Pepsi Value Chain Analysis

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  • Post last modified:June 27, 2020

Pepsi is one of the two leading brands in the soda industry with a global presence and strong global sales and distribution network. Apart from being a highly competitive brand of nonalcoholic beverages and snacks, Pepsi is also the strongest rival of Coca Cola. The company has managed its global distribution network with the support of distributors and retailers. In recent years, the brand has also expanded its product portfolio to include more health-friendly and snack products.

While the soda industry has grown highly competitive, sustaining growth now requires a consistent focus on product quality, marketing as well as customer engagement. However, Pepsi has kept investing in digital marketing to grow customer engagement and retain its competitive advantage amidst heavy competition from Coca Cola and other brands. One of the leading factors that have supported the growth and success of Pepsico worldwide is its supply chain. The company has optimized its value chain to achieve the best results and cater to customer demand with higher efficiency.

Value Chain of Pepsico: Primary Activities

Inbound logistics:

Pepsi has a global supply chain and it sources raw materials from several nations around the world. The company works with thousands of suppliers around the world to source raw material and primarily agricultural raw material. The company has established a strong supply chain and distribution network. The integrated logistics function of the company plays a key role in the smooth operation of inbound logistics and to ensure that raw materials flow into the system seamlessly. In recent years, the company has made a lot of investment into its existing fleet to make it more efficient, modernized, and environment-friendly. The company has established warehouses at key locations worldwide and in close proximity to its suppliers to reduce transportation and logistics-related expenses. The company also uses advanced software for inventory management and to manage logistics. 

Operations:

The company has divided its global operations into six areas or geographical divisions which include:

1) Frito-Lay North America (FLNA) – Pepsico’s branded food and snack businesses in the United States and Canada; 

2) Quaker Foods North America (QFNA)- Pepsico’s cereal, rice, pasta and other branded food businesses in the United States and Canada; 

3) North America Beverages (NAB) – Pepsico’s beverage businesses in the United States and Canada; 

4) Latin America – Pepsico’s beverage, food and snack businesses in Latin America; 

5) Europe Sub-Saharan Africa (ESSA) – Pepsico’s beverage, food and snack businesses in Europe and Sub-Saharan Africa; and 

6) Asia, Middle-East, and North Africa (AMENA) – Pepsico’s beverage, food and snack businesses in Asia, Middle-East and North Africa.

The company has also established a large network of offices, distribution centers, warehouses, plants, and other facilities.

Outbound logistics:

Outbound logistics means the outward flow of goods from inside the organization or simply put the distribution and sales network of a company. Outbound logistics plays a major role in the value chain of a company and is a critical link whose efficiency ensures operational effectiveness and business success. 

Pepsi has maintained a strong international presence through its multichannel distribution network. The company brings its products to the market to its customers through a mix of various sales and distribution channels. Pepsi primarily uses direct-store-delivery (DSD), customer warehouse, and distributor networks to bring its products to the market. However, the kind of channel used depends on the needs of the customers, characteristics of the product as well as the local trade practices.

Direct Store delivery:

Pepsico operates the direct store delivery systems with the help of its bottlers and distributors. The DSD systems deliver beverages, foods, and snacks to the retail stores where they are merchandised by Pepsico employees or the independent bottlers of the company. The DSD system allows Pepsico to merchandise its products with higher visibility and appeal which is profitable for the company. This system is most suited for the distribution of the products that are restocked more often.

Customer warehouse:

Some of the Pepsi products are delivered from manufacturing plants and warehouses to customer warehouses. The less fragile and perishable products with lower turnover are mainly distributed through this channel.

Distributor network:

Pepsico also utilizes third-party distributors for the distribution of several of its products. The company uses them when it has to distribute a large range of products and include them on the same delivery vehicle. The food service and vending businesses of Pepsi use third party distributors and operators to distribute beverages, food, and snacks to restaurants, businesses, schools, and stadiums.

Marketing:

Pepsi is excellent in terms of marketing and it is one of the key focus areas in its value chain since the company is a part of a highly competitive industry where marketing is essential to maintain demand and sales. Coca Cola is the biggest rival of Pepsi and to maintain its competitive position, the company makes a large investment in advertising and promotions each year. Apart from digital channels of promotions including social media, the company also uses outdoor promotions to advertise its products and for customer engagement. Video marketing has also played a key role in growing the popularity of Pepsi brands and products throughout the world.

Products and services:

Pepsi offers a large and diversified range of beverages, snacks, and food products. The product portfolio of Pepsi includes beverages, low calories beverages as well as a large range of healthy snacks and food products. A highly diversified product portfolio has also helped the company find faster growth in terms of overall sales and revenue. 

Value Chain of Pepsico: Support Activities

Technology:

Pepsi heavily uses technology to maximize the efficiency of its global operations. Apart from that, it has continued to grow its investment in digital technology and sustainability to improve the efficiency of its supply chain, manufacturing, marketing as well as sales and distribution network. The company also uses technology for employee training as well as inventory management and to grow customer relationships. Apart from operational efficiency, the focus of the company is on sustainable business operations and therefore it invests in technology to develop environment-friendly solutions, minimize its carbon footprint, and leverage data and analytics for serving customers better.

HRM:

HR management is one of the key areas of strategic focus for the company. Employees are a source of competitive advantage in the industry and therefore apart from attracting talented people, the company has to focus on their training, retention, and continuous growth. As of December 29, 2018, Pepsico and its consolidated subsidiaries employed approximately 267,000 people worldwide, including approximately 114,000 people within the United States (Annual report, 2018).

Infrastructure:

Pepsi has divided its business operations into divisions based on geographical regions. However, the company also manages its global business operations on a functional basis, and the management of its global business is handled through various departments and functions. This has helped the company with efficient management and a leadership model which ensures higher success and organizational productivity. Each of the various functions has a Vice President leading its global operations. The board of directors that includes two executive directors and 12 independent directors also plays a central role in guiding business strategy and decision making at Pepsico.

Procurement:

As a leading manufacturer of soda beverages, snacks, and food products, the company depends heavily on its suppliers globally for the supply of good quality raw material. The company places a special focus on managing suppliers, supplier relationships, and sustainability in its supply chain. Apart from product quality, the procurement team at Pepsico also oversees other areas related to the supply chain like the Code of Conduct as well as supplier audit and training. This ensures a continuous supply of good quality raw material to the company for its manufacturing operations as well as ethical supply chain operations. The procurement team also evaluates supplier performance continuously through the help of suppliers scorecards for improvement and to achieve higher efficiency and productivity throughout the company’s supply chain network. 

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.