c




I. CURRENT SITUATION

A. Corporate Overview and Financial Performance:

PepsiCo, Inc. is one of the most successful consumer products companies in the
world, with 2000 revenues of over $20 billion and 125,000 employees. The
company consists of: Frito-Lay Company, the largest manufacturer and distributor
of snack chips; 
-Cola Company, the second largest soft drink business and
Tropicana Products, the largest marketer and producer of branded juice. PepsiCo
brands are among the be st known and most respected in the world and are
available in about 190 countries and territories.

In 2000, PepsiCo has a reported net sale of $20,348 and a comparable net sale of
$20,144 in comparison to its 1999͛s net sales of $20,367 and $18,666
respectively. PepsiCo has increased its comparable net sale of 8% in 2000 while it
had an increase of 15% in 1999. This reflects the increasing rate is going slower.
On the other hand, PepsiCo͛s interest expense declines 39% showing that the
company is significantly lower the average debt level. Back to 1999, the report
shows that the company͛s interest expense dropped 8%, which indicates that the
company is performing well in managing its financial strategies. More details
about the financial performance of the company will be discussed in the later part
of this paper.

B. Strategic Posture:

1. Mission:

PepsiCo's overall mission is to increase the value of shareholder's investment.

They do this through sales growth, cost controls and wise investment of
resources. They believe their commercial success depends upon offering quality
and value to their consumers and customers; providing products that are safe,
wholesome, economically efficient and environmentally sound; and providing a
fair return to their investors while adhering to the highest standards of integrity.
2. Objectives:

PepsiCo͛s overriding objective is to increase the value of our shareholders'

investment through integrated operating, investing and financing activities. Their
strategy is to concentrate their resources on growing their businesses, both
through internal growth and carefully selected acquisitions. Their strategy is
continually fine-tuned to address the opportunities and risks of the global
marketplace. The corporation's success reflects their continuing commitment to
growth and a focus on those businesses where they can drive their own growth
and create opportunities.

PepsiCo believes that as a corporate citizen, it has a responsibility to contribute to

the quality of life in our communities. This philosophy is put into action through
support of social agencies, projects and programs. The scope of this support is
extensive -- ranging from sponsorship of local programs and support of employee
volunteer activities, to contributions of time, talent and funds to programs of
national impact. Each division is responsible for its own giving program. Corporate
giving is focused on giving where PepsiCo employees volunteer.

3. Strategies:

As a consumer products company, PepsiCo does not have the major

environmental problems of heavy industry. Their biggest environ -mental
challenge is packaging generated by their products. Packaging is important to
public health and a critical component of the distribution system that delivers
products to consumers and commercial establishments. To meet both consumer
demand and safeguard the environment, they recycle, reuse and reduce
packaging wherever possible. Each business is also committed to responsible use
of resources required in manufacturing their products.

Continually fine-tuned to address the opportunities and risks of the global

marketplace. Concentrate our resources on growing our businesses, both through
internal growth and carefully selected acquisitions. Company developed its
traditional products and expanded into low-fat and no-fat snacks as well as salsas
and dips.
4. Policies:

ͻ Employee networks to mentor and support minority & female employees.

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

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

standards.

ͻ Respect the privacy of all visitors who access and use the company͛s corporate
Web site

ͻ Treating all customers with respect, sensitivity and fairness, while p roviding
some of the greatest products on earth.

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

committed to equal opportunity for all employees and applicants.

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

inclusive environment.

II. STRATEGIC MANAGERS

A. Board:

Roger A. Enrico, 56, is chairman of the Board and CEO. Mr. Enrico was elected as
PepsiCo͛s CEO in April 1996 and as Chairman of the Board in November 1996,
after service as Vice Chairman since 1993. Enrico, who once wanted to be an
actor, understands that great marketing is pure theater. In his 29 years at PepsiCo
(PEP), he has staged some of marketing's most spectacular productions. ''Coke's
leadership tried to put us out of busine ss,'' he says flatly. ''But we did not look for
a temporary boost or a short-term gain despite the self-destructive business
philosophy by our major competitor. We've been honed by fire.'' He spun off
Pepsi's capital-intensive bottling operations into an i ndependent public company.
He spent $3.3 billion to acquire Tropicana, the leading orange juice brand.
Indra K. Nooyi, 45, is a Senior Vice President and CFO. She joined PepsiCo in 1994
as Senior Vice President, Corporate Strategy and Development. Prior to joining
PepsiCo, she was Senior Vice President of Strategy, Planning and Strategic
Markets for Asea Brown Boveri. Nooyi is responsible for corporate staff functions,
including legal, human resources and corporate communications, in addition to
her current CFO duties overseeing finance, strategic planning, mergers and
acquisitions, information technology, advanced technologies and procurement.
She is also known in company circles for her analytical abilities, a key component
behind her rise. Nooyi, whose remuneration for fiscal 1999 totaled more than $1
million, is also believed to be the chief strategist behind PepsiCo's competition
with rival Coca-Cola.

Steven S. Reinemund, 52, is President and Chief Operating Officer. Mr.

Reinemund was elected President and COO in September 1999. He began his
career with 
as Senior Operating Officer of Pizza Hut, Inc.

Peter A, Bridgman, 48, is Senior Vice President and Controller. Prior to assuming
his current position, Mr. Bridgman was Senior Vice President and Controller of
The 
Bottling Group and he was the Senior Vice President and Controller
for 
-Cola North America from 1992 until 1999.

Matthew M. Mckenna, 50, is Senior Vice President and Treasurer. Previously, he

was Senior Vice President, Taxes. Prior to joining PepsiCo in 1993 as Vice
President, Taxes, he was a partner with law firm Winthrop, Stimson, Putnam &
Roberts in New York.

B. Top Management:

The top one of fifty most talented executives of the company, Roger A. Enrico,
demonstrates his excellent ability of leadership as representing the company to
show the Wall Street that PepsiCo can deliver superior performance quarter after
quarter. One of Enrico's top priorities is to attract more investors into the stock.

In international markets, Enrico still faces several obstacles in building Pepsi's

soda business; however, he builds up his strategy to place his biggest bets on
developing markets, such as India, China, and Russia. ''The key thing is not to
merely plant flags,'' says Peter M. Thompson, CEO of 
-Cola International.
''It's to make sure you build a business, customer by customer, block by block, day
by day.'' In India, where per capita soft drink consumption is seven servings a
year, vs. more than 700 in the U.S., and where deliveries are often done on three-
wheel bicycles, 
finds the most prominent businessman in each town and
gives them exclusive distribution rights, tapping their connections to drive
growth. Over the past five years, volume has risen at a 26% annual c lip. 
has
stolen 19 points of market share from Coca -Cola, bringing Pepsi's share to 47%,
close to Coke's 52%.

III. EXTERNAL ENVIRONMENT

A. Societal Environment:

1. Economic Factor:

The key elements taken into consideration are the principal m arket risks, which
PepsiCo is exposed to interest rate, foreign exchange rate and commodity prices.
These are specified as :

(a)Interest rate on PepsiCo͛s debt as well as it short-term investment portfolio:

PepsiCo can manage its overall financing strate gies in term of balancing
investment opportunities and risks. The company is using interest rate and
currency swaps to effectively modify the interest rate in order to reduce the
overall borrowing costs.

(b)Foreign exchange rate and other international e conomic conditions: Operating

in international markets involve exposure to movements in currency exchange
rates, which typically affect the economic growth, inflation, interest rate,
government actions and other factors. Once these changes occur, they will cause
PepsiCo to adjust its financing and operating strategies. Changes in currency
exchange rates that would have the largest impact on translating PepsiCo͛s
international operating profit include Mexican peso, British pound, Canadian
dollar and Brazilian real. Through years, macro-economic conditions in Brazil,
Mexico, Russia and across Asia Pacific have adversely impacted on PepsiCo͛s
operations. Especially, the economic turmoil in Russia which accordingly resulted
in the devaluation of the ruble in 199 8 caused the significant drop in the soft-
drink demand.

(c)Commodity prices that affect the cost of raw materials: PepsiCo is subject to
market risk with respect to commodities because its ability to recover increased
costs through higher pricing will be limited by the competitive environment in
which it is operating.

2. Technological Factor:

Development of additives such as sugarless sweeteners, caffeine free products,

and new flavorings enables PepsiCo to provide products that meet changing
customer tastes and preferences. In addition, computerized manufacturing
technologies are great contributions to higher efficiency and quality in bottling
operations. For 
, a critical business challenge is ensuring that the distribution
processes can deliver the right products to the right place at the right time.
According to Jerry Gregoire, Vice President, Information Services, ͞The
competitive advantage will go to the company that can apply technology to areas
such as logistics, getting costs out of the distribution pipeline and getting products
into the stores less expensively while increasing the availability of sales
information.͟ 
NA͛s data communication network is an important element in
the company͛s efforts to address sales and distribution chall enges with
technology. Connecting nearly 330 manufacturing, distribution, and sale sites
around the U.S. and Canada, the 
NA network transports data help
management in controlling inventory. For instance, sales data helps managers
identify regions where certain products are not selling well, and move any excess
inventory to areas where those products are in demand. Sales data also helps
Pepsi͛s managers make decisions about products before they reach the freshness
date and must be pulled from the shelf and discarded.

3. Political/Legal Factors:

(a)The Human Right Issue: Few years ago, PepsiCo did business in Burma
(Myanmar) under the brutal SLORC regime, the State Law and Order Restoration
Council. As the SLORC moved to attract international investm ent, two millions
people have been forced to work for no pay under brutal conditions to rebuild
Burma͛s long neglected infrastructure. What PepsiCo did at the time was
patronizing the SLORC regime in what they called ͞rebuild the country͛s
infrastructure͟. PepsiCo also said it helps the economy by buying "products such
as mung beans, sesame seeds and rattan from small, local farmers." The issue
addressed is whether these products were made by forced labors. In fact, PepsiCo
must export their products for hard currency because it cannot use Burma's
nearly worthless currency to buy imports of supplies for its bottling plants. As the
result, PepsiCo had lost contracts at Harvard, Stanford, Colgate and other
universities because it refuses to name the sources of these farm products.

(b)FDA Regulation: As a food product manufacturer, PepsiCo is under the control

of the Food and Drug Administration. For example, the FDA tests and certifies
new ingredients such as high-intensity sweeteners before they are allowed to be
used in soft drink production.

(c)Waste Management and Public Concerns: Growing environmental awareness is

leading to increasing legislation. The company͛s operation is affected by federal
legislative proposals that address the four objectives:

-Minimize the quantity of packaging material entering the nation͛s solid waste
system

-Minimize the consumption of scarce natural resources

-Maximize the recycling and reuse of packaging materials

-Protect human health and the natural environment from adverse effects
associated with the disposal of packaging materials. For example, Connecticut has
already passed a law that regulates packaging to increase its recyclability.

4. Socio-cultural Factor:

Consumers today are not as much joyous to cola products as they were before.
Age and ethnicity are two main characteristics that affect consumer preference
for soft drinks and alternative beverages. With age, health concerns become more
of a factor when choosing a beverage. To illustrate, some studies show that cola
products or soft drink in general may cause kidney stones and other related
diseases. In contrast to older consumers, younger consumers Ͷparticularly teens
and those in their twentiesͶhave less attention spans for products and are more
likely to prefer products that seems to be fun and different . Although PepsiCo is
the number one seller in carbonated beverages, it lost is market share in 2000 as
consumers seek for alternative beverages. As the m atter of fact, PepsiCo switches
to non-cola products such as bottle-water, ready-to-drink tea and sports drinks. In
turn, bottled water gained the market share up to 12.8% in unit sales.

B. Task Environment:

1. New Entrants:

It is important when PepsiCo can identify what costs potential entrants to enter
the soft drink industry. The production technologies required for manufacturing
soft drinks is widely available for the potential entrants. However, competing on a
national or global scale requires the ability to manufacture and distribute a well -
recognized brand. Therefore, not only PepsiCo is the one who have to spend a
tremendous fund on advertising campaigns, other companies such as Coca -Cola
and Cadbury Schweppes have to go on the same path. Accor ding to the Beverage
Industry, PepsiCo had a great number of commercials during the super -bowl.
Coca-Cola Co., PepsiCo, and Cadbury Schweppes spent a total of $469.1 million on
media advertising in the U.S. market between January and September 1996. Will
new entrants be able to spend a tremendous amount to advertise themselves, or
in other words, to create their ͞big names͟ in order to deprive the market shares
from PepsiCo or Coca-Cola.

Another aspect is the distribution challenging in some Asian countri es such as

China, Indonesia and India, where poor road conditions and other infrastructure
problems may prevent the effective delivery by trucks. The question is whether
PepsiCo can have a competitive advantage to overcome these difficulties, then it
will be difficult for the new companies who want to distribute their products.

2. Existing Companies:
The U.S. and global soft drink industries are quite concentrated. Long dominated
by two companies, Coca-Cola Co. and PepsiCo, the industry saw the emergenc e of
a third significant player when Cadbury Schweppes acquired the Dr. Pepper and
7UP brands in 1995. Table below shows that the top three firms accounted for
90% of the U.S. soft drink market in 1998 vs. 2000. The top one is still Coca -Cola
with market share of 44% in 2000, next would be PepsiCo with 30.9% share.
Dr.Pepper & 7UP goes down slightly in 2000 at 14.4%. There are some changes on
market shares to other companies but the changes are not significant.

U.S Soft Drink Market Share in 1998 vs 2000

Gallons Market Volume

Company Rank Millions(1998) Millions(2000) 1998 Share 2000 Share

Coca-Cola Co. 1 6,223.90 4,491.5 43.80% 44.0%

PepsiCo Inc. 2 4,370.20 3,157.4 30.80% 30.9%

Dr.Pepper&7UP 3 2,060.40 1,473.1 14.50% 14.4%

Cott 4 357 300 2.50% 2.9%

National Beverage 5 270 214.0 1.90% 2.1%

Royal Crown 6 254.6 106.3 1.80% 1.0%

Monarch 7 138.5 11.8 1.00% 0.1%

Big Red 9 32 26.7 0.20% 0.3%

As discussed in Social-cultural Factor part, consumers͛ tastes change over the

time. Instead of drinking cola products, consumers switch to water or fruit juices.
Competitors may take this advantage to market their products. One example is
the agreement between Ocean Spray Cranberries Inc. and Beijing Huiyuan
Beverage Group, which is the largest juice company in China. Ocean Spray grants
a ten-year license to Huiyuan manufacture, market and distribute its products.

3.Trends:

The market for soft drink is expected to grow at a slower rate in the next four
years, according to a series of new global soft d rink reports published by Beverage
Marketing Corporation. The industry had a five -year compound annual growth
rate (CAGR) of 5.0% between 1993 and 1998. But for the five -year period from
1998-2003, the CAGR is estimated to drop to about 4%. Although colas are the
most important soda flavor on the market, the strongest growth in the industry is
in the non-cola segment.

IV. INTERNAL ENVIRONMENT

A. Corporate Structure

PepsiCo owns its corporate headquarters buildings in Purchase, New York. The
company is engaged in the snack food, soft drink and juice businesses. Each
product category is further divided into North America segment ͶUS and
CanadaͶand international segment. (PepsiCo 2000 Annual Report)

ØFrito-Lay North America (FLNA)

Frito-Lay North America manufactures, markets, sells and distributes salty and
sweet snacks. Products manufactured and sold in North America include Lay͛s and
Ruffles brand potato chips, Doritos and Tostitos brand tortilla chips, Cheetos
brand cheese-flavored snacks, Fritos brand corn chips, a variety of branded dips
and salsas and Rold Gold brand pretzels. Low-fat and no-fat versions of several
brands are also manufactured and sold in North America.

ØFrito-Lay International (FLI)

Frito-Lay International manufactures, marke ts, sells and distributes salty and
sweet snacks. Products include Walkers brand snack foods in the United Kingdom,
Smith͛s brand snack foods in Australia, Sabritas brand snack foods and Alegro and
Gamesa brand sweet snacks in Mexico. Many of our U.S. bran ds have been
introduced internationally such as Lay͛s and Ruffles brand potato chips, Doritos
and Tostitos brand tortilla chips, Fritos brand corn chips and Cheetos brand
cheese-flavored snacks.

Principal international snack markets include Mexico, the U nited Kingdom, Brazil,
Spain, the Netherlands, Australia and South Africa.

ØPepsi-Cola North America (PCNA)


-Cola North America manufactures concentrates of brand 
, Mountain

Dew, Mug, Slice, Fruitworks, Sierra Mist and other brands for sale to franchised
bottlers. PCNA also sells syrups to national fountain accounts. PCNA markets and
promotes its brands. PCNA also manufactures, markets and distributes ready -to-
drink tea and coffee products through joint ventures with Lipton and Starbucks
and licenses the processing, distribution and sale of Aquafina bottled water. In
addition, PCNA manufactures and sells Dole juice drinks for distribution and sale
by 
-Cola bottlers.

ØPepsi-Cola International (PCI)


-Cola International manufactures concentrates of brand 
, 7UP, Mirinda,

KAS, Mountain Dew and other brands internationally for sale to franchised
bottlers and company-owned bottlers. PCI operates bottling plants and
distribution facilities in various international markets for the production,
distribution and sale of company -owned and licensed brands. PCI markets and
promotes its brands internationally.

Principal international markets include Mexico, China, Saudi Arabia, India,

Argentina, Thailand, the United Kingdom, Spain, the Philippines and Brazil.

ØTropicana

Tropicana produces, markets, sells and distributes its juices in the United States
and internationally. Products primarily sold in the United States include Tropicana
Pure Premium, Season͛s Best, Tropicana Twister and Dole brand juices. Many of
these products are distributed and sold in Canada and brands such as Fruvita,
Looza and Copella are also available in Europe.

Principal international markets include Canada, the United Kingd om and France.

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 e nvironments.

ͻOnce the company was content in its number two spot, offering 
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.

ͻManagers are pitted against each other to grab more market share, to work
harder and to wring more profits out of their businesses. Because winning is the
key value at 
, losing has its penalties. Severe pressure was put on managers
to show continual improvement in market share, product volume, and profits. All
Employees know they must win merely to stay in place Ͷ and must devastate the
competition to get ahead.

ͻTo keep everyone on their toes, "creative tension" is continually encouraged

among departments at 
. 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

1. Marketing:

ͻ 
has now beaten Coke in the domestic take -home market, and it is
mounting a challenge to Coca Cola overseas. 
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.

ͻ The company͛s products are transported from manufacturing plants to its major
distribution centers, principally by company -owned trucks. The company utilizes a
direct store delivery system, whereby its sales force delivers the products directly
from distribution centers to the store shelf. This system permits the company to
work closely with retail trade locations and to be responsive to their needs. The
company believes this form of distribution allows it to have a marketing
advantage and is essential for the proper distribution of products with a short
shelf life.

ͻ 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. (PepsiCo 2000 Annual Report)

2. Finance:

PepsiCo, Inc. manufactures, markets and sells soft drinks and concentrates ( 
-
Cola, Mountain Dew, Slice, etc.), snack foods (Frito -Lay) and Tropicana branded
juices. For the 12 weeks ended 3/24/01, net sales increased 8% to $4.54 billion.
Net income increased 18% ($498 million). Revenues benefited from volume gains
across all divisions. Net income also reflects an increased gross profit due to
higher effective net pricing. Even though sales of PepsiCo were going down
slightly on the last three years but they still have very high profits on that years.
On the Ratio PepsiCo just only 33% on debt/equity ratio and profit margin is 10.9
compare with industry just only 8.10%. On the first quarter of this year net sales
advance 8% to over $4.5 billion with earnings per share increasing 17% to $.34.
PepsiCo is very strong revenue growth.

ͻ EPS grows 15% in the 16-week quarter to 38 cents, and 17% for the 52-week
year to $1.45

ͻ Each division boosts Q4 volume, and gains market share for the year
ͻ Net sales advance 8% to over $6 billion for the quarter, annual sales grow 8%
and exceed $20 billion

ͻ Every division posts double-digit operating profit growth in the quarter, annual
operating profits advance 13% to $3.5 billion

ͻ Operating cash flow grows 33% to $2.7 billion

ͻ Return on invested capital (ROIC) improves to 23% -- a 250 basis point increase

ͻ 2001 outlook for continued double -digit earnings growth

3. Operations:

ͻ Most of the sales are through the company͛s 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.

ͻ PepsiCo has been adding new platforms for growth, which strengthen the
company͛s portfolio and enhance its vitally important innovation capabilities. For
example, in January 2001 the company acquired a majority of the South Beach
Beverage Company, whose SoBe line of drinks adds t o the 
-Cola portfolio
some of the fastest-growing brands in the fastest-growing segment of the
industry, non-carbonated beverages.

ͻ Another example is the planned merger with the Quaker Oats Company, which
is expect to complete in the second quarte r of 2001. This is without question the
biggest step to ensure a bright future of growth for PepsiCo. The merger will
make PepsiCo an even more effective competitor in the expanding market for
convenient foods and beverages. It will add two very powerful b rands to its
portfolio, Gatorade and Quaker, and create new opportunities for every PepsiCo
division. The combined enterprise will rank among the world's five largest
consumer product companies.
ͻ PepsiCo bought $383 million worth of goods and services f rom minority-owned
and women-owned suppliers in the year of 2000. The Women's Business
Enterprise National Council named the company among America's Top
Corporations for Women's Business Enterprise. PepsiCo minority and women
business development programs were rated among the top-10 nationally by the
National Minority Supplier Development Council.

ͻ We were named by Fortune magazine to its list of America's "50 Best

Companies for Minorities," by Hispanic magazine to its list of "The Hundred
Companies Providing the Most Opportunities to Hispanics," by Latina Style
magazine to its list of "The 50 Best Companies for Latinas," and by Minority MBA
magazine to its list of "Ten Top Companies for Minority MBAs."

The company encourages conservation, recycling and energy use programs that
promote clean air and water and reduce landfill. Last year, the Occupational
Health and Safety Administration named two more PepsiCo facilities to its top
"STAR" status as part of the agency's Voluntary Protection Program.

4. Human Resources:

ͻ 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.

ͻ The company͛s continued growth has created outstanding career opportunities

for talented professionals in a variety of specialized fields, such a s 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 compa ny
offers a highly competitive compensation and benefits package.

ͻ 
executives are expected to be physically fit as well as mentally

alert: 
employees four physical-fitness instructors at its headquarters. It is an
unwritten rule that to get ahead in the company a manager must stay in shape.
The company encourages one -on-one sports as well as interdepartmental
competition in such games a soccer and basketball.

5. Information Systems:

ͻ 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.

ͻ The outcome has been to integrate with a wide area network, transm it
accurate, complete customer order data, allowing the company to more
efficiently load trucks, schedule deliveries and save man -hours.

V. ANALYSIS OF STRATEGIC FACTORS

A. Key strategic factors are:

1. Recyclability of Containers

Due to the liquid nature of Pepsi͛s product, it is necessary that a solid and non -
porous container be used to store the product. This fact leads to the use of
plastics, aluminum, and glass as materials for the containers that 
is stored
in. These materials work very well for the purpose of their use, however these
materials do not biodegrade easily. Every day, 93 million empty soft drink bottles
and cans are thrown away, rather than recycled. In November 2000, the boards
of 
and Coke passed resolutions for future container recycling targets. The
resolutions call upon management to establish recycling targets and prepare a
plan to achieve them by January 1, 2005. There are two goals: (1) achieving an 80
percent national recycling rate for bottles and cans; and (2) m aking plastic bottles
with an average of 25 percent recycled plastic. The implementation of these
resolutions will have a future effect on the cost basis of Pepsi͛s product, and a
positive environmental impact if the recycling targets are met.

2. Continued growth to other segments, decline of cola interest

The beverage industry is moving towards the alternative drinks sector. Although
in recent times, mainstream beverages have been making a revival, it is obvious
that alternative drinks will continue to grow. 
can utilize its excellent brand
recognition and reputation to invest in and capitalize on growth in this area, and
increase it market share against Coca -Cola at the same time.

3. Increased use of exclusivity agreements with restaurant chains and college

campuses

Coca-Cola has a majority of exclusivity with restaurant chains including

McDonalds and other major fast food chains. The benefits of exclusivity
agreements give Coca-Cola a major advantage in channel distribution. The major
reason Taco Bell was purchased by 
was to create a new channel for 
to
be sold in restaurants. In addition to restaurants, soft drink manufacturers are
willing to engage in "cola wars" to win the rights to supply all the machines in a
given school in return for a commission. The funds go to support financially
starved school programs that could range from buying new library books to
beefing up the computer lab.

4. Coca-Cola͛s market dominance

The dominance of Coca Cola in the soft drink market has alw ays been considered
a major factor for 
management. As long as Coca Cola continues to retain a
dominant market share, 
should continue to aggressively acquire Coca Cola
market share.

5. Excessive work pressure resulting in exodus of 
management

The ͞creative tension͟ which is constantly being placed on 
management has

resulted in a number of management leaving the company for Coca Cola. Coca
Cola has consistently been able to acquire the ͞ 
Tigers͟, or very good
managers, away from 
.

B. Evaluation of the current mission and objectives

1. Mission

The overall mission of PepsiCo is to increase the value of shareholder's

investments. This is achieved through sales growth, cost controls and wise
investment of resources. PepsiCo believes that their commercial success depends
upon offering quality and value to their consumers and customers; providing
products that are safe, wholesome, economically efficient and environmentally
sound; and providing a fair return to their in vestors while adhering to the highest
standards of integrity.

2. Objectives

a. Concentration of resources on growth of businesses through internal growth

and carefully selected acquisitions

PepsiCo has adopted a plan for growth by continually address ing the
opportunities and risks associated with the global marketplace. The corporation's
success reflects their continuing commitment to growth and a focus on those
businesses where they can drive their own growth and create opportunities.

b. Contribute to the quality of life in communities

PepsiCo believes that as a corporate citizen, it is responsible to contribute to the

quality of life in the communities it serves. This policy is implemented through
support of social agencies, projects, and program s. The company also supports
employee volunteer activities through contributions of time, talent, and funds.
Each PepsiCo division is responsible for its own giving program with corporate
giving focused on supporting employee volunteer activities.

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

Out of the many strategic alternatives that PepsiCo could choose to follow, we
have chosen to endorse one that fosters continued growth and diversification.
Although their over-diversified portfolio has hindered their International Growth,
these strategies strengthen their overall corporate worth and market presence
domestically.
As consultants for PepsiCo, we are making the following recommendations:

ͻ 
should focus on increasing sales globally to compete effectively with Coke.

They have been beaten badly in some markets, and need to focus more on "un -
tapped" areas.

ͻ Continue to diversify their beverage selection through acquisitions. This will

enable PepsiCo to combat the decreased interest in col a. Going along with this,
PepsiCo needs to ensure that they can properly manage all of these acquired
companies and should divest those that show limited potential.

ͻ Increase the use of exclusivity agreements to boost their sales in key markets.
This may make it harder to keep costs low but will ensure added revenues.
Another reason why Coke has continued to beat 
is through its exclusivity
agreements with restaurant chains, sports and entertainment complexes, and
college campuses. More attention in this area will help to battle Coke's
dominance.

ͻ Capitalize on their aggressive corporate culture in overseas dealings. This can

help to combat the weakness of their current international strategies.