variety and distribution. One of their major beverage competitors is the Coca-Cola Company.

Give the name and background of the CEO. What was the CEO’s compensation over the last three years and in what form was it (salary, stock, stock options, etc.)?

Indra K. Nooyi, 53 is the CEO of Pepsi Company, holds the positions as Chief executive Officer and Chairman of PepsiCo’s Board of Directors. Below is a table of Indra Nooyi’s Compensation package per yahoo.finace.com 2009 Annual Proxy report of her last three years.

List the names and affiliations of the Board of Directors and discuss any individuals who stand out.

Below are listing of Pepsi Company Board of Directors and their membership.

Shona L. Brown, Senior Vice President, Business Operations of Google

Ian M. Cook, Chief Executive Officer and was elected to the board of Colgate-Palmolive Company

Dina Dublon, Director of Microsoft Corp. and Accenture, Director of the Global Fund for Women, co-chairs the Women are Refugee Commission, and a trustee of Carnegie Mellon University

Victor J Dzau, MD, Chancellor for Health Affairs at Duke University and President and CEO of the Duke University Health System

Ray L. Hunt, Chairman and Chief Executive Officer of Hunt Oil Company and Chairman, Chief Executive Officer and President, Hunt Consolidated, Inc.

Alberto Ibarguen, President and Chief Executive Officer of the John S. and James L. Knight Foundation

Indra K. Nooyi, PepsiCo’s Chief Executive Officer

Sharon Percy Rockfeller, President and Chief Executive Officer of WETA public stations

James J. Schiro, Chief Executive Officer of Zurich Financial Services.

Lloyd G. Trotter, Managing Partner at GenNx360 Capital Partners

Daniel Vasella, Chairman of the Board and Chief Executive Officer

Michael D. White, Vice Chairman of PepsiCo

The one individual that stand out are Lloyd G. Trotter, he is the only African American that served on the Pepsi Company Board of Directors

Describe the items that were voted upon by shareholders at the last annual meeting.

Pepsi Company Annual Meeting of Shareholders they were asked to vote on these items as follows (Nooyi, 2009):

To elect the Board of Directors, to ratify the appointment of the independent registered public accountants, to approve the PepsiCo, Inc.
Executive Incentive Compensation Plan
Four shareholder proposals.
Review the progress of the Company during the past year and answer your questions.

Analyze the makeup of the company’s shareholders (pension funds, individuals, institutions, mutual funds, etc.). http://finance.yahoo.com/q/mh?s=PEP

The makeup of shareholders is broken down per yahoo. Finance; gives a detail breakdown of the shareholders. They are major holders, top institutions and top mutual funds holders.

Breakdown explains how the shares are divided up among the shareholders such as 0% is held by all insiders and the 5% owners, 68% is held by institutional and mutual fund. As well as float institutional and mutual funds hold 68%. They continue to show an additional breakdown on how shares is divided among the major direct holders, which are the CEO Indra Nooyi has 393, 545, Michael White 263,664, John Compton 204,364 and Albert Carey 107,900, Hugh Johnston 90, 434. The report goes on to further show the top institutions and top mutual funds holders.

How does this firm view its social obligations and manage its image in society?

Pepsi Company has pride and committed themselves of ways of giving back to society in varies the way such as through their humanitarian aid foundation has donated millions of funds to aid victims of Pakistan’s earthquake, central America’s ad Mexico Hurricane victims. Furthermore, what I have found amazing how Pepsi is continuing to give back to community such as providing assisting to the Red Cross Society of China. Pepsi Company goes along with the corporate contributions’ ways of giving back to the community in through providing programs for educations, health and wellness making donations to charitable organizations.

Ratio Analysis

I will be discussing six financial ratios for Pepsi Company and The Coca Cola Company are provided below. In evaluating years 2006 through 2008 for two companies my finding are as following. This information was found through yahoo.com/finance, Pepsi Company and The Coca Coke Company Income Statement and Balance Sheet and investopedia.com

Return on Assets (ROA)

According to these numbers above Pepsi’s ROAs for 2008, 2007 and 2006 were 15.34%, 16.88% and 16.83% this explains that the positive returns on assets for those periods that Pepsi had generated earnings from the invested capital (assets). Pepsi is successfully converting assets at it disposal into net income.

Coke’s ROAs for 2008, 2007 and 2006 were 15.32%, 15.77% and 13.40% details to these numbers say Coke also has positive returns on assets for those years they are able to generate net income that is invested in their capital, which is consisting of both debt and equity.

For both companies after looking at the ROA they demonstrate can perform similarly in generating net income from invested capital.

Return on Equity (ROE)

Pepsi’s ROEs for 2008, 2007 and 2006 were 34.37%, 37.82% and 37.71% explain their positive returns indicate that Pepsi generated positive net income from funds that were invested by their shareholders. Coke’s ROEs for 2008, 2007 and 2006 were 29.46%, 30.34% and 25.77% also show they had generated positive net income from shareholders’ funds’ investment.

The different between Pepsi and Coke the number shows that Pepsi could pay more earnings from the shareholders’ investment.

Receivables Turnover

Pepsi’s receivable turnover ratios for 2008, 2007 and 2006 were as following 10.14, 9.25 and 8.24. These high ratios say Pepsi implies that their extension of credit and collections of the account receivable is very efficient. In other words, if Pepsi shows a low ratio it will point toward perhaps Pepsi should review their current procedure on it’s credit policies in order to ensure the timely collection of extended credit that is not earning interest for the company. However, Coke’s receivable turnover ratios for 2008, 2007 and 2006 were 10.52, 9.5 and 7.93 states Coke has high ratios,’ which imply their credit policies are working efficiently.

Average Collection Period

Pepsi’s having an average collection period for 2008, 2007 and 2006 were 36 days, such as 39 days and 44 days, tell you Pepsi could convert their receivables into cash at a short – term period if needed, in other words, Pepsi has access to cash for daily operation and can meet short-term obligations if necessary.

Coke’s having average collection period for 2008, 2007 and 2006 were 34 days, 38 days and 46 days. Coke has the same experience as Pepsi does that they are effective in turning their receivables into cash on a short-term period of time because their collections had not exceeded sixty days. Based on the information Pepsi and Coke performed in the same way in as far as collection of their receivables is concerned.

Current Ratio

Current Ratio means: A liquidity ratio that measures a company’s ability to pay short-term obligations (www.investopedia.com/terms/c/currentratio.asp)

In essence, when a current ratio is greater than 1 this states that the company does currently have the ability to pay its expected financial obligations that will mature over the next year operation cycle.

Pepsi Company

Based on the ratios number they indicate that Pepsi’s liquidity (current ratio) for 2008, 2007 and 2006 was 1.23, 1.31 and 1.33. In, 2008 Pepsi current ratio of 1.23 stated that every dollar of current liabilities, Pepsi has only. $1.23 of current assets. This illustrates the 2008 current ratio is consistent with the ratios for 2007 and 2006.

Since for 2008 there was only $1.23 of current assets foe every dollar of current liabilities, Pepsi may have trouble in the following year, if unexpected needs for cash occur or if some current assets such as inventory become illiquid due to unexpected emergency. For instance Pepsi may have to look into additional financing in 2009, to meet its maturing obligations since its current ratio for 2008 are so close to 1.

The Coca Cola Company

Based on the ratios’ number they indicate that Coke’s liquidity (current ratio) for 2008, 2007 and 2006 was 0.94, 0.92 and 0.95. Coke’s ratio states they were less than 1, shows that the company does not currently have the ability to pay it expected financial obligations that will become due during 2009.

Coke’s current ratio of 0.94 shows that for every dollar of their current liabilities, Coke has only $0.92 of current assets. This show Coke will have difficulty paying its short-term maturing obligations and unexpected needs for cash, which explain Coke may needs some additional financing in 2009.

Pepsi vs. Coke

After carefully examining current ratios for Pepsi and Coke, I think Pepsi Company is in a better position to meet their short-term maturing obligations during 2009 than Coke. As stated in Coke portion they probable will need to obtain additional financing or perhaps look into selling some assets to meet its short-term obligations.

Profit Margin Ratio (PMR)

Pepsi’s PMR ratios for 2008, 2007 and 2006 were as following 11.89%, 14.33% and 16.06%. For 2008, Pepsi for each dollar of sales was approximately $0.12, and 2007 was $0.14 and 2006 $0.16 each dollars of sales.

Pepsi’s receivable turnover ratios for 2008, 2007 and 2006 were as following 10.14, 9.25 and 8.24. These high ratios say Pepsi implies that their

Risk and Return Analysis

Describe the risk profile of the business.

PepsiCo’s (“Pepsi”) business involves inherent risks and uncertainties that could cause actual results to differ materially from those predicted. Following is a discussion of Pepsi’s risks partially excerpted from its 10K filed with the SEC on 2/19/2009.

Pepsi is a consumer products company operating in highly competitive markets and relies on continued demand for its products. To generate revenues and profits, Pepsi must sell products that appeal to its customers and to consumers. Any major changes in consumer preferences or any failure on its part to anticipate or react to such changes could result in reduced demand for its products and slow destruction of its competitive and financial position. Pepsi’s success depends on its ability to respond to consumer trends, including concerns of consumers regarding obesity, product quality and ingredients. In addition, changes in product category consumption or consumer demographics could result in reduced demand for its products. Consumer preferences could take a turn due to a combination of factors, these changes can include the aging of the general population, social trends, and changes in the way consumers commute, as well as how often consumers take vacations or leisure activity patterns, weather. It could be affected by negative publicity.

The economic, conditions or taxes specifically targeting the consumption of its products. Any of these changes may reduce the consumer’s’ willingness to purchase its products. Changes in the legal and regulatory environment could limit its business activities, increase its operating costs, and reduce demand for its products. Demand for Pepsi’s products may be badly affected by changes in consumer preferences and tastes, and perhaps Pepsi might not market their products effectively.

Pepsi’s continued success is also dependent maintaining a strong line of new products, and the effectiveness of its advertising campaigns and marketing programs. Although Pepsi devotes significant resources to meet these goals, they also want to keep in mind; there is no assurance as to its continued ability either to develop and embark on successful new products or departure of existing products, and be able to effectively execute advertising campaigns and marketing plans.

However, with the ongoing success of new products and advertising campaigns are basically insecure, especially as to how they appeal to consumers. If Pepsi’s failed to successfully promote new products could decrease demand for its existing products by negatively affecting consumer perception of existing brands, as well as the result in inventory write-offs and other costs.

Where do the company risks come from (market, firm, industry, currency, etc.)?

Pepsi uses several of raw materials and other supplies in their supplies, these supplies include aspartame, cocoa, corn, corn sweeteners, flavorings, flour, grapefruits and other fruits, juice and juice concentrate, oats, oranges, potatoes, rice, seasonings, sucrose, sugar, vegetable and essential oils, and wheat. Pepsi’s key packaging materials include PET resin used for plastic bottles, film packaging used for snack foods, aluminum used for cans, glass bottles and cardboard. Fuel and natural gas are also important commodities due to their use in the plants and in the trucks delivering products to their distributors.

The global economic crisis has resulted in unfavorable economic conditions in many of the countries in which Pepsi operates. Pepsi’s business or financial results may be highly impacted by how critical economic conditions. With the impact of how much interest rates or tax rates increase. As well as how unforeseeable commodity markets; contraction in the availability of credit in the marketplace probable impairing its ability to access the capital markets on terms commercially acceptable and the effects of the government plan to manage economic conditions; reduced demand for its products resulting from a slow-down in the general global economy.

Pepsi also; has assets and incurs liabilities, earns revenues, for instance, pays expenses in a variety of currencies other than the U.S. dollar. The financial statements of its foreign subsidiaries are translated into U.S. dollars. As a consequence, Pepsi’s profitability may be are impacted by an adverse change in foreign currency exchange rates. Pepsi also will want to maintain their key employees as well as their highly skilled and diverse staff. This allows Pepsi to continue to require it to hire and retain and develop good leadership within skilled diverse staffs. This will allow Pepsi to develop their skills and competencies.

Pepsi’s are prepared for any unplanned turnover, because they have a backfill of current leadership positions that could handle unexpected emergencies to be able to hire and train them and retain diverse work staffs, to continue to have the competitive advantage. Lastly; Pepsi will have been operating results that would be critically affected due to increased cost due to the increase their competition for employees because of their high employee turnover and due to increased employees benefit costs.

Pepsi Company Beta meaning to investors’

The concept of beta is a practical measure of individual stock risk in relation to the stock market risk as a whole. It’s sometimes referred to as financial elasticity. It is a tool common among stock market analysts that they use to establish market volatility. The beta value is calculated using price movements of the stock that is under analysis and comparing those movements to an overall market indicator – as such the market index – over a given period of time. If the stock’s price experiences movements that are greater – more volatile – than the stock market, then the beta value will be greater than 1. If a stock’s price movements, or swings, are less than those of the market then the beta value will be less than 1. The beta of Pepsi’s common shares is 0.51. In the chart above explains Pepsi’s having a beta of 0.51 points, the results imply that Pepsis common market share is stable and is not risky. It’s not subject to sudden changes.

Coca cola has a beta of 0.55 implying that its also a stable share hence a safe investment for any shareholders. However its beta is slightly higher that the Pepsi one implying that Pepsi share is slightly more stable.

What has been the performance of the company stock over the past two years compared with a key competitor and with the S&P 500?

Pepsi Market share price has increased albeit just slightly in the recent past while that of Coca-Cola has risen rapidly over the same period of time. This points towards the higher volatility of the coca cola share due to the fact that its beta is higher that that of Pepsi .

Capital Structure and Cost of Capital

Describe the various types of financing used by the company .

In the year 2008 pepsi spent a total of $3.0 billion for financing activities, mainly reflecting the return of operating cash flow to their shareholders through common share as a resolve of repurchasing $4.7 billion and dividend payments of $2.5 billion. To some extent using the cash proceeds to offset issuances of long-term debt, net of payments, of $3.1 billion, stock option proceeds of $620 million and net proceeds from short-term borrowings of $445 million.

They annually review of the capital structure with the Board, includes dividend policy and share repurchase activity. The results of the 2008 second quarter meeting the Board of Director approved 13% dividend increase of $0.20 per share.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=6428069-75349-369919&type=sect&dcn=0001193125-09-033126 page 66, retrieved oct 20,09

Compare the debt ratio of the company against the competitor you analyzed in Modules 2 & 3.

Describe the risks and advantages of the company’s debt level and indicate whether you believe it could/should be higher or lower.

Pepsi Company:

PepsiCo’s Debt to Total Asset Ratio of 22.86% shows that its creditors required. $0.2286 of every dollar invested in assets. The ratio displays that PepsiCo has the long-term capability to pay interest as it comes due and to repay the principal balance of debt due at its maturity.

Coca Cola Company:

Coke’s Debt to Total Asset Ratio of 22.98% shows that its creditors provided. $0.2298 of every dollar invested in assets. The ratio displays that Coke has the long-term ability to pay interest as it comes due and to repay the principal balance of debt due at its maturity.

Pepsi Company vs. Coca Cola

Both companies have similar prospects of long-term survival. As well as both companies have similar degrees of riskiness indicated by related Debt to Total Asset Ratio.

Financial Leverage/ROE – Both companies have a considerable cushion to obtain more debt financing to improve ROE. This approach is good when sales are expanding but can set declining pressure on ROE during times of slow or declining sales because the higher fixed interest payments will be incurred, regardless, of economic activity.

Determine the approximate yield to maturity of company debt and the after-tax cost of debt

Based on finance.yahoo.com Pepsi bond rating is Aa2. Based on Fitch rating according to AA between five to seven years their yield to maturity of are 4.52% Pepsi after tax cost of debt calculation by taking income tax expense divided by income before taxes

1,879.000,0000/7021000000=26.76 or 27%

Determine the approximate cost (required rate of return) of equity .

According to finance.yahoo.com Pepsi Beta is .57. Using the formula Re = Rf + B(Rm – Rf) risk free is 2% and return of the market is 11% Based on the calculating the required rate of equity is

Re= 2% + .57(11% -2%)

Re= 2% + 5.2 = 5.22%

Determine the market values of the company debt and equity

Market value: stock price is $60.59 and shares outstanding is 1.56 billions

$60.59 (x) 1.56 billion = $94,520,400,000

Debt: Book value 9.04 (x) shares outstanding 1.56 billions = $14,102,400,000

Total asset of the company is $94,520,400,000 + $14,102,400,000 = $108,622, 800,000

The proportion of company debt: $14,102,400,000 / $108,622, 800,000 = 12.98%

The proportion of company equity: $94,520,400,000 /$108,622, 800,000 = 87.02%

Calculate the weighted average cost of capital .

To calculate the Pepsi’s WACC calculation according to the Pepsi’s required rate of

return is 5.22%, equity 87% and debt13%.

Explain the significance of the company’s WACC to its management. The cost of debt and the required rate of return are measures of the riskiness of the cash flows to the bondholders and shareholders, respectively. The cost of capital is a measure of the riskiness of the cash flows generated by the company’s assets (in other words the risks of the business the company is in). Relate these numbers to your discussion of risk from Module 3.

WACC (extracted from Investopedia.com)- Generally speaking, a company’s assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, this displays a picture how much interest the company has to pay for every dollar it finances .A firm’s WACC is the overall required return on the firm as a whole and, as such, time after time are used for the sole purpose for a company director to determine the economic feasibility of growth opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm.

Businesses often discount cash flows at WACC to determine the Net Present Value (NPV) of a project, using the formula.

Pepsi Company has a bright future since they are backed by stable history and a strong financial background. The prospects for the company are good especially for their soft drink products and more with the oncoming international events such as the FIFA world cup. These events present opportunities for brand marketing and eventually strengthening sales.

The firm is doing well and the return on equity is quite impressive. To this end the firm is therefore not faced by any share holder activism and they are therefore not facing a restructuring or a takeover. They are also not faced with financial distress considering that the have a good current ratio which implies that they are not adversely affected by the credit crunch. They are therefore in a quite stable financial form.

The company needs to make no specific acquisitions to achieve strength however they need to diversify their product range. First and most convenient is investing in energy drinks. Since these are quite a rave with the current market, they need to invest in this quite well. The second investment that they need to undertake is fresh fruit juices. This will be quite a relevant investment since they already have a well established market as well as a good distribution network. The only other change that would be viable is the restructuring he only other compensation packages. This is by reducing the CEO pay and ensuring that the CEO earns his pay through bonuses for profits earned. By doing so they are able to ensure that the management does the best they can to earn high profits and hence get good bonuses for their efforts.

www.yahoo.finance.com

http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0001193125-09-033126

www.Pepsico.com

http://www.pepsico.com/Purpose/Corporate-Contributions/Humanitarian-Aid.html

http://finance.yahoo.com/q/mh?s=PEP

www.investopedia.com

www.valueline.com/freedemo/productsamples.html

www.finance.yahoo.com

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Essay on Pepsi Company Business Operations

Introduction

Operations management is concerned with the processes involved in the production and distribution of goods and services (Slack, Chambers and Johnston, 2010, pp 34-60). Operations management entails all the steps involved in the creation of the products and services until they reach to the consumer. The goal of any operation manager is to make this process effective and efficient (Hill and Hill, 2017, pp 18-54). Besides operations, management encompasses other related disciplines such as inventory control, procurement and supplies, quality analysis and stock keeping. The operations management process employed by a company depends on the nature and type of good the company is producing (Heizer, 2016). Thus, operations management covers the entire production system. It is present in banking systems, hospitals, and automobile industries among others. Operations management includes both the daily operations of a firm and the strategic operations of the firm (long-term). A company’s operations manager is tasked with oversight of the production and distribution process of the goods and services of a firm.

Pepsi Company is an American multinational company that specializes in the production of beverage products. It is the primary competitor for Coca-Cola Company. Pepsi is renowned for its beverage products Pepsi Cola , Mirinda , Tropicana among others. Caleb Braham pioneered the company’s operations when he invented Pepsi Cola. Caleb hoped his product would replicate the success of the rival product coca-cola. The product quickly gained popularity, which led to Caleb branding it in 1898 and incorporating the Pepsi Cola Company in 1902. However, the world war one proved detrimental to the operations of the company. During the world war one, Pepsi Cola Company was repeatedly reincorporated in a bid to ensure it became profitable (Thain and Bradley, 2014, pp 18-22). At the beginning of 1931, the company was bought by Charles G. Guth. He merchandised the operations of Pepsi Company. He employed the knowledge and skills of qualified chemists to come up with new and better drinks. Guth also held leadership positions in Loft Inc, a company that specialized in the production of candies. Several legal battles ensued which led to Guth losing the leadership position of Pepsi company. In 1941 loft, Inc and Pepsi Company formed a merger and adopted the name Pepsi Cola Company. During the 1950’s Alfred Steele, a former C.E.O of Coca-Cola Company assumed the leadership position in Pepsi Company. Alfred emphasized on sales promotions and market expansions. Alfred’s effort led to significant growth in Pepsi Company revenues and assets. In subsequent years, the company embarked on mergers and acquisitions, for instance, the merger with Frito Lay in 1965. Currently, Pepsi Company has productions departments in over two hundred countries. The tremendous growth of Pepsi Company is attributable to the uniform standards of its products.Pepsi Company has revolutionalized the operations of beverage industries in the World. The company has various investments ranging from beverage industries and cereal industries. Thus, the work of an operations manager in Pepsi Company cannot be underestimated.

Operations of Pepsi Company

The operations of Pepsi Company are broken down into six subdivisions. These are Frito Lay North America (FLNA), Quaker Foods North America (QFNA), North America Beverages (NAB), Latin America, Europe Sub-Saharan Africa (ESSA), Asia Middle East and North Africa (AMENA).

Frito Lay North America

The Frito Lay North America is made up of the various branded snacks and beverages entities owned by Pepsi Co in North America and Canada. FLNA was initially known as Rocket Inc, and it was not until 2004 that it changed its name to FLNA.FLNA produces salted snacks made from potatoes and corns. FLNA does its business either on its own or with the partnership with other players in the industry. FLNA is primarily involved in the processes of production, marketing, and selling of the snack products. FLNA sells its product through retailing and online shopping. In 2017 and 2016, FLNA accounted for at least 25 % of the company’s total revenue. This can be explained by the decrease in the soda industry in the USA. Moreover, FLNA has been experiencing a constant growth in profit of 3 % in the last three years. FLNA share of the total operating profit of Pepsi Company was about 43 %.According to estimations by Forbes FLNA accounts for at least 37% of Pepsi Co total valuation. Some of the branded products under FLNA include Doritos Tortilla Chips, Cheetos Snacks, Santitas tortilla chips, Fritos Corn Chips among others. Besides FLNA has a joint operating venture with Strauss Group. The joint venture is involved in the making, distribution, and selling of refrigerated dips and spreads.

Quaker Foods North America (QFNA)

QFNA is Pepsi Co smallest section and accounts for only five percent of its total revenues and ten % of the operating profits. The formation of the QFNA can be traced back to the oatmeal battles that were predominant in the 19th century. John Stuart, Henry Parsons, George Douglas and Ferdinand Schumacher are the pioneers of QFNA. QFNA was formed in 1901. QFNA entered into a merger with Pepsi Company in 2001. QFNA centered its operations on the production of oatmeals and snacks; however, QFNA beverage product, Gatorade Sports drink is what pushed Pepsi Company into the merger as it was considered profitable by many businesses in the turn of the 19th Century.

QFNA on its capacity and in cooperation with other stakeholders engages in the creation, marketing and distribution of branded Pasta, rice and cereal products. QFNA sells its product to various distributors and retailers in the USA and Canada. Some of the brands under QFNA include Quaker Oat Squares, Quaker oatmeal, Quaker grits among others.

North America Beverages

NAB is the unit that is tasked with the creation, distribution, and selling of Pepsi Company beverage products in the USA and Canada. NAB operates either independently or in cooperation with other players in the industry. For instance, the joint ventures with Unilever and Star bucks allow NAB to sell ready to drink tea and coffee drinks in the USA. NAB sells its final branded products to both distributors and consumers. Besides, it also sells some of its beverage products to various bottlers spread out in the USA.

Latin America

The Latin America department is involved in the production, marketing, distribution and selling of beverage products, cereals, rice, pasta, salted snacks and ready to drink tea in Latin America. The department does this on its own and with joint ventures with companies such as Unilever. Some of the branded products offered by the Latin America department include 7UP, Gatorade, Pepsi, Cheetos, and Crunchy among others.

Europe-Sub Saharan Africa

The ESSA is involved in the production, marketing, distribution and selling of beverage products, cereals, snacks in Europe and Sub-Saharan Africa. The department operates on its own and cooperation with other players such as Unilever. However, in some parts of Europe Pepsi Company runs its private bottling companies. Some of the branded products offered by ESSA include Pepsi Cola, Mirinda, Cheetos, and Doritos among others.

Asia, Middle East, and North Africa

The AMENA department is involved in the production, distribution, marketing, and selling of beverage products in Asia, Middle East, and North Africa. The department does this in its capacity and cooperation with other entities such as the Unilever. Some of the branded products offered by AMENA include 7UP , Pepsi Cola , Aquafina , Crunchy , and Cheetos among others.

Pepsi Company Distribution network

Pepsi company employs three forms of distribution networks namely distributor networks, customer warehouses and Direct-Store-delivery (DSD).

Role of Pepsi Company Operations Manager

An operations manager provides an oversight role to the daily operational and strategic activities of an organization (Hill, Jones, and Schilling, 2014, p 60-65). The operation manager is tasked with ensuring that goods are created and transported to the consumer efficiently. In Pepsi Company the operations managers are designed to perform a plethora of tasks all of which are geared towards increasing overall productivity of the company (Johnson, Clark and Sulver, 2012, pp 20-60). The operations manager performs a strategic role in designing new goods and services. The operations manager with the help of other members in the company conducts extensive market research to establish market trends and consumer preferences. The information on the market trends and consumer preferences is essential in that it is used in the creation of new products. The new products created are improved versions of the existing product variants.

An operations manager ensures the Company’s products are of the required standard and quality. Pepsi branded products have a uniform standard irrespective of the location in which one buys them. The operation manager ensures that the employees adhere to the stipulated production technique so as not to compromise on the quality. The operations manager is also involved in the Job designing and human resources process. Since employees from a vital part of the company’s operations, thus considerable attention is given to the employees to ensure the company can meet its goals and objectives. Pepsi Company has a talent sustainability policy, which all the operations managers are required to follow (Bernstein et al, 2016, p 13). Pepsi Company operates different job designs for the FLNA and QFNA divisions. Despite these differences, the operations manager in the two divisions is in charge of ensuring adequacy of the workforce.

Pepsi company operations manager is also in charge of the supply management process. The operations managers ensure that the manufacturing departments of the company are strategically located. Through this, the company can match the products with demand and that the company can easily access its intermediary products. Over time, Pepsi Company has adopted the approach of diversifying its supply chain channels. The operation manager in Pepsi Company is also tasked with the management of the inventory. The operation manager initiates the automation process, scheduling of the production process and the minimization of the production costs. The operations manager is also in charge of maintenance of the company’s overall operations. The operation manager in Pepsi Company comes up with the strategic locations of the Company. An operations manager is the one who is tasked with deciding on either Pepsi company adopts Company-owned facilities or partnership owned facilities.

Through the Mergers and Acquisitions, Pepsi Company has been able to acquire a considerable share of the market. Consequently, this has ensured that the company portfolios are diversified. A diversified portfolio ensures the returns are maximized and the risks minimized. For instance, in recent years the beverage industry has had slow growth. The slow growth of the beverage industries has hampered the earnings of the firms involved in beverage production. For example Pepsi Company and The Coca-Cola, company. However, the effects of the slow growth have been buffed by FLNA in Pepsi Company, which has not been affected by the slow growth experienced in the beverage industry. Overall, this has ensured the continued profitability of the Company. Second, the extensive research process used by Pepsi Company has ensured that the company remains competitive in the long run. The company takes into account different customers preferences and market trends. Through this, the company can ensure a ready market for its products. Moreover, Pepsi Company has a worldwide distribution network ensures the company saves on the costs and that the company obtains immediate from its consumers.

Disadvantages

Pepsi Company mergers and acquisitions are the principal causes of the Company’s operation problems. The mergers and acquisitions bring about bureaucracy problems. These acquisitions bring about problems in the management and distribution processes of the company (Venkataraman, Summers and Venkataraman, 2017, pp 1-22). Although Pepsi has been able to manage them, in future with its continued expansion, it is likely that these mergers and acquisitions will bring about problems to Pepsi Company in the future.

Conclusions

Through Pepsi Company six divisions, we observe that Pepsi Company engages in the production, distribution, marketing and selling of beverage products, cereals, and salted snacks among others. Evidently, this forms a vital part of the company’s operation process. The operations managers are involved in ensuring the company’s products are of the required quality. They are also tasked with ensuring the products move from the manufacturing departments to the consumer efficiently and efficiently. The close-knit system of Pepsi company production process has ensured the company remains profitable.

Bernstein, E., Bunch, J., Canner, N. and Lee, M., 2016. Beyond the holacracy hype. Harvard business review , 94 (7), pp.13.

Hill, A. and Hill, T., 2017. Essential operations management . Macmillan International Higher Education,pp 18-54

Johnson, R, Clark, Sulver, M., 2012 Service Operations Management Harlow Pearson Education Limited, pp 20-60

Heizer, J., 2016. Operations Management, 11/e . Pearson Education India.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach . Cengage Learning,pp 60-65

Slack, N., Chambers, S. and Johnston, R., 2010. Operations management . Pearson education,pp 34-60

Thain, G. and Bradley, J., 2014. FMCG: The power of fast-moving consumer goods . First Edition Design Pub.,pp 18-22

Venkataraman, S., Summers, M. and Venkataraman, S., 2017. PepsiCo: The Challenge of Growth through Innovation. Darden Business Publishing Cases , pp.1-22

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PEST Analysis

Proceedings of the 6th International Conference on Economic Management and Green Development pp 1163–1175 Cite as

The Financial Statement Analysis of PepsiCo

Yueling Zhang 7
Conference paper
First Online: 28 June 2023

1374 Accesses

Part of the book series: Applied Economics and Policy Studies ((AEPS))

This article analyzes the business strategy and financial performance of PepsiCo. PepsiCo is the global branded leader in beverage and convenient food industry, including leadership positions in Mexico, China, and several Western European markets. Although the impact of the novel coronavirus has decreased in 2021, its profitability performance is getting worse while the beverage industry is growing at a compound annual growth rate of 1.7% in 2021. It is worth to take a deep look at PepsiCo’s performance to gain an understanding of why PepsiCo’s profitability performance is contrary to industry performance and whether PepsiCo has potential to seize opportunities and perform better in the future. We identify PepsiCo strategies by using SWOT analysis and give a general strategy that PepsiCo has been taken. Next, we demonstrate common-size analysis and ratio analysis on its financial statement. Finally, we project the following five years’ revenue for PepsiCo. The analysis reveals the PepsiCo has ability to operate well and generate revenue in the future. Hopefully, the article could help companies that are experiencing the COVID-19 pandemic, and stakeholders could have a fresh and long-term perception on PepsiCo.

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Department of Postal Management, Beijing University of Posts and Telecomm, Beijing, China

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Chunhui Yuan

Supply Chain Management, University of Arkansas, Fayetteville, NC, USA

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Zhang, Y. (2023). The Financial Statement Analysis of PepsiCo. In: Li, X., Yuan, C., Kent, J. (eds) Proceedings of the 6th International Conference on Economic Management and Green Development. Applied Economics and Policy Studies. Springer, Singapore. https://doi.org/10.1007/978-981-19-7826-5_111

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Goals And Objectives Of Pepsi Company (Essay Sample)

Objectives of pepsi company.

PepsiCo is among the largest Fortune 500 multinational companies in the world. The company begun in 1898, with the invention of the Pepsi-cola drink by chemist Caleb Bradham. The company has interests in the manufacturing, promotion, and supply of grain-based snacks and drinks in America, Europe, Latin America, Asia, and Africa. The company is estimated to have generated a revenue of 67 billion dollars by 2013, making it a success all over the world. With such statistics, it is undoubted that the company implements carefully thought out business strategies that work commendably with their goals and objectives.

The company’s primary goal is to refine the choices of beverages and foods they sell to their customers by creating healthy options that meets the needs of the customers. The company aims to achieve this by first, reducing the quantity of sugar added to the beverages significantly to 12-oz per serving hence, reducing calories intake. Second, is by producing healthier snacks through the reduction of amounts of saturated fats and volume of salts contained in them. Thirdly, it seeks to increase positive nutrition by expanding their ingredients to include fruits, vegetables, proteins and whole grains. Moreover, is by making available balanced foods and beverages to poor communities all over the world.

The company seeks to meet the goal of sustaining the value of shareholders and delivering extended financial performance. As the second biggest food and beverage industry player, the company adopted two strategies that have and continually makes them competitive and facilitates the achieving of high financial performance leading to profits. First, through the cost leadership strategy, the management adopts cost reduction strategy, which results in the company selling their products at low prices, offering promotional offers and discounts on purchases. Moreover, the company has adopted differentiation strategy. Here, the company gets to acquire more customers by creating unique products, for instance, healthy snacks such as potato chips with less amount of fat. Moreover, the company acquires more market shares by entering into new markets such as different countries and schools where they offer a variety of beverages that provide hydration options.

PepsiCo has the objective of protecting water supplies. The company argues that water is essential to the production of their products, as well as, helping to meet the food and resources needs of the world. The company first adopted the strategy of efficiency water use. Here, they aim at persistently decreasing the quantity of water used by their agricultural suppliers and during manufacturing and maximizing the process of water re-use to reduce pollution. Secondly, in a bid to protect the environment, the company supports the climate change agenda and aims at reducing their emission of greenhouse gases by 20 percent by 2030. Thirdly, the company strives to minimize their waste discharge to landfills, reduce food waste produced by the company and continually recycles and re-uses their packaging to prevent environment and water pollution.

The company also seeks to meet the objective of creating a safe and healthy environment. Being a company that employs, 264,000 employees, the company strives to meet the people goal. It does so through first, observing and respecting human rights through applying a code of conducts when dealing with employees, providing appropriate remuneration packages, providing protective gear and ensuring a safe work environment. Second, the company works towards expanding their sustainable farming initiative through increasing crop yields that result in increased livelihood for the farmers and workers. Third, the company supports diversity through the hiring of an inclusive and gender sensitive workforce that reflect the different societies all over the world. Moreover, it supports caregivers.

Watch CBS News

Subway will replace Coca-Cola products with Pepsi in 2025

By Caitlin O'Kane

Edited By Cara Tabachnick

Updated on: March 19, 2024 / 1:47 PM EDT / CBS News

Pepsi has edged out Coca-Cola in the Subway soda wars. The sandwich chain will no longer serve Coca-Cola products , but instead, Pepsi, the company announced. It's a reversal from their previous commitment to Coke.

Subway has signed a 10-year deal with PepsiCo that begins in 2025 and will serve that brand's beverages like Mountain Dew, Gatorade and Aquafina, said the company.

"The partnership with PepsiCo is an exciting milestone in our journey to become America's favorite place to eat, drink and work," Doug Fry, president of Subway, North America, said in a press release . "It is a win-win for everyone, as it brings a delicious suite of beverage and snack choices to our guests, driving additional consideration of these menu items, while also providing cost-effective, streamlined solutions to our franchisees."

The introduction of Pepsi products will begin on Jan. 1, 2025, and roll out in all U.S. locations over several months.

In 2003 Subway signed a 15-year deal with Coca-Cola to serve its beverages at stores worldwide. As the deal ended, the chain began to stock Pepsi products again — especially at Subways in international markets like Canada, Germany and the Netherlands. Its U.S. menus feature Coca-Cola products like Diet Coke, Sprite, Vitamin Water and Dasani. There are nearly 37,000 Subway locations in more than 100 countries.

The decision to switch brands is based on "guest preferences across demographics," the press release reads. The change is expected to "provide additional value to franchisees, including all new beverage equipment provided to restaurants."

In a statement to CBS News, a representative for Coca-Cola said: "For nearly twenty years, the Coca-Cola Company has proudly served Subway restaurants in the U.S. We are committed to serving Subway through the end of this year and will remain focused on delivering value for Subway, their franchisee partners, and consumers."

CBS News has reached out to Pepsi for comment.

Subway also extended its partnership with Frito-Lay through 2030. The snack brand's chips, like Ruffles and Baked Lays, are sold at the chain.

Caitlin O'Kane is a New York City journalist who works on the CBS News social media team as a senior manager of content and production. She writes about a variety of topics and produces "The Uplift," CBS News' streaming show that focuses on good news.

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Pepsi Company’s Supply Chain Strategies

Introduction.

PepsiCo Inc. is one of the leading food and beverage companies in the world. This American company was started in 1965 after the merger between Frito-Lay and Pepsi Cola and had its headquarters in Purchase. Through mergers and acquisitions, this company has been able to diversify its products to include snacks and beverages. The company has experienced massive growth and currently operates in the global market, with about 274,000 employees.

This company exemplifies a perfect demand-driven supply chain strategy, which is appropriate in the current market. The market where this firm operates is highly competitive. Other major players, such as Coca Cola offer stiff competition in the world market. 1 In order to manage this competition, the management of PepsiCo has realized that it needs to employ superior strategies in its supply chain strategies. It is always under pressure to ensure that the products are delivered to the retailers in a consistent manner to avoid cases of stores running out of stock.

It also has the responsibility of acquiring the right raw materials for its beverage products, transporting them to the manufacturing plants, and ensuring that they are in the right condition before they can be used to manufacture various products. This research will focus on the supply chain strategies used by PepsiCo in its beverage segment. Some of PepsiCo’s products that we will focus on in this paper include Pepsi, 7 Up, Mountain Dew, Gatorade, Sierra Mist, and Mirinda. The figure below shows some of the top beverage brands from this company.

Supply Chain Management

According to Shah (45), companies in the current society have realized that in order to remain competitive in the current market, offering high-quality products is not enough. The need to ensure that the customers have access to the products when they need them at the right locations has forced PepsiCo to reformulate its strategies in the supply chain management in order to maintain efficiency and reliability. The company has come up with a supply chain management, which is customer-centric. The following are some of the areas of supply chain management that this firm has perfected over the years.

PepsiCo has realized that getting the right materials at the right time is critical in achieving success. According to Jespersen and Larsen (112), the management of a firm needs to ensure that it has a team of suppliers who can deliver the needed raw materials in time. 2 PepsiCo has embraced a decentralized purchasing strategy to improve its efficiency (Ehrhardt and Edmond 41). 3 It operates various production plants in different locations.

At each plant, the regional head is given the authority to make the purchasing decision based on the local environmental forces in that region. Decentralizing the purchasing of raw materials is an effective way of empowering branches in different locations. By allowing the plants in these two countries to operate semi-autonomously, the top management has made it possible for the managers in these regions to act based on the local forces. The graph below shows the budgetary allocations to the local and overseas production units at PepsiCo.

PepsiCo’s Budgetary Allocations to Local and International Production Units

The data shows that the percentage budgetary allocation to the international production facilities has increased to surpass that of local allocations.

Supplier relationships

Maintaining a positive supplier relationship is needed to achieve success in this competitive industry. PepsiCo is one of the companies that have been keen on maintaining a close relationship with their suppliers. In fact, it has developed a close relationship with these suppliers to the extent that most of them feel that they are partners other than mere suppliers (Ehrhardt and Edmond 35).

This close relationship has been maintained by extending its various benefits to these suppliers, including loans, when they prove that it is necessary. Another strategy used by PepsiCo is organizing sporting events and end-year parties for all its regular suppliers (Ehrhardt and Edmond 48). Such get-together forums create a close bond between these suppliers and the company. This strategy has helped it maintain a pool of loyal customers, eliminating some of the problems faced by other firms in this industry.

Strategic sourcing

Strategic sourcing is very important in enhancing purchasing strategies within an organization. The management of PepsiCo appreciates the importance of maintaining superior purchasing strategies in order to maintain the flow of raw materials into the firm. The raw materials needed for the production of these beverage products include fruits such as pineapple, apple, orange, mangoes, among others. Other raw materials include sugar, flavor, and preservatives. These raw materials are readily available in various markets where the firm operates. The management at the local levels has partnerships with farmers who supply these products directly to the firm.

At this firm, Erickson (39) says that there has been a deliberate effort by the management to improve its purchasing processes based on the local environmental forces. 4 The company has created an information management system that allows the regional managers to share new knowledge in the supply chain so that they can know how to handle various issues in the market. However, each of them is given the liberty of modifying such knowledge to suit the local environmental forces within that particular region. These factors have enabled this firm to be very successful in the global market (Erickson, 54). PepsiCo is currently making positive strides as it seeks to capture the market in the emerging economies, especially in Africa and Asia.

According to Gattorna (113), efficiency in operations is one of the most important factors that can help a firm achieve success in today’s demanding market. 5 The management of PepsiCo has been struggling with the challenge of managing competition both in the local and international markets. In order to remain competitive, the management knows that it has to maintain superior operational strategies that will help in reducing time and cost of operation in order to cut overhead costs. The following areas of operation are very important in enhancing production.

Collaborative planning, forecasting, and replenishment (CPFR) model used in the firm

CPFR model has become popular in managing the needs of customers in the market (Gattorna 41). This model makes use of intelligence about various trading parties in the process of planning in order to meet the needs of consumers in the market. As Leeman (82) simply puts it, “The model provides a basic framework for the flow of information, goods, and services.” 6 This model has several rings of players, with the customers being at the center. The following diagram shows how the model works.

This model has been very relevant to PepsiCo in improving its operations in the market. The focus of the firm is to ensure that its customers are satisfied. It is the responsibility of PepsiCo and all its distributing agents to ensure that customers are given the products that meet their needs at the right time. On the other hand, it is the responsibility of the firm, which is in the outer ring, to ensure that the retailers have the right products to deliver to the customers. The retailers are just links between the manufacturers and consumers. When using this model, the management needs to follow the steps given in the four quadrants systematically.

PepsiCo has used this model in order to plan for its operations in the market. It is in the outer layer of the model, and this means that it has to meet the needs of the retailers so that the retailers can ensure that the customers are satisfied. According to Erickson (29), PepsiCo uses retailers other than specialty shops to sell its products to the customers. 7 It has large trucks, such as the one shown below, that helps it deliver products to the retailers at their stores. The retailers will break the bulk and sell the beverages in single units needed by the consumers. The graph below shows the sales volume of different types of beverages that this firm supplies to the global market in 2010.

PepsiCo’s Beverages Sales Volume in 2009-2010

The Pepsi drink is the most available PepsiCo’s beverage in the market, and it remains their most profitable product.

Resource planning systems

PepsiCo is a global company, and having an effective resource planning system is critical in achieving success in the market. The financial department is always under pressure to finance various projects, some of which may be beyond the capacity of the organization. At PepsiCo, resource planning is done at two tiers. The first tier of resource planning is done at the headquarters, where the chief financial officer and his team draw the overall budget for the firm on a yearly basis.

The second tier of resource planning is done at the regional level, where the regional manager is expected to draw a budget for the operational activities within the region. The resource planning system has been integrated to allow the top managers at the headquarters to understand the financial priorities given by the regional heads. Although these regional heads have the power to make the operational plans within their regions, sometimes they may need the approval of the top management before implementing the strategic plans.

The superiority of the model used by this firm lies in the fact that the regional managers are allowed to make strategic plans, and the top management at the headquarters only needs to make the approval. PepsiCo initially tried to use a one-tier resource planning system that was controlled at the headquarters. However, this proved futile and the company was forced out of some of the global markets, especially in the developing countries in Africa. Upon a careful analysis, the management realized that using a strategy that is successful in the United States in other markets is unrealistic. For this reason, when planning the resources to be used in these regions, the management realized that it is important to base the strategy on the local environmental factors that are unique to each region.

Inventory management

At PepsiCo, inventory management is always given priority because of the nature of the industry within which the firm operates. Food and beverage industry is one of the most sensitive industries in every world market. People take the products in this industry, and any small mistake may force a firm out of the market. Food poisoning is one of the issues of concern to the managers of the regional units of this firm.

If it is proven that, any of its products had ingredients that are not permitted within a given region, the firm may not only risk having its certificate of operation cancelled, but also it may face litigation. Customers are also very sensitive about the quality of beverages they take. Because of the numerous alternative products in the market, any complaint about the value of the products they receive from one company may make them switch to a different company in mass. Given the sensitivity of this industry, the management of PepsiCo has been very keen on managing its inventory.

Once the raw materials are inspected to be of the right quality, they are always stored under the right conditions and with proper supervision to avoid any possibility of contamination. Before being used to make the products, the raw materials are once again inspected to ensure that they are of the right value. Once the products have been manufactured, they are always packed in bottles and cans to enhance their safety. This strategy has enabled this firm to operate in the global market without facing any major complaints from the customers about their products being contaminated.

Inventory management in the beverage industry comes with numerous challenges, top of which is the fear of possible poisoning or contamination. PepsiCo has installed superior infrastructures at its production plants to deal with this issue. It has some of the modern storage facilities for its raw materials to help in expanding their lifespan. The new systems also help in detecting any contamination and presence of wrong ingredients in the raw materials. This automated system has eliminated some of the mistakes experienced in the past such as failure to detect contamination at the right time. When contamination is detected in the final product, the loss to the company will be huge. It explains why it is important to use these automated systems that stops the entire operation system once an irregularity is detected.

Process management approach

Process management is another aspect of operation that specifically deals with the activities of transforming the raw materials into the finished products needed by the consumers in the market. Shah (67) defines process management as “The ensemble of activities of planning and monitoring the performance of a process.” 8 As mentioned in the section above, production of beverages is a very sensitive process because the products will be consumed. Pepsi drinks are always consumed directly without being taken through any further processing by the customer. This means if any products have any defect; the customer will ultimately be affected. This has forced the management to install the sophisticated automatic machines such as the one shown in the diagram below.

This machine is instrumental not only in improving the quality and safety of the products, but also in reducing the cost of labor. What this machine can handle within a day may require several employees whose cost may be very high for the company. The machine does the processing and bottling of the products at a very high speed, and produces standardized products. Using tools such as the total quality management enhances the quality of the supply chain.

Logistics and Distribution

When the company has successfully completed the production process, the next important stage is the logistics and distribution of the products. Any food product has a short lifespan despite some of the preservatives that may be used. Once the PepsiCo’s products are ready, this firm must use the shortest time possible to ensure that they are delivered to the market. The global logistics and distribution strategies used by this firm are unique. PepsiCo has the responsibility of ensuring that its beverage products are delivered to the retailers in the regions where it operates.

This may seem to be an expensive process, but is one of the reasons why this firm has been very successful in the world market. Most retailers do not have problems of stocking their products because they are assured that the products will be delivered to them other than having to incur the transportation cost. The following are some of the areas of logistics and distribution strategies used by this firm that has enhanced its superiority.

Domestic and international logistics

Managing domestic and international logistics may be a challenge, especially for a firm with wide a market coverage such as PepsiCo. However, this firm has been able to manage its local and international logistics very effectively. The United States remains the major market for PepsiCo’s products. It has special tracks that it uses to deliver its products to its domestic customers. The track below shows a typical truck used to distribute the products of this firm.

In the international market, this firm uses various types of trucks to ensure that their products reach the retailers within the right time. The chart below shows the growth of income of PepsiCo from the international market, which shows that the logistical demand, is on the rise.

PepsiCo’s Income from the Emerging Markets

According to Bachmeier 78), PepsiCo has an elaborate transport and logistics unit that has won several awards in the United States for its effeciency. In the United States and Europe, this firm has enough trucks that it uses to transport its products. It also has warehouses that are strategically located along the highways to help in the storage of its perishable products before they are delivered to the market. The same trend is now being used in the developing economies.

Customer relationship management

Managing customer relationship is one of the most important activities for the marketing unit. PepsiCo has a heavy market presence through regular advertisements in the global market. The following is the brand logo that this firm has been using to identify itself to the customers.

The firm has managed its brand in the domestic market, and has rolled out ambitious programs to penetrate the global market. Its interactive social networking strategy is specifically meant to enhance its relationship with the international market.

Global location management

As stated before, PepsiCo operates in the global market, and this means that it requires effective global location management strategies. Unlike its archrival Coca Cola Company that outsources most of the activities in the production and distribution processes, PepsiCo has established its own plants in the global market. The production process takes place at these plants, which in most of the cases also house the administrative offices. This gives the firm the total control of its production process. The firm is also directly responsible for the distribution of the products to the market. This eliminates the intermediaries whose actions may increase the prices of the products. Although this location management strategy is expensive, it gives the firm the full control of its own market operations.

Service response logistics

The consumers have become very demanding, and firms are forced to deliver products that meet their demands. Service response logistics is a relatively new concept that seeks to ensure that a firm delivers the products needed by the customers at the time of need. It involves basing the logistic strategies on the responses received from the customers. Erickson (19) says that PepsiCo has embraced this new strategy of using the social media platform that enables it to capture the response of its customers about its products and the delivery approach. 9

Sustainability

Sustainability is an issue that many business entities have been struggling to achieve. According to Leeman (49), sustainability has three pillars, which include the environment, society, and customers. 10 PepsiCo has shown its commitment to the environment through various programs that are meant to conserve forests and reduce green gas emissions. Its annual reports also indicate that it has been working closely with the members of the society to enhance the living standards of people by sponsoring sports and education of children from poor families. The firm has been keen on maintaining the quality of services to its customer, which has earned it a pool of loyal customers.

According to Bachmeier (39) 11 , PepsiCo is currently running an initiative in Belgium, France, Iberia, Germany, and Holland to support sustainable agriculture among the fruit famers. The initiative, which is part of PepsiCo’s sustainable programs, is meant to support these farmers to ensure that the raw materials used in producing the beverages are protected. In order to support the farmers, PepsiCo, in collaboration with Cambridge University, has been creating awareness among its farmers to help them understand the benefits of renewable energy in their farming practices (to Bachmeier 56).

This program aims at lowering the cost of production for the farmers. This will help them sell their produce to PepsiCo at fair prices but still make good profits. Water is the most important raw material that Pepsi uses to produce beverages. In some countries, this firm has experienced shortage of clean water that it can use in its production process. In India, this firm has been facing the problem of clean water shortage (Bachmeier 41). In 2009, PepsiCo introduce Positive Water Balance Initiative in India to help it address the issue of clean water scarcity in this country.

This sustainability program helped PepsiCo replenish more water than the amount it used in its production process. This was done through water conservation programs and protection of water catchment forests in India (Kanani 1) 12 . In 2010, the company introduced water-recycling policies at all its plants, including those in India. This helped in reducing water consumption by over 30%. Currently, the firm is closely working with farmers to embrace drip irrigation system because of the minimal amount of water that is used (Kanani 1).

Strengths and Weaknesses of the Firm

The main strength of this firm lies in its financial capacity and many years of experience in this industry. It understands the market dynamics, which gives it an edge over other market competitors. However, the slow pace in implementing the emerging technologies, especially in marketing, is one of its main weaknesses (Erickson 19).

The management of PepsiCo has made an effort to ensure that its supply chain management for its beverages is very effective in order to maintain high quality products in the market. This management has been keen on acquiring quality raw materials, transports them to the firm, transforms the materials to final products, and delivering the products to the clients in the market. In its supply chain, the firm has always emphasized on maintaining quality at all the stages using various quality management tools such as Total Quality Management. It is clear that PepsiCo is one of the best examples of firms that have used the modern methods of supply chain management to enhance their operations in the market. Although the market is very competitive, this firm has been able to remain very competitive because of its ability to access quality raw materials, use efficient production processes, and deliver quality products to the customers in time.

Works Cited

Bachmeier, Kristina. Analysis of Marketing Strategies Used by Pepsico Based on Ansoff’s Theory . München: GRIN Verlag GmbH, 2009. Internet resource.
Biswas, Arijit, and Anindya Sen. Coke vs Pepsi: Local and Global Strategies. Economic and Political Weekly 34.26 (2007): 1701-1708. Print.

Ehrhardt, Moses and Brigham Edmond. Corporate Finance: A Focused Approached. New York: Cengage Publishing, 2014. Print.

Erickson, Gary. Advertising Competition in a Dynamic Oligopoly with Multiple Brands. Operations Research , 57.5 (2009): 1106-1113. Print.

Gattorna, John. Gower Handbook of Supply Chain Management . Aldershot: Gower, 2008. Print.
Jespersen, Birgit, and Tage Larsen. Supply Chain Management: In Theory and Practice . New York: Cengage, 2005. Print.

Kanani, Rahim 2013. Why PepsiCo is a Global Leader in Water Stewardship and Sustainable Agriculture.Web.

Leeman, Joris. Supply Chain Management: Fast, Flexible Supply Chains in Manufacturing and Retailing . London: McMillan, 2010. Print.

PepsiCo: Production Budgets 2014. Web. Shah, Janat. Supply Chain Management: Text and Cases . Upper Saddle River: Pearson Education, 2009. Print.

Smith, Andrew. Drinking History: Fifteen Turning Points in the Making of American Beverages . New York: Columbia University Press, 2013. Print.

Yahoo Finance: Historical Prices 2014. Web.

Ehrhardt, Moses, and Brigham Edmond. Corporate Finance: A Focused Approached. New York: Cengage Publishing, 2014. Print.
Erickson, Gary. Advertising Competition in a Dynamic Oligopoly with Multiple Brands. Operations Research 57.5 (2009): 1106-1113. Print.
Shah, Janat. Supply Chain Management: Text and Cases . Upper Saddle River, N.J: Pearson Education, 2009. Print.
Kanani, Rahim 2013. Why PepsiCo is a Global Leader in Water Stewardship and Sustainable Agriculture. Web.

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Liquid Death is just one of many VC-backed beverage startups ready to disrupt Coke and Pepsi

Venture-backed beverage startups continue to pop.

On March 11, a fizzy startup announced that it had raised $67 million at a $1.4 billion valuation and reached $263 million in sales in 2023. Did you guess that this startup is Liquid Death, a canned water company?

Liquid Death has now raised more than $267 million in venture funding despite sitting in a category that doesn’t interest many investors. Beverage is a tough industry for VCs because it’s capital intensive; requires a knack for picking companies that will sell well on retail shelves or other direct-to-consumer methods; and inspires repeat customers as opposed to just one time.

Science Ventures’ managing director, Michael Jones, told TechCrunch that his firm wasn’t interested in getting active in the beverage sector but backed Liquid Death because of its potential to disrupt legacy players like Pepsi and Coke.

“We were in the market for culturally relevant companies with better-for-you products that redefined a tired and old category,” Jones said. His investing team considered Liquid Death to be “a super disruptive brand.”

Cutting through the fizz

Some of the new venture-backed beverage startups are hoping to upend the industry by creating new drink categories. This is akin to what technology companies often do, said Dan Buckstaff, chief marketing officer for retailer data company Spins.

“You may think you can’t squeeze another category in here, but instead you approach it differently,” Buckstaff said. “You take inspiration from others or maybe there’s a new technology that allows you to do it, or data, that does lead to companies that can create hundreds of millions in ARR.”

He said Liquid Death drew from beer’s marketing and shelf placement to find success not only on grocery store shelves, but also at events, bars and restaurants — even at conferences. Liquid Death could not be reached for comment by press time. In fact, while at the consumer packaged goods conference Expo West recently, Buckstaff hosted a Liquid Death party, and his room ended up looking like “we had a real binge.”

Poppi raises a can to fresh capital to support its functional beverage growth

He took an informal poll from people who attended asking how often they ordered beer or wine just to be thought of as social. Half of them said they did. That made him realize the enormous possible market for companies like Liquid Death that have alcohol-inspired brand names and packaging but are healthier alternatives.

“For those people, these non-alcoholic brands are well-positioned for that, and there is a massive potential,” Buckstaff said. “And not just at a social event, but just at home — people kicking back and having a beer. Instead, there’s a lot of alternatives now with mood setters or relaxers.”

Not Beer is one of those taking a nod from these early companies. Founder Dillon Dandurand is bootstrapping the new company, which is making a premium sparkling water brand launching April 9. He said his brand was created for consumers opting to drink less alcohol.

“Gen Z drinks less than any of the generations before them,” he said. “These people still want to have fun, but they are realizing they don’t need to drink alcohol to have fun or they don’t need to drink as much alcohol to have fun. In fact, getting a nice buzz but not getting wasted is probably more fun.”

Getting in front of the noise can be tough, though. There are two attributes that consumers care about, which presents an opportunity to set a brand apart from the competition, according to Dandurand: taste and the brand.

With so many options out there, brands have to sell on why their drink is better than a similar one in the category, and also sell why the drink is better than another category.

“That is a tough battle,” Dandurand said.

Functional beverage startup Odyssey grabs $6M to accelerate energy drink growth

Who else is popping?

Water isn’t the only category attracting startups and VC cash, often from celebrity angel investors. Drinks that feature vitamins, minerals, supplements and botanicals are also a burgeoning area.

For example, companies like Odyssey, which raised $6 million in venture capital in February from an investor group that includes Richard Laver from Lucky Beverage Group. The company is infusing into its drinks lion’s mane and cordyceps mushrooms, known for their cognitive clarity and increased energy effects.

Other beverage startups attracting VC dollars include better-for-you soda startups like Olipop (backed by Finn Capital Partners, Melitas Ventures, and celebrity angels like Camila Cabello ) and Poppi , backed by Electric Feel Ventures, Rocana Ventures partners and angels. Each raised more than $50 million in venture funding. Healthy lemonade alternative Lemon Perfect has raised more than $70 million cash from a long list of VC firms, athletes and celebrities like Beyoncé.

Poppi — which has CAVU Consumer Partners and a bevy of celebrity investors, like Russell Westbrook from the LA Clippers, the Chainsmokers, Olivia Munn and Nicole Scherzinger — has grabbed about 19% of the beverage market share since launching about four years ago. Forbes reports that is 1.5x higher than Coke. It also rose to be the 11th fastest-growing beverage brand in the last month, besting brands like Monster Energy, Gatorade and Liquid Death.

The brand is seeing success from “strategic marketing to become a part of culture, with an active and loyal following” and “filling a gap in the industry by providing a delicious better-for-you option,” Poppi CEO Chris Hall told TechCrunch via email.

VCs are chasing some of this category’s blockbuster returns. Coca-Cola bought celebrity-sponsored coconut vitamin water BodyArmor for $5.6 billion in 2021. BodyArmor had raised $36 million in venture capital. Back in 2016 Bai, maker of drinks infused with antioxidants, sold to Dr Pepper Snapple Group for $1.7 billion after raising a little more than $10 million in venture capital. Smaller deals happen, too. In April 2023, NextFoods bought tart cherry beverage Cheribundi for an undisclosed sum after a $15 million investment round in 2020 led by Emil Capital Partners, Food Dive reported.

While these startups make great acquisition targets because legacy companies often prefer to buy versus developing new products of their own, some may do well on the public market, Alex Malamatinas, founder and managing partner at food and beverage-focused Melitas Ventures, said.

“Obviously what is happening in tech and AI is amazing, [but] at the end of the day, everybody needs to eat and drink every day, they are very large markets with significant TAM,” Malamatinas said. “Despite everything that has been going on, the best performing stock [over the last 30 years] is Monster beverage, not a tech stock.”

That’s a bit of hyperbole. Monster is up about 16% over the last 12 months at a respectable $63 billion in market cap, while the most valuable companies in the world are Microsoft, Apple and Nvidia, each worth multiple trillion. But the point that its market cap is higher than many tech companies is valid. For instance, only 7 out 100 companies on Bessemer’s Cloud Index are more valuable.

Camila Cabello, Mindy Kaling, Gwyneth Paltrow pour capital into Olipop’s mission to change soda

New innovation cycle for beverages

Buckstaff also noticed the food industry’s largest trade show, Expo West, booming with more new exhibitors. “It leads me to believe that maybe we’ve entered a new innovation cycle,” he said.

Jeff Klineman, editor-in-chief of food and beverage-oriented media company BevNET, certainly thinks so. Beverage startups remaining resilient despite a tougher fundraising market is a story of “haves and have-nots,” Klineman told TechCrunch via email.

“In the past couple of years funds have had more trouble raising, strategics have cooled off their acquisition plans and lending has been tighter,” Klineman said. “CPG funds have been deploying more slowly while there’s more competition for brands that are actually growing and doing well.”

Though, beverage startups are having their difficulties fundraising in the touch VC environment as well. For those that haven’t hit “the sweet spot” of consumers making repeat purchases, that aren’t seeing channel expansion, or that are showing a path to profitability, the market is challenging, Klineman said.

For investors, figuring out which brands will last and which ones just play into a fad is hard, Malamatinas said. He cited the trend of CBD beverages a few years ago that temporarily blew up but has been much quieter since. The firm avoided them, he said, probably thankfully so, as the research on whether low-dose CBD beverages work is mixed .

“There are going to be several big outcomes in the years to come,” Malamatinas said. “I think the main reason people shy away from the space is it requires a certain level of expertise. We have experienced operators. There is a certain level of know-how and skills for these businesses to scale.”

For investors willing to put in the work and the time to find those long-lasting brands, the category looks likely to produce strong returns. It worked with Bai. Olipop and Liquid Death seem well on their way. Now let’s see who’s next.

This piece has been updated and corrected to show that Russell Westbrook is with the LA Clippers, not the Chainsmokers.

Poppin’ bottles: VCs continue to pour millions into independent beverage startups

5 Myths Critics Get Wrong About Bob Iger’s Performance at Disney

A s Disney’s closely watched proxy fight barrels toward the finish line with shareholders casting their votes on April 3, critics of CEO Bob Iger have launched a fuselage of attacks , criticizing Iger’s track record and his plans for turning around Disney. But amidst widespread interest from non-business audiences, these criticisms often drown out the facts and fail to see the whole story before them.

Here are five persistent but false myths about Iger’s track record and plans for resurrecting Disney, debunked.

Myth: Disney stock has languished under Bob Iger’s leadership

The facts clearly show that Disney stock has significantly outperformed virtually all its pure play media and entertainment peers during both of Iger’s stints as CEO. Disney’s 579% total shareholder returns during Iger’s first term as CEO, from 2005 to 2020, far outpaced that of key rivals Warner Brothers’ 244%, Fox’s 104%, and Paramount’s 49% during that same timeframe. And since Iger returned for his second stint as CEO in November 2022, Disney’s 27% total shareholder returns have far outpaced all its major media rivals who are in the red, with Warner Brothers Discovery’s -22%, Fox’s -6%, and Paramount’s -40% returns. No media and entertainment peer CEO can boast of such consistent outperformance across two decades.

Disney critics point out that the company’s stock has fallen about 40% from its peak levels of nearly $200 in 2021, ignoring the fact that Bob Chapek, not Iger, was the CEO in 2021. It was Chapek who oversaw the collapse of Disney stock from $200 to $85 when he was removed in November 2022. Furthermore, Disney critics point out that Disney stock has underperformed big tech platform companies such as Apple, Amazon, Alphabet, Meta, and Netflix, but they disregard the fact that much of these companies’ value derives from their non-media businesses and that Disney has not, and will never be, a pure play big tech company.

Myth: Bob Iger overpaid in major Disney acquisitions

Critics protest that Iger overpays every time a deal is struck and insist that his failed M&A track record is a reason to depose Iger as CEO. But not only is there zero financial evidence to suggest this is true, a careful analysis of the facts suggest Iger’s deals and capital allocation decisions have been rewarded many times over. Consider the payoff from each of his four big deals:

In his first big deal after taking over as CEO, Iger purchased Pixar for $7.4 billion dollars in May 2006. Although media analysts pounced, declaring “ Investors, Beware: Disney is Paying Too Much for Pixar ,” Disney has reaped over $40 billion in direct revenues from Pixar, not even counting derivative revenue streams such as park attractions and synergies with other Disney franchises. Following this up, three years later in December 2009, Iger purchased Marvel for $4 billion sparking the same cries that Disney overpaid . But in the time since, Marvel has reaped over $13 billion in direct revenues for Disney, again excluding derivative revenue streams and synergies which may amount to many billions more. Iger then made his third deal in December 2012 when he purchased Lucasfilm for $4 billion , with the same “ overpay ” criticisms abounding. In the time since, Disney has reaped approximately $12 billion in direct revenues from the Star Wars franchise.

For his fourth deal, and perhaps the most controversial today, Iger purchased 21st Century Fox from Rupert Murdoch for $71 billion in 2018 . Although critics continue to argue Iger overpaid, and while it is still early, this critique does not stack up to basic math . The deal cost Disney significantly less than $71 billion, and closer to $45 billion when all was said and done, since Disney immediately divested several assets at their peak valuation , including selling the regional sports network to Sinclar for $11 billion; selling Sky to Comcast for $15 billion; selling 50% of A&E Networks to Hearst; and selling TeleColombia to Paramount. Disney picked up several key assets in the deal, including a 30% stake in Hulu; a 73% stake in National Geographic Partners, and a Star India/Hotstar stake, all of which are worth $12 billion. If one puts a highly conservative 6x multiple on $6 billion in immediate earnings, cost cuts, and synergies, including $2 billion from the Avatar movie alone, then we believe the Fox deal paid for itself within the first year.

Myth: Bob Iger has lost his magic touch on movie making

Critics point to the fact Disney has lost money on its last five movies— but each of those money-losing films were either greenlit or largely produced under the watch of predecessor Bob Chapek, who had little creative experience and whose tendency to alienate creative talent was well documented . In fact, during Chapek’s entire tenure as CEO, not a single Disney movie released under his watch crossed $1 billion in gross box office revenues, with high-budget misses such as Black Widow , Encanto , Thor: Love and Thunder , Pinocchio , and Black Panther: Wakanda Forever underperforming at the box office. In contrast, Iger had seven films cross $1 billion in box office profits in his last full year as CEO alone in 2019, and Iger has produced 8 of the top 10 and 13 of the top 20 biggest box office openings of all time. Bob Iger has acknowledged that Disney’s creative engine “ lost its way ”, and is now prioritizing quality over quantity after clearing the cluttered content pipeline, canceling at least a dozen projects greenlit by Chapek.

Myth: Bob Iger is failing to turn around Disney

Although Disney stock is up 27% since Iger returned in Nov. 2022, and is the top performing stock in the Dow Jones Index this year, critics continue to suggest Iger is not doing enough. In fact, Iger’s performance during his second run as CEO already far exceeds those of peers who returned to the CEO job after a successful first run. Starbucks stock was down nearly 50% a year after Howard Schultz returned to Starbucks in 2008, but after three years had returned 63%. Similarly, after Michael Dell returned to Dell in 2007, the stock fell 17.3% a year into his tenure before multiplying by several times over the next decade. Even Apple, under founder Steve Jobs, took three years to pull off its stunning stock rebound of 403% after his 1997 return as CEO. (Iger served on that board under Jobs.)

Iger’s plan for fixing Disney is well underway and paying dividends already. After a year spent fixing inherited issues, Disney’s flywheel is now firing on all cylinders , with free cash flow inflecting eightfold from $1 billion in 2022 before Iger returned, to well over $8 billion expected this year.

Myth: The Disney board is unduly deferential to Bob Iger and dropping the ball on leadership succession

Disney’s board is one of the most impressive boards in modern corporate America, with strong, independent, qualified CEO peers of Iger including GM CEO Mary Barra; Oracle CEO Safra Catz; Morgan Stanley Chair James Gorman; Former Nike CEO Mark Parker; and Lululemon CEO Calvin McDonald; not to mention top executives from Cisco, Meta, Sky, CVS, and JPMorgan—all of whom are independent directors and do not have any personal ties to Iger.

Furthermore, with a new special subcommittee of the Board focused on leadership succession led by Mark Parker and James Gorman, both of whom oversaw seamless succession processes at Nike and Morgan Stanley respectively, Iger continues to cultivate a strong team of key deputies including Disney Entertainment Co-Chairs Dana Walden and Alan Bergman; Parks Chair Josh D’Amaro, and ESPN Chair Jimmy Pitaro, who have driven revenue growth and $8 billion in cost cuts after Iger restored authority to these key creative leaders.

Plus, Iger surprised the media world by attracting back to the team two past CEO candidates, Tom Staggs, the former CEO of Disney Parks and Resorts as well as former Chief Operating Officer of Disney and Kevin Mayer who led Walt Disney Direct to Consumer and International businesses. Finally, the consumer products and financial worlds were impressed when highly respected PepsiCo CFO Hugh Johnston left to join Iger as well.

Read More: Bob Iger Outsmarting Ron DeSantis Is a Master Class in Taking on Bullies

As we’ve shown, these five myths about Iger’s track record and plans for resurrecting Disney are not grounded in factual reality. While it is true that some media monarchs cling to power past their peak, clearly, the facts suggest Iger deserves to complete his second decade at the helm of Disney. But above all, under Iger’s impressive stewardship, his plans for turning around Disney are already reaping massive rewards.

As film critic Roger Ebert once said, “no good movie is too long and no bad movie is short enough!” Despite the length of Iger’s career, perhaps it is still not long enough. The drama surrounding Disney has become a triumphant saga under Iger’s leadership, which should play on.

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Guest Essay

Same Old Song: Private Equity Is Destroying Our Music Ecosystem

A colorful drawing of a young Whitney Houston singing with a pained expression.

By Marc Hogan

Mr. Hogan is a freelance writer, reporter and music critic.

Does that song on your phone or on the radio or in the movie theater sound familiar? Private equity — the industry responsible for bankrupting companies , slashing jobs and raising the mortality rates at the nursing homes it acquires — is making money by gobbling up the rights to old hits and pumping them back into our present. The result is a markedly blander music scene, as financiers cannibalize the past at the expense of the future and make it even harder for us to build those new artists whose contributions will enrich our entire culture.

Take Whitney Houston’s 1987 smash “I Wanna Dance With Somebody (Who Loves Me),” which was bought in late 2022 as part of a $50 million to $100 million deal by Primary Wave, a music publishing company backed by two private equity firms. The song was recently rebooted into our collective hippocampus via a movie about the singer, titled, naturally, “I Wanna Dance With Somebody,” which helped propel streams of the song and her hits collection. Primary Wave — which has entered into a variety of deals with artists or their estates that could include publishing rights, image rights and recorded-music revenue streams — has also helped introduce a Whitney Houston signature fragrance and a nonfungible token based on an unreleased Houston recording.

Buying up rights to a proven hit, dusting it off and dressing it up as a movie may impress at a shareholder conference, but it does little to add to a sustainable and vibrant music ecosystem. Like farmers struggling to make it through the winter — to think of another industry upended by private equity — we are eating our artistic seed corn.

Private equity firms have poured billions of dollars into music, believing it to be a source of growing and reliable income. Investors spent $12 billion on music rights in just 2021 — more than in the entire decade before the pandemic. Though it is like pocket change for an industry with $2.59 trillion in uninvested assets , the investments were welcomed by music veterans as a sign of confidence for an industry still in a streaming-led rebound from a bleak decade and a half. The frothy mood, combined with a Covid-related loss of touring revenue and concerns about tax increases, made it attractive for many artists, including Stevie Nicks and Shakira , to sell their catalogs, some for hundreds of millions of dollars.

How widespread is Wall Street’s takeover? The next time you listen to Katy Perry’s “Firework,” Justin Timberlake’s “Can’t Stop the Feeling” and Bruce Springsteen’s “Born to Run” on Spotify or Apple Music, you are lining the pockets of the private investment firms Carlyle, Blackstone and Eldridge. A piece of the royalties from Luis Fonsi’s “Despacito” goes to Apollo. As for Rod Stewart’s “Do Ya Think I’m Sexy” — hey, whoever turns you on, but it’s money in the till for HPS Investment Partners.

Like the major Hollywood studios that keep pumping out movies tied to already popular products, music’s new overlords are milking their acquisitions by building extended multimedia universes around songs, many of which were hits in the Cold War — think concerts starring holographic versions of long-dead musicians , TV tie-ins and splashy celebrity biopics . As the big money muscles these aging ditties back to our cultural consciousness, it leaves artists on the lower rungs left to fight over algorithmic scraps , with the music streaming giant Spotify recently eliminating payouts for songs with fewer than 1,000 annual streams.

The grim logic that shuttered the big-box store chain Toys “R” Us and toppled the media brand Vice is also taking hold of our music. Historically, record labels and music publishers could use the royalties from their older hits to underwrite risky bets on unproven talent. But why “would you spend your time trying to create something new at the expense of your catalog?” asked Merck Mercuriadis, the former manager of Beyoncé and Elton John who founded Hipgnosis.

Instead, self-styled disrupters can strip mine old hits and turn them into new ones. Nearly four years ago, the publicly traded Hipgnosis Songs Fund bought a 50 percent stake in the funk star Rick James’s catalog, which includes his irresistibly catchy 1981 hit “Super Freak.” To monetize its prize, Hipgnosis found a lightly modernized update of the “Super Freak” track, had Nicki Minaj assemble a songwriting crew and voilà: In 2022, Ms. Minaj’s “Super Freaky Girl,” essentially the pop-rap superstar rapping over “Super Freak,” became her first No. 1 single that wasn’t a joint release. Hipgnosis trumpeted the win in its annual report .

This creative destruction is only further weakening an industry that already offers little economic incentive to make something new. In the 1990s, as the musician and indie label founder Jenny Toomey wrote recently in Fast Company , a band could sell 10,000 copies of an album and bring in about $50,000 in revenue. To earn the same amount in 2024, the band’s whole album would need to rack up a million streams — roughly enough to put each song among Spotify’s top 1 percent of tracks . The music industry’s revenues recently hit a new high , with major labels raking in record earnings , while the streaming platforms’ models mean that the fractions of pennies that trickle through to artists are skewed toward megastars.

Fortunately, some of the macroeconomic forces that have brought us that Whitney Houston perfume (forged from a deal between Primary Wave, Ms. Houston’s estate and a perfumer) and a Smokey Robinson wristwatch (via a partnership with Shinola) are shifting. As interest rates have risen, the surge has faded. In February, word surfaced that the private equity behemoth KKR was beating a quiet retreat from the music space. More recently, Hipgnosis Songs Fund, the owner of “Super Freak,” cut the value of its music portfolio by more than a quarter in the wake of a shareholder revolt. Long-hyped deals to sell the catalogs of Pink Floyd , for a proposed $500 million, and Queen , for a reported $1.2 billion, have yet to bear any public fruit.

And that’s probably fine. All music is derivative at some level — outside a courthouse or a boardroom, music has a folk tradition in which everybody borrows ideas from everybody — but it’s hard to argue that already wealthy artists should receive 1990s-level compensation for the type of flagrantly recycled fare that the private equity cohort demands. A music world without, say, a “Dark Side of the Moon” theme park ride or a “Bohemian Rhapsody” film sequel seems like one where fresher sounds could have a little more room to breathe.

And subscription growth for streaming services like Spotify and Apple Music seems likely to slow, as the finite number of possible customers hits its limit. With less growth, values for music rights are expected to level off . Perhaps that will leave more money in the pool for musicians just starting their careers.

Music is invaluable, but to the music industry and the technology companies that now distribute its products, songs are quick dopamine hits in an endless scroll — and musicians are paid accordingly. The presence of Wall Street didn’t start the systematic devaluation of music, but it did bring this dismal reality into stark relief. Private equity’s push into music rights may have proved to be less a sign of a gold rush than yet another canary in a coal mine.

Musicians’ groups have been fighting for fairer pay, and this month, Representatives Rashida Tlaib of Michigan and Jamaal Bowman of New York, both Democrats, introduced a bill intended to increase artists’ streaming payouts. Though such efforts seem sure to face stiff opposition, it’s long past time for the music industry to try something new. We need to make the making of music important enough again for that future John Lennon to pick up a guitar.

Marc Hogan is a freelance writer, reporter and music critic.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

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