MANAGEMENT DEVELOPMENT

INSTITUTE, GURGAON

Implementation of Strategic
recommendation at PepsiCo

Strategy Implementation project

Submitted to:
Prof. Harsh Wardhan

Submitted by:
Shuchi Tomer
10PGHR46
Strategic element chosen
(recommendation)
Focus on bringing healthier products to market keeping old product
portfolio intact, by using:
i) New product development
ii) Mergers and acquisitions with companies developing new
product

New product development in the healthier products direction is a key

to sustainability in convenient foods and beverages business because:
i) Consumption of convenient foods and beverages is expected
to increase owing to a faster and more mobile world which
needs to satiate hunger anywhere in instants
ii) It is expected that in future, people will look forward to having
convenient foods and beverages not as a supplement to
meals but as a substitute and in that case only healthier
convenient foods and beverages will survive the market.

The most recent wave of the Agency’s Consumer Attitudes Survey,

conducted in July 2007 found that:

Health conscious pragmatists represent 22% of the UK adult population

and tend to embrace modern cuisines and are willing to experiment
and try new foods.
Convenience driven health rejecters, representing 29% of the
population, are likely to rank convenience above health when
choosing what to eat and look to food for immediate gratification
and stimulation, and enjoy eating out regularly.
Concerned health advocates, who rank healthy eating the most highly
of all the groups, represent 25% of the UK adult population.
Traditional cooking enthusiasts comprising 24% of the population, are
enthusiastic cooks and tend to disapprove of convenience food and
are passionate about making ‘proper meals’ the ‘proper way’.

Some facts collected about healthier convenience foods and

beverages:

Consciousness for health: “Shoppers continue to rely on nutrition

labels for information to fuel their decisions,” according to Michael
Sansolo, senior vice president, FMI, in an article in the November 8,
2004, issue of FMI’s e-publication, Facts, Figures, & The Future.
Sansalo refers to Shopping for Health for the latest shoppers’
behaviors. “Eighty-three percent of shoppers say they regularly
 look at nutrition labels when buying a product for the first time,” he
says. The report found that the reason consumers read labels range
from specific diets to concerns about improving their ability to
avoid specific illnesses. Health concerns were at the top of the list,
with 42% of shoppers admitting to purchasing foods that claim to
reduce the risk of heart disease and 26% admitting to purchasing
products that claim to help fight cancer.

Customer preferences: The Internet-based food and beverage Web

site www.foodnavigator.com reported in January that products such
as drinkable yogurts, sugar substitutes, and prepared foods are
continuing to experience large sales growth according to the site.

Consumption trends: ACNielsen’s recent executive news report

“What’s Hot Around the Globe — Insights on Growth in Food and
Beverages 2004” identified the top two trends that have driven the
sales growth in the food and beverage categories analyzed over
the last 12 months as “A Continued Focus on Health” and “The
Need for Convenience.” This annual report analyzed retail
purchases of 59 countries with data across 89 food and beverage
categories and 12 product areas. The encouraging news from this
research for nutrition professionals is that the world’s fastest-
growing products support healthy diets, weight loss, and on-the-go
lifestyles. Health and weight-loss diet trends were predictors of
retail sales growth, especially in developed markets. The ACNielsen
findings revealed the top global growth in the categories of soy-
based drinks (+31%), drinkable yogurts (+19%), and eggs (+16%).
The high-protein/low-carb craze of 2003-2004 dictated the fastest-
growing category as meat, fish, and eggs (+6%), particularly in
more developed markets (eg, North American). On the other hand,
the non-sweet carbohydrates experienced the lowest growth rate
(+2%). Interestingly, the non-alcoholic beverages category,
specifically carbonated beverages, was the largest grower in the
global marketplace (+5%).

Reason for increased interest in healthier foods and

beverages: Obesity, heart disease, type 2 diabetes and certain
cancers are dramatically increasing daily.

An ideal healthy convenient should satisfy following criteria:

Calories per serving (100 to 200 calories is a snack or part of a meal

and 300 to 500 calories is a whole meal)
Low saturated fat (less than 4 grams per serving)
Sodium level (500 milligrams or less per serving)
Dietary fibre source (good sources have 3 grams to 5 grams and
excellent sources have 5 grams or more)
The ingredient list (unhealthy culprits such as hydrogenated oils and
high-fructose corn syrup that may be lurking in the top five
ingredients should be absent)

Phood (combining food and medicine) has become the new wonder
drug as researchers unlock the secrets of phytochemicals, omega-3
fats and other substances that promise to forestall ailments.

Action plan for PepsiCo:

From above stated facts and research results it is justifiable to go
ahead with this action plan:

i) Continuous research: Identify the food intake patterns specific

to a particular region where PepsiCo wants to enter the
market. Collect data about:
a. Purchasing capacity of people
b. Expense patterns i.e. how much people spend on food and
in that on packaged foods and beverages (demand can be
created if people can buy)
c. Criteria people consider before purchasing convenient
foods and beverages
d. Percentage people having convenient foods and beverages
as supplement for meals, etc. and their views about
healthier convenient foods and beverages (estimate
market size)
ii) Carry out new product development for healthier foods in
facilities where according to research, market is waiting and
strong for the product. Use specific local flavours to enhance
the product appeal (as is the third trend in
http://www.coembesa.net/Top-10-Food-Trends.html).
iii) Use dry runs on small population, receive feedback from them
and enhance the product by acting on recommendations.
iv) Launch the product.
v) Once successful in one market, check for similar favourable
conditions in other markets as well. Repeat the same
procedure there.
vi) At a later stage, flavours can be standardized and products
can also be developed on a global scale when there is
sufficient market to support healthier products at a global
scale.
Evaluation and Clarification
Although the product developments have already been diverted
towards healthier ones, but each and every firm goes its own way.
To explain this point, GMA foods, Tyson Foods, Whole Foods, Wild
Oats, etc. i.e. all firms showing a trend towards a healthier product
portfolio, will have different ways of doing this. They all will
implement this differently. PepsiCo can take the advantage of this
preliminary setting by acquiring firms which have products which
have great potential to either compliment the present PepsiCo
product range or substitute the present product range. The
products will be successful if launched through PepsiCo’s
distribution channels which is the advantage to the acquired firm.
The costs borne by the firms for new product development will not
be incurred on PepsiCo directly as it will acquire only those firms
which have products satisfying PepsiCo’s present products’ criteria
i.e. have the potential to be successful.
PepsiCo may not have a first movers’ advantage stand alone, but has
the potential to have the same if it uses this strategy. Mergers
instead of acquisitions would also suffice. Also, being limited only
to the snack industry is also an obstacle to being self-sufficient as
many other firms competing in healthier products arena may cover
meals as well. Thus, having strategic alliances with firms whose
support will prove to be synergic is a way forward. In the strategic
environment, thus, the value is generated through strategic
alliances as follows:
Fewer and lower investments undertaken in terms of new product
development
Low risk faced
Capturing first movers’ advantage
Overcoming limitations of being only a snack industry

In the industrial environment, PepsiCo needs to do all this before its

competitors. It needs to capture the market before its competitors
or be able to snatch market from them at any stage. Thus, through
my recommendations, PepsiCo will achieve the first part. For being
able to snatch market from already established players it needs to
invest in its own R&D and needs to develop global products
customized to local tastes or variants. This was also a part of the
recommendation which is also postulated in the action plan. This
overcomes the problem of not being able to find an appropriate
strategic partner. Thus, in an industrial environment, the value is
generated through:
Strategic alliances by being fast to market
Self sufficiency by investing in R&D to tackle competition
From the consumers’ perspective, when only few healthier products
are available, products could compete with others without fulfilling
some of the criteria of an ideal healthier product. Thus, a way out is
coming up with products which partially fulfil the ideal healthy
product criteria to capture the public trust on the product brand
(Yes, we are doing something about it, we are trying to reduce
trade-offs between convenience and nutrition) as well as the
market while continuing research to fulfil all the criteria of an ideal
healthy product. Thus, here, value can be generated through new
product development through:
Partially fulfilment of the ideal healthy product criteria
Continuous improvement in the direction

For although India is the world’s third largest food producer, the
combined turnover of its ten largest food companies is only $2 billion—
one-tenth the sum turned over by Nestlé’s operations in Europe. The
markets for the products on which India’s food companies have
concentrated—higher value-added items such as breakfast cereals,
jams, and sauces—are indeed small because these products are aimed
at elite. The big, and so far largely untapped, opportunity lies with
mass-market products—packaged wheat flour, poultry, and liquid milk
—which could eventually account for more than 80 percent of the total
market. PepsiCo cannot enter this segment while being profitable and
this is also a limitation which it needs to consider.
Implementation
THE HARD ELEMENTS of 7S Mckinsey Model

Strategy: PepsiCo’s mission is “to be the world's premier consumer

products company focused on convenient foods and beverages” and
their vision is “to continually improve all aspects of the world in which
we operate - environment, social, economic - creating a better
tomorrow than today.” The strategy to achieve mission and vision is
through a movement towards healthier convenient foods by
simultaneously developing product development capabilities at the
firm and having strategic alliances with firms who also support the
same movement.

Initiatives that need to be taken:

New product development

Structure:
 • Appropriate investments should be made in R&D for new
healthier product development which, not only doesn’t harm
humans in any way, but also may provide added benefits to
them through consumption (benefits may be extra proteins,
calcium, etc. to fulfil deficiencies in their bodies).
• 5 small independent research teams should work on the above
ideal healthy product criteria separately, each team taking up a
different criteria as a problem to be solved.
• These research teams should share their findings with each
other.
• When the teams are able to find a solution to their problem then
the findings should be shared with other research teams to boost
them up and also to show them a possible way of finding the
solution. A new product can be developed which has partially
fulfilled healthy product criteria, if any breakthrough is not
expected in other departments soon.
• Teams which have already achieved their target can club their
findings to check whether a new product can be developed with
all the improved features (for which teams were able to find
solutions).
• At this time, the team structure will be like amoeba where
teams, which were able to solve individual problems, will club
and try to check whether the solutions are compatible.
• It is at the new product development stage that the research
teams who have completed their tasks will be clubbed with
marketing research department, who most effectively
understand the customer perspective, so that they give their
inputs to the people from the research department.
• This process will continue till all the research teams have
finished their jobs.
• They can further work upon making environmental friendly
packaging.
Strategic alliances with other firms

Structure:

The products will act as strategic business units which in coordination

with the functional marketing department will search for appropriate
firms for strategic business alliances. Once the search is complete they
will choose the best possible firm and then coordinate with the finance
department and the top management directly about the strategic
interest with all the reports of the market value of the firm and
possible business prospects. Through cross-functional meetings
involving the trio, a final proposal will be made which will be presented
to the opposite party. If the alliance is set to happen, then other
functional departments will try to make the process as smooth as
possible. HR will try to reduce the differences in the organization
cultures, align people towards working together, enable
communication between the two parties, act as an invisible facilitator
for connecting similar departments with each other (which need to
exchange information), etc.

Systems:

The functioning of R&D teams and marketing department will be

checked by communications department (to take care of
communication among them) and finance department (to analyze
expense versus revenue generated through new product development
and classify expenses as justifiable; finance department allocates
resources to this department). HR department will take up initiatives to
energize them or give them a break from their rigorous work. It will
initially select people which will form the team according to the
capabilities they possess. Performance management systems will
include huge incentives for any breakthrough work which is ahead of
times. Company should follow a policy of “Don’t punish failure” to
support innovation otherwise as well as in the teams.

Governance:

The Government has already taken several initiatives on this front

which include developing of food parks, packaging centres,
modernised abattoirs, integrated cold chain facilities, irradiation
facilities and value added centres.

The initiative to develop food parks was taken primarily in order to

assist the small and medium enterprises which are unable to invest in
capital intensive activities. So far, 22 food parks have come into
operation which provide common facilities like cold storage, food
testing and analysis laboratories, packaging centres, etc

In terms of policy support, the ministry of food processing has taken

the following initiatives:

• Formulation of the National Food Processing Policy

• Complete de-licensing, except for alcoholic beverages
• Declared as priority sector for lending in 1999
• 100% FDI on automatic route
• Excise duty waived on fruits & vegetables processing from 2000
– 01
• Income tax holiday for fruits & vegetables processing from 2004
– 05
 • Customs duty reduced on freezer van from 20% to 10% from
2005 – 06
• Implementation of Fruit Products Order
• Implementation of Meat Food Products Order
• Enactment of FSS Bill 2005
• Food Safety & Standards Bill, 2005

Apart from these initiatives, the Centre has requested state

Governments to undertake the following reforms:

• Amendment to the APMC Act

• Lowering of VAT rates
• Declaring the industry as seasonal
• Integrating the promotional structure

THE SOFT ELEMENTS of 7s McKinsey Model

Shared values:

PepsiCo’s focus on hiring young people relates to its value of

encouraging innovation as this step depicts a thirst for new ideas.
Positive reinforcement can also be a method to boost shared values.
Other shared values stated in the mission statement are fairness,
honesty, integrity and performance with purpose.

Skills:

PepsiCo definitely has the necessary skills required for this initiative to
be taken up. It is considered a young firm as its average employee age
is below 25 years. Thus, they have many young creative minds to
support formation of research teams.
Staff:

Each team member has equal authority but there is definitely a team
lead that takes care of carrying work forward.

Style:

The teams will be very independent in their governance and decision

making. The management style to be used by the team leads against
other team members and by top management towards team members
is participative.
Conclusion
While it is relatively easier to formulate and recommend a strategy, it
is actually very difficult to implement it successfully as all the elements
which are required to be affected by the change, vary each other
simultaneously. The process is dynamic and with too many variables,
all changing and affecting each other due to those changes, it is
actually very difficult to think through all the contingencies of the
futuristic desired situation. Strategies may suffer many challenges and
may even fail.

Implementation challenges

The implementation challenges include communication among

research teams and between them and marketing department,
keep the few members in research team motivated even in face of
failure, inter-departmental coordination, aligning people for
common purpose post-alliances, breaking the barriers between the
synergic parties, lack of adequate quality control and testing
infrastructure, etc.

Core methodology

At first, I went through my previous trimesters’ project for strategy

formulation and then through the guidelines for this trimesters’
project for strategy implementation. Then I thought through what
all can be of use from course reading material and searched on
internet about PepsiCo, 7s McKinsey’s Model, and facts to support
my recommendation. Facts to support the recommendations of my
project included research data, news pieces, articles and data on
consumption patterns from government sites. I referred McKinsey
7s model to suggest implementation strategies. Searching for
consistency was the key methodology used here. Whatever things I
suggested should have been consistent with each other. It was like
going back again and again just to cross check that everything was
in place.

According to a consumer research people are taking a more proactive

role in seeking foods with medicinal properties, added health
benefits, and lower calories. On the other side of the coin, food
manufacturers are responding to consumer demands and heeding
government dietary recommendations. The surge of re-packaging,
relabeling, and reformulating has only just begun. It’s up to
nutrition professionals to help consumers decipher between what
really are healthier products.
References
Course material
Business Strategy Implementation Course Material

Websites
http://www.pepsico.com/Company/Our-Mission-and-Vision.html
https://www.mckinseyquarterly.com/
http://www.magportal.com/nr/rdir.php?w=437035
http://hbswk.hbs.edu/item/6674.html
http://www.healthyperson.net/wp-
content/uploads/2009/03/fast-food.gif
http://www.todaysdietitian.com/newarchives/td_0405p44.shtml
http://www.food.gov.uk/news/newsarchive/2008/jul/attitudes15
07

Articles
http://wcd.nic.in/research/nti1947/6.%20Consumption
%20expenditure.pdf
http://www.fao.org/docrep/005/AC911E/ac911e05.htm
 Source: D&B Research

Structure of the Indian Food Processing Industry

Food Processing Units in Organised Sector (numbers)

Major Food Processing Companies in India