I.

CURRENT SITUATION

A. Current Performance

PepsiCo was the world’s largest snack and beverage company, with 2007 net
revenues of approximately $39.5 billion. The company’s portfolio of businesses
in 2008 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft
drink products, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe,
Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix
and many other regularly consumed products.

PepsiCo’s international sales had grown by 22 percent during 2007. The

company also held large market shares in many international markets for
beverages and salty snacks, but relatively unsuccessful in making Quaker
branded products available outside the United States. In addition PepsiCo’s
international operations were much less profitable than its businesses operating
in North America.

PepsiCo management developed a new organizational structure in 2008 to

address the low relative profitability of its international operations and to
produce even faster growth in international markets.

B. Strategic Posture

B.1 Mission

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.

B.2 Objectives

PepsiCo’s management team was dedicated to capturing strategic fit benefits

within the business lineup throughout the value chain.

B.3 Strategies

PepsiCo’s strategy is diversifying its products into salty and sweet snacks, soft
drinks, orange juice, bottled water, ready-to-drink teas and coffees, purified and
functional waters, isotonic beverages, hot and ready-to-eat breakfast cereals,
grain-based products, and breakfast condiments. Its strategy is focused on
product innovation, close relationships with distribution allies, international
expansion and strategic acquisitions.

A relatively new element of PepsiCo’s corporate strategy was product

reformulations to make snack foods and beverages less unhealthy. The company
believed that its efforts to develop “good-for-you” or “better-for-you” products
would create growth opportunities from the intersection of business and public
interest.

B.4 Policies
• Employee networks to mentor and support minority & female employees.

• Actively and diligently seek out qualified M/WBEs for all possible company
requirements.

• Make every reasonable effort to help qualified M/WBEs to meet company

standards.

• Respect the privacy of all visitors who access and use the company’s corporate
Web site

• Treating all customers with respect, sensitivity and fairness, while providing
some of the greatest products on earth.

• We respect individual differences in culture, ethnicity and color. PepsiCo is

committed to equal opportunity for all employees and applicants.

• Corporate program for training employees how to work and manage in an

inclusive environment.

II. STRATEGIC MANAGERS

A. Board of Directors

Indra Nooyi joined PepsiCo in 1994 and was named president and CFO in 2001.
Nooyi has directed the company's global strategy for more than a decade and
led PepsiCo's restructuring, including the 1997 divestiture of its restaurants into
Tricon, now known as Yum! Brands. Nooyi also took the lead in the acquisition
of Tropicana in 1998, and merger with Quaker Oats Company, which also
brought Gatorade to PepsiCo. In 2007 she became the fifth CEO in PepsiCo's 44-
year history.
According to BusinessWeek, since she started as CFO in 2000, the company's
annual revenues have risen 72%, while net profit more than doubled, to $5.6
billion in 2006.
Nooyi was named on Wall Street Journal's list of 50 women to watch in 2007 and
2008, and was listed among Time's 100 Most Influential People in The World in
2007 and 2008. Forbes named her the #3 most powerful woman in 2008.
Fortune ranked her the #1 most powerful woman in business in 2009 and 2010.
On the 7th of October 2010 Forbes magazine ranked her the 6th most powerful
woman in the world.

Zein Abdalla, 51, became Chief Executive Officer of PepsiCo Europe in November
2009. Mr. Abdalla joined PepsiCo in 1995 and has held a variety of senior
positions. He has served as General Manager of Tropicana Europe and Franchise
Vice President for Pakistan and the Gulf region. From 2005 to 2008 he led
PepsiCo’s continental Europe operations. In September 2008 he went on to lead
the complete portfolio of PepsiCo business in Europe. Prior to joining PepsiCo,
Mr. Abdalla worked for Mars Incorporated in engineering and manufacturing
roles, as well as in sales, marketing, human resources and general management.

Peter A. Bridgman, 57, has been PepsiCo’s Senior Vice President and Controller
since August 2000. Mr. Bridgman began his career with PepsiCo at Pepsi-Cola
International in 1985 and became Chief Financial Officer for Central Europe in
1990. He became Senior Vice President and Controller for Pepsi-Cola North
America in 1992 and Senior Vice President and Controller for The Pepsi Bottling
Group, Inc. in 1999.

Hugh F. Johnston, 48, was appointed Executive Vice President, Global Operations
in November 2009. He previously held the position of President of Pepsi-Cola
North America since November 2007. He was formerly PepsiCo’s Executive Vice
President, Operations, a position he held from October 2006 until November
2007. From April 2005 until October 2006, Mr. Johnston was PepsiCo’s Senior
Vice President, Transformation. Prior to that, he served as Senior Vice President
and Chief Financial Officer of PepsiCo Beverages and Foods from November
2002 through March 2005, and as PepsiCo’s Senior Vice President of Mergers
and Acquisitions from March 2002 until November 2002. Mr. Johnston joined
PepsiCo in 1987 as a Business Planner and held various finance positions until
1999 when he left to join Merck & Co., Inc. as Vice President, Retail, a position
which he held until he rejoined PepsiCo in 2002. Prior to joining PepsiCo in 1987,
Mr. Johnston was with General Electric Company in a variety of finance positions.
Richard Goodman will be succeeded by Hugh Johnston as the Company’s Chief
Financial Officer effective as of March 31, 2010.

B. Top Management

Ingrid Nooyi demonstrate her excellent ability of leadership and developed a

reputation as a tough negotiator who engineered the 1997 spin-off of Pepsi’s
restaurants, spearheaded the 1998 acquisition of Tropicana, and played a critical
role in the 1999 initial public offering of Pepsi’s bottling operations. And she
was highly involved in the 2001 acquisition of Quaker Oats.

Being promoted as the Chief Financial Officer in 2000 the company's annual
revenues have risen 72%, while net profit more than doubled, to $5.6 billion in
2006.

III. EXTERNAL ENVIRONMENT

A. Natural Environment

B. Societal Environment

C. Task Environment

1. Consumer
IV. INTERNAL ENVIRONMENT

A. Corporate Structure

PepsiCo owns its corporate headquarters buildings in Purchase, New York. The
company was organized into four business divisions, which all followed the
corporation’s general strategic approach: Frito-Lay North America, The PepsiCo
Beverages North America, PepsiCo International and Quaker Foods North
America.

∅ Frito-Lay North America (FLNA)

Frito-Lay North America manufactured, marketed, and distributed such snack

foods as Lay’s potato chips, Doritos tortilla chips, Cheetos cheese snacks,
Fritos corn chips, Quaker Chewy granola bars, Grandma’s cookies and Smart-
food popcorn.

∅ The PepsiCo Beverages North America (PBNA)

The PepsiCo Beverages beverage business manufactured, marketed, and sold

beverage concentrates, fountain syrups, and finished goods under such
brands as Pepsi, Gatorade, Tropicana, Lipton, Dole and SoBe.

∅ PepsiCo International

PepsiCo International manufactured, marketed, and sold snacks and

beverages in approximately 2oo countries outside the United States.

∅ Quaker Foods North America

Quaker Foods manufactured and marketed cereals, rice and pasta dishes,
and other food items that were sold in supermarkets.

B. Corporate Culture

PepsiCo, Inc. has been systematically changed over the past two decades from
passivity to aggressiveness in order to avoid stagnation and to adapt to
changing competitive threats and the changing economic or social
environments.

•Once the company was content in its number two spot, offering Pepsi as a
cheaper alternative to Coca-Cola. But today, a new employee at PepsiCo quickly
learns that beating the competition, whether outside or inside the company is
the surest path to success. In its soft-drink operation, for example, Pepsi's
marketers now take on Coke directly, asking consumers to compare the taste of
the two colas. The culture of the company now is based on the goal of becoming
the number one of soft drinks.
•To keep everyone on their toes, "creative tension" is continually encouraged
among departments at Pepsi. The staff is kept lean and managers are moved to
new jobs constantly, which results in people working longs hours and engaging
in political maneuvering just to keep their jobs from being reorganized out from
under them.

C. Corporate Resources

∅ Marketing

• Pepsi has now beaten Coke in the domestic take-home market, and it is
mounting a challenge to Coca Cola overseas. Pepsi has been making
inroads: Besides monopolizing the Soviet market, it has dominated the
Arab Middle East ever since Coke was ousted in 1967, when it granted a
bottling franchise in Israel.

• PepsiCo has developed the national marketing, promotion and

advertising programs that support the its many brands and brand image,
oversee the quality of the products; develop new products and packaging,
and coordinates selling efforts.

∅ Finance

• Since the restructuring, the company had increased revenues and

income at annual rates of 7 percent and 12 percent respectively.

• The combination of acquisitions and the strength of PepsiCo’s core

snacks and beverages business allowed the company’s revenues to
increase from approximately $200 billion in 2000 to more than $39.5
billion in 2007.

• Frito-Lay brands accounted for 29 percent of the PepsiCo’s total

revenues and 36 percent of the company’s operating profit.

• PBNA accounted for 28 percent of the corporation’s revenues and 31

percent of its profits.

• PepsiCo’s 2007 acquisitions in international markets were expected to

boost 2008 revenues by more than $1 billion.
 ∅ Operation

• Most of the sales are through the company’s own direct store
distribution (DSD) systems, where they actually take the products to
stores and put them on the shelf. These systems reach hundreds of
thousands of outlets, from the tiniest liquor stores to the mightiest club
store. The DSD systems give the company the ability to merchandise its
products for maximum appeal to consumers.

∅ Human Resource

• The company has a wealth of talent across the corporation. It starts with
its exceptional frontline team, the people out there serving the customers
365 days a year, and it extends to our corporate staff. The company not
only has great opportunities, but the skills, experience, dedication and
intellectual horsepower to make the most of them.

• The company’s continued growth has created outstanding career

opportunities for talented professionals in a variety of specialized fields,
such as information technology, treasury, tax, human resources, law,
accounting, public affairs, audit. All successful applicants share a
commitment to PepsiCo's goals and an ability to thrive in a fast-paced,
results-oriented environment. In exchange, the company offers a highly
competitive compensation and benefits package.

∅ Information System

• In responding to market demands for efficient 24-hour "order-to-

delivery" process for customer orders, PepsiCo has installed a computer
system that links an effective wide area network that allows immediate
transmission of customer orders.

V. ANALYSIS OF STRATEGIC FACTORS

A. Situational Analysis (SWOT)

∅ Strengths
 • Diversification- PepsiCo’s arsenal also includes ready-to-drink teas,
juice drinks, bottled water, as well as breakfast cereals, cakes and
cake mixes.This broad product base plus a multi-channel
distribution system serve to help insulate PepsiCo from shifting
business climates.

• Distribution- The company delivers its products directly from

manufacturing plants and warehouses to customer warehouses and
retail stores.

• Branding- One of PepsiCo’s top brands is of course Pepsi, one of the

most recognized brands of the world, ranked according to
Interbrand. As of 2008 it ranked 26th amongst top 100 global
brands.

∅ Weaknesses

• Overdependence on US Markets - Despite its international

presence, 52% of its revenues originate in the US. This
concentration does leave PepsiCo somewhat vulnerable to the
impact of changing economic conditions, and labor strikes. Large
US customers could exploit PepsiCo’s lack of bargaining power and
negatively impact its revenues.

∅ Opportunities

• International Expansion - PepsiCo is in the midst of making a $1,

000 million investment in China, and a $500 million investment in
India. Both initiatives are part of its expansion into international
markets and a lessening of its dependence on US sales. In addition
the company plans on major capital initiatives in Brazil and Mexico.

• Broadening of Product Base - PepsiCo is seeking to address one of

its potential weaknesses; dependency on US markets by acquiring
Russia’s leading Juice Company, Lebedyansky, and V Wwater in the
United Kingdom. It continues to broaden its product base by
introducing TrueNorth Nut Snacks and increasing its Lipton Tea
venture with Unilever. These recent initiatives will enable PepsiCo
to adjust to the changing lifestyles of its consumers.

∅ Threats

• Intense Competition - The Coca-Cola Company is PepsiCo’s primary

competitors. But others include Nestlé, Groupe Danone and Kraft
Foods. Intense competition may influence pricing, advertising, sales
promotion initiatives undertaken by PepsiCo. Recently Coca-Cola
passed PepsiCo in Juice sales.

• Decline in Carbonated Drink Sales - Soft drink sales are projected to

decline by as much as 2.7% by 2012, down $ 63,459 million in
 value. PepsiCo is in the process of diversification, but is likely to feel
the impact of the projected decline.

B. Review of Current Mission and Objectives

∅ Mission

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.

∅ Objectives

PepsiCo’s management team was dedicated to capturing strategic fit benefits

within the business lineup throughout the value chain.

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

A. Strategic Alternatives

B. Recommended Strategy

VII.IMPLEMENTATION

VIII. EVALUATION AND CONTROL