Pepsi Company
In the dynamic world, financial failure or success, as well as short term and long term survival entirely, relies on the performance of the business. The performance of the business depends on the effectiveness of its overall strategies. Organizational strategy can be defined as the number of actions or activities a company needs to take to achieve its long term goals. For a company to achieve its long term goals there should be a well-informed decision made by the top management of the company. Sincerely top management of any company creates the overall organization strategy while middle and lower management adopts plans and goals to fulfill the overall strategy step by step. One of the growth industries in the United States is the food and beverage industry. The food and beverage industry has one of the biggest companies in the USA such as PepsiCo., Coco-Cola, and Tyson Foods. Based on the latest analysis, their performance has to be good due to the effectiveness of their overall strategies. PepsiCo and Coca-cola have competed for several decades. Therefore this paper aims at evaluating the performance of PepsiCo in comparison with the Coco-Cola Company for the last 10 years and advising the top management of PepsiCo on best financing methods for future investments.
Pepsi Company is the manufacturing, marketing, and distribution of grain-based snack foods, beverages, and other products. Pepsi Company has its headquarters in New York. It distributes its products through direct-store-delivery and customer warehouse systems as well as third party networks. Its greatest competitor is the Coco cola company which deals with beverages, soft drinks, and other products. The two companies have dominated the food and beverage industry for many years. Pepsi Company has diversified its operations in different parts of the world. In other words, it operates in foreign markets. On the other hand, the Coco-Cola Company has diversified its operations in the different parts of the world as well. Featuring in the global market has seen the two companies grow rapidly. The sad truth is that the two companies try to outperform each other every year posing a big competition. However, Pepsi’s superior performance for the last 10 years over Coco cola may surprise many followers and fans of the two brands. This is because the Coco-Cola Company has strong brands than the Pepsi Company. On the Forbes World Most Valuable brands, Coco cola ranks number 6 compared to the ranking of Pepsi number 29. Most of PepsiCo’s success comes from the fact that it consistently stays in touch with changing trends and lifestyles and gives consumers the tastes and conveniences they desire.
The management of the Pepsi Company has to be a key player in the swift progress of the company. As you know, top management of any business entity deals with organization goals and policies and is mandated with the responsibility to make strategic decisions. These decisions help in accomplishing company goals and missions. For the last five years, Pepsi has launched new products based on growing technology. For the last few years, it has added healthier snacks and beverages. The company released energy drinks like Mtn Dew Fuel. These energy drinks are among the higher-growth beverages categories with many customers prefer them. The company has also jumped in on the sparkling water trend with Bully. Recently, the CEO of the company has confirmed that Bully remains to be the company’s next billion-dollar brands. The company has been selling its beverages and snacks in smaller packaging, giving customers who want small portions an opportunity to acquire some. Besides, Pepsi has also been expanding its lineup of healthier options through brands such as Bare. In an attempt to post its financial outcomes, Pepsi pays more attention to the health of consumers by ensuring the quality of its products. Most of Pepsi products are packed in canes that are environmentally friendly. They can be recycled. This is the one way that ensures that PepsiCo. is ensuring social responsibility. Apart from adding healthier snack and beverage options, the Pepsi strategy for sales growth has focused on investing more in advertising and marketing. Indeed, Pepsi is carrying out advertisements in many parts such as Television, Social media, and others, Unlike the Coco-Cola Company. This has seen its net income grow to $2.04 billion off-late. Findings from the research on Pepsi Company suggested that the company has ever relied on mergers and acquisitions. In 2012, it extended its partnership with Sabra Dipping Company and announced to launch of a new world-class Dips and Spreads product line under the Obela Brand.
Furth more, the environmental conditions in which an organization operates, largely affects the performance of an organization. The organization management has to deal with such conditions appropriately to achieve its financial targets. Pepsi and Coco cola Company as beverage companies are facing a tough environment in the United States. The stubbornly high US dollar has posed a challenge to PepsiCo. and the Coco-Cola Company. The strong dollar has affected the companies revenue or financial outcomes. While a strong dollar has dragged on Pepsi’s revenue, the company is said to be performing well despite a tough operating environment. The CEO of the Pepsi company confirmed that the successful performance of the company is geared by extending the key brands in markets outside of North America. Besides, most of the developed markets outside the U.S posed a challenging macroeconomic environment due to slow growth. In such markets the low commodity prices have led to high levels of inflation, eroding the ability for consumers in those markets to spend. Such markets include Brazil and Russia. Although Brazil is one of the toughest environments, PepsiCo has successfully performed in it, as its approach in Brazil focused more on the value of products.
Additionally, there have been high concerns about obesity and health leading to low consumption of soda. Critics have blamed the ingredients in soda as the contributing factor to weight gain and later causing cancer. This has resulted in marketing challenges to Pepsi and Coco cola as the government of the United States passed tough measures to lower the consumption of soda thus demand carbonated drinks fell, in particular diet sodas sold by Pepsi and rival Coco-Cola (KO). For instance, in North America where Pepsi Frito-lay and beverage businesses had majored, the results were fairly stagnant posting volume growth of just 2%. Truly, soda supplied by two companies contains a large concentration of ionic colas. .Worldwide, colas account for more than half of all sodas sold. Now the challenge of giving the consumers the sugar taste they want without giving them the calories they don’t want has forced the two soda giants to turn to science and save their cola business. They are researching a new product (soda) that tastes as good as the iconic colas but is sweetened naturally and has zero calories. Although this issue has challenged the market for both Companies, PepsiCo is still performing better since its portfolio also includes food and snacks. Unlike Coco cola which deals exclusively in beverages, Pepsi revenue has grown for the last five years since most customers are attracted by their snacks and food. It is no doubt that Pepsi is beating the Coca-cola Company. Besides, Pepsi has many positive catalysts helping it to achieve earnings momentum and placing it in a much better position compared to Coke. Recent research conducted on the soft drink industry suggested that Pepsi has more world’s most valuable brands. PepsiCo had 29 while Coke had only 9. In terms of revenues, Pepsi twice the size of Coco cola and that gives it an advantage over coke. According to the 2019 annual report, Pepsi revenues are $64.98B while that of Coca-cola is $32.25B. Therefore, the top management of PepsiCo should ensure the company sticks to the changing lifestyle and trends of consumers along introducing new products. This is because based on annual reports of the company for the last ten years, it has registered successful performance.
There are several methods of financing business operations which range from internal financing to external financing. However, the methods of financing that a business undertakes depend on the structure, size, and expansion plans of the company. There are many sources of internal finance which include; retained earnings, fixed assets, collection of the money owed among others. On the other hand, external sources of fiancé are debt and equity financing. Considering the past ten years’ performance of Pepsi, it is clear that Pepsi is among the major companies in the United States. The management of the Pepsi Company should focus on further investment to keep the company at that pace. There it remains the responsibility of top management to research all the methods of financing and carry out the best method that will lead to the achievement of set goals. Internal financing is associated with many benefits. They are: lowering the interest paid to the lenders; helping the organization maintain full control of its operations; improving the overall value of the company; limiting the influence on the company, enhancing the planning process; and reducing the overall cost of many projects. These benefits trigger many companies to use the internal source of finance in investment plans. Based on my opinion, small businesses are likely to use internal financing. However, these benefits may not always outweigh the disadvantages. Internal financing may not be in a position to finance large projects of the organization. Also, it may trigger the company backward.
Organizations that are willing to invest in long term projects mainly considers external financing. The sources for external financing are debt and equity financing. A company chooses one of the two methods of external financing. Equity financing refers to the funds generated by the sale of stock while debt financing refers to the funds borrowed from a lender and repaid with interest. Debt financing has benefits such as no need to sacrifice a portion of business ownership rights, quick access to cash without reporting responsibilities, full control of the business, unlike equity financing. In contrast, debt financing is repaid with interest. Likewise, equity financing provides quick cash in large amounts for investment purposes. One of the major benefits of equity financing is that funds need not be repaid. However, equity financing is a greater risk to the investor than debt financing is to the lender. The cost of debt is always lower than that of equity. I recommend that the top management of Pepsi should incorporate and use debt as their method of financing for further investments. A company should also evaluate the cost of capital as well as the risk of the new projects it has invested in. The cost of capital can be said to be the cost of debt or equity and can be used to evaluate new projects of a company. The risk associated with setting up new projects need also to be accessed. An understanding of the relationship between the cost of debt and risk in investment is very crucial for the progress of the PepsiCo. Therefore when setting up a new project in an attempt to expand the Pepsi operations, the return should be weighed against the risk to decide on the best project to invest in.
In conclusion, Pepsi’s performance for the last 10 years has been excellent compared to that of Coke. The revenue of the Pepsi Company has raised and is higher than that of Coke. Even with the challenging environment in the United States, Pepsi has successfully performed. Most of his success is based on the fact that it adjusts quickly to the changing lifestyles and preferences of the consumers, unlike Coca-cola Company. It has also launched new products and packs to satisfy customers who require a small number of its products. It has fully invested in foreign markets through mergers and acquisitions in an attempt to beat its fellow giant, Coke. Therefore for Pepsi to continue with successful growth it should stick to developing new products that satisfy customer needs. Lastly, it should use debt financing for further investment and expansion of the business.
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