Pepsico: The Challenge of Growth Through Innovation

22 Pages Posted: 21 Oct 2008

See all articles by S. Venkataraman

S. Venkataraman

University of Virginia - Darden School of Business

Mary Summers

affiliation not provided to SSRN

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Abstract

This corporate strategy case shows how PepsiCo stopped worrying about competing with Coca-Cola, figured out what its real business was, and decided how to build its future. Redefining itself as a beverage and snack business, PepsiCo sheds its restaurant business and acquires Quaker and Tropicana. By rethinking the synergistic relationship between the complementary, combined strengths of the merged companies, it strategizes to develop innovative products that will compete in a changing demographic, cultural, and geographical world. Will this strategy work in an increasingly competitive environment?

Excerpt

UVA-S-0133

Rev. May 17, 2016

PepsiCo: The Challenge of Growth through Innovation

In the spring of 2002, PepsiCo's senior management members met to consider the challenges facing the company in their quest to become a “growth company like no other.” As they surveyed the business landscape, they were guardedly optimistic about their ability to meet this ambitious goal; however, they were certain that growth was not negotiable. As Steve Reinemund, chairman and CEO, said in the 2001 annual report, “Growth, after all, is what PepsiCo is about.”

There were several reasons why growth was nonnegotiable. First, the new climate of investor expectations demanded earnings fueled by both top-line growth and consistency. Second, the company had just completed a series of spinouts, acquisitions, and mergers, transforming PepsiCo into a convenience food and beverage giant. The acquisition of Tropicana and the landmark merger with the Quaker Oats Company (Quaker) created a number of synergies that remained to be exploited. Finally, PepsiCo had to adjust to a changing competitive landscape. It could no longer measure its performance only against the fountain and grocery store sales of Coca-Cola. The new PepsiCo was a global food and beverage contender, competing against the likes of Kraft and Nestlé, as well as any upstart with a great idea for a drink or snack. Over the previous three years, the food and beverage industry continued to consolidate, and several key competitors had already established a footprint in PepsiCo's platform areas.

BusinessWeek commented that, to achieve its lofty goals for growth, the company had to first “digest Quaker, for which [it] paid a rich price. And then, to beat its rivals, the $ 27 billion behemoth will have to create innovative products and ways to sell them.” PepsiCo's senior management agreed: They made growth through innovation the centerpiece of their competitive strategy. According to Reinemund, “Innovation is the single greatest driver of growth for PepsiCo and [its] product categories.” The company had to convert the promised synergies between Pepsi and Quaker into tangible, innovative products for a global market.

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Keywords: corporate, strategy, innovation, corporate, transformation, corporate, leadership, global, strategy, change, management

Suggested Citation

Venkataraman, S. and Summers, Mary, Pepsico: The Challenge of Growth Through Innovation. Darden Case No. UVA-S-0133, Available at SSRN: https://ssrn.com/abstract=1284794

S. Venkataraman (Contact Author)

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Mary Summers

affiliation not provided to SSRN ( email )

No Address Available

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