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Pepsi's Diversification Strategy

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Pepsi's Diversification Strategy

One of Pepsi Co's top brands is of course Pepsi, one of the most recognized brands of the world, ranked according to Interbrand. Pepsi generates more than $15,000 million of annual sales. Pepsi is joined in broad recognition by such PepsiCo brands as Diet Pepsi, Gatorade Mountain Dew, Thirst Quencher, and etc. Pepsi Co's diversification is obvious in that the fact that each of its top 18 brands generates annual sales of over $1,000 million. Pepsi Co's arsenal also included ready to drink teas, juice drinks, bottled water, as well as breakfast cereal, cakes and cake mixes. This broad product base plus a multi-channel distribution system serve to help insulate Pepsi Co from shifting business climates. However, the company has weaknesses such as overdependence on Wal-mart, overdependence on US Markets, Low productivity, and brand image damage due to recall.

Sales to Wal-Mart represent approximately 12% of PepsiCo's total net revenue. Wal-Mart is Pepsi Co's largest customer. As a result Pepsi Co's fortunes are influenced by the business strategy of Wal-Mart specifically its emphasis on private-label sales which produce a higher profit margin than national brands. Wal-Mart's low price themes put pressure on Pepsi Co to hold down prices. Furthermore, 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 Pepsi Co's lack of bargaining power and negatively impact its revenues. In 2008 Pepsi Co had approximately 198,000 employees. Its revenue per employee was $219,439, which was lower that its competitors.

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