Pepsi SWOT Analysis

Pepsi is among the two leading brands in the soda beverages industry and a well established global business. Throughout the globe, Pepsi enjoys strong brand recognition which is based on its focus on product quality , strong brand image and solid marketing strategy. The company has demonstrated solid market performance over the past few years even amidst several types of challenges and generated more than $86 billion in total net revenue in fiscal 2022.

Pepsico is operating in a highly competitive business environment. Its main rival is Coca Cola. The largest market of Pepsi products is the United States which accounts for more than half of the company’s total net sales. In fiscal 2022, the company generated more than $49 billion in net sales from the US market alone or 57% of the company’s total net sales for the year. Over the past several years, Pepsico has continued to diversify its product portfolio to include more food products. Unlike Coca Cola, its biggest rival in the international market, the company is no more just a soda beverage brand. Its share of food products in the company’s total net sales for 2022 was 58% whereas that of the beverages was only 42%.

In this swot analysis of Pepsi, we will analyse the strengths, weaknesses, opportunities and threats of Pepsi and how well the company is positioned for future growth.

pepsi swot analysis

Strengths:

Global brand: 

Pepsi is a truly global brand that sells its products across more than 200 countries. The company markets, distributes and sells beverages and convenient foods across more than 200 countries and territories. It uses both traditional and digital channels to manage its market presence in various corners of the globe. Based on geographical segments, it has divided its market into seven reportable segments that include :- 

1 Frito Lay North America

2 Quaker Foods North America

3 Pepsico beverages North America

4 Latin America

5 Africa, Middle east and South Asia

6 Europe

7 Asia Pacific, Australia and NewZealand and China region

Strong distribution chain:

Pepsi has managed a global and strong distribution chain that is a mix of different types of channels. THe company mainly brings its products to the market through direct store delivery, customer warehouses and distributor networks. It also uses digital retail channels to sell directly to the consumers in various corners of the globe. Its direct store delivery model is well suited for the products that are more often restocked and also helps gain higher visibility and appeal for its merchandise. 

Strong customer loyalty:

Pepsi is a well established and highly popular brand that enjoys strong brand recognition in most corners of the world. It has a very large and global user base in almost all corners of the globe. Its consumers are mainly from the youth segment since Pepsi has established itself as a youthful brand that is targeted mainly at the young customers. Its product quality and diverse flavors have helped it appeal to various consumer segments and build higher customer loyalty among customers worldwide. It enjoys strong loyalty and the demand for Pepsi products generally remains quite high. However, the company also invests in marketing and maintaining its brand image to maintain customer loyalty.

Diverse product portfolio:

Since its foundation, Pepsi has been known primarily as a beverages brand. However, that identity has changed over the recent years as the company has continued to diversify its product portfolio to expand market share and find faster revenue growth. It has also helped the company financially and its revenue has grown impressively. Now, the company sells a vast range of convenient food products as well and the share of Food products in its total net sales in 2022 was 58%.

Financially strong:

Pepsi is financially a strong brand that invests a heavy sum each year in maintaining product safety and quality as well as marketing and innovation. Its financial strength helps the company maintain its market position and leadership status since it can spend more on marketing to maintain product demand. In 2022, it generated more than $86 billion, of which more than $49 billion were from the US market alone. Its financially strong position also allows the company to invest more in digitalization of operations and innovation to improve productivity.

Strong focus on innovation:

Pepsi is a global food and beverages brand that has found strong growth in recent years. To some extent, its growth can also be attributed to its focus on innovation. The retail landscape is changing rapidly. Pepsi is investing in digitalizing and modernizing its system to improve its productivity and business processes.The company is also engaged in a variety of research and development activities that are targeted at reducing operating costs, improving product quality and serving customers more effectively.

Brand image: 

Pepsi has maintained a strong brand image as a consumer preferred brand in various corners of the globe. Brand image in the food and beverages industry depends on several things including product safety and quality, compliance, marketing and similar more factors. Brands with a strong image enjoy higher demand and sales. Pepsi has a strong brand image worldwide which has resulted in higher popularity, superior demand and better sales as well as customer loyalty.

Brand recognition:

Pepsi is a globally well recognized brand. Its logo can be easily recognized in almost all corners of the world. It is a familiar name in most corners of the globe. Its credit mainly goes to how the brand has marketed itself worldwide.

 Now, it has established itself as a market leader. However, the company still invests billions in marketing and promotions. It helps the company maintain its market share and strengthen its brand recognition as well as that of the individual brands in its portfolio. Strong brand recognition drives higher sales and superior customer loyalty as well as higher brand recall.

Weaknesses:

Dependent on natural resources:

Pepsi depends mainly on natural resources for the production of various food products and beverages in its product portfolio. While the prices of these commodities which mainly include aspartame, corn, corn sweeteners, flavorings, flour, juice concentrates, oats, potatoes, raw milk, rice, seasonings, sucralose, sugar, vegetable and essential oils, and wheat have surged faster in recent years. The production of agricultural products in various corners of the globe has also reduced while their prices have grown. Pepsi also uses water in huge amounts for the production of its beverages. Its higher dependence on natural resources is also a cause of concern for the brand.

Seasonal effect on sales:

Pepsi product sales are affected by seasonality or they are higher in one season and lower in another. However, it is mostly the case with beverages. The sales of soft drinks are generally higher in the second and third quarters of the year. Beverage sales are lower during the other two quarters of the year. However, Pepsi cannot manage this effect on sales since it is outside the company’s control. Pepsi has expanded its portfolio to include more food products over the past several years and this has helped the company overcome this weakness to some extent  but not fully.

Effects of natural calamities on sales:

Pepsi sales are also affected by weather, and natural calamities as well as geopolitical changes. The sales of Pepsi products remained lower during the pandemic which affected its revenue. Such situations are outside the company’s control. The pandemic had a serious impact on Pepsi’s as well as several other food and beverage businesses.

Opportunities:

Higher diversification:

Pepsi has worked over the past several years to reduce its dependence on beverage sales by adding more and more food products to its portfolio. The share of food products in its portfolio is higher based on net sales. The company can further diversify its product portfolio to achieve more growth and expand its market share. Diversification also allows the company to target new customer segments as well as enter new markets and discover new channels of growth.

Digitalization and use of modern technologies:

The retail industry is undergoing a major transformation where the role of digital technology in terms of marketing, sales, customer service and daily operations has grown a lot. The pandemic has accelerated this transformation. Digitalization is also essential since it will increase the company’s productivity and help it reduce costs of operation. Moreover, the company can benefit from data and analytics as well as other modern technologies including AI, robotics, automation and so on. 

Acquisitions:

Pepsi is a financially strong brand which has achieved solid revenue growth over the past few years. The company is well positioned to further expand its business through acquisitions. In the past also Pepsi has made several acquisitions like Frito Lay which have helped it grow its business and particularly the food business. It can acquire smaller and local brands to penetrate various geographical markets deeper.

Threats:

Intense competition:

The soda industry is also experiencing strong competition. However, it is nothing new since the battle for market share between PepsiCo and Coca Cola, its leading rival, has always been intense. Their rivalry was termed as Cola wars in the past. Both the leading brands are highly aggressive in terms of marketing and maintaining their market share. Each one spends billions on marketing and maintains a strong focus on innovation. However, as Pepsico has entered the food segment, its number of competitors has increased a lot.

Regulatory issues:

Pepsico is also facing numerous regulatory challenges that can potentially harm its business if the company fails to address any of the related areas. For example, there are laws and regulations related to sourcing, supply chain management as well as product quality and safety which the brand is required to comply with. Compliance issues can sometimes prove very costly for brands since governments can charge hefty fines for violations. It can also prove costly in terms of brand image.

Growing costs of raw material and business operations:

The costs of raw materials including the agricultural items and other items that are used in either production or packaging have kept growing. Apart from that, costs have also increased in the other areas of operations including supply chain management, logistics and energy. Overall, the costs of operations for Pepsico are being driven by several factors including increased costs of raw materials, transportation and energy as well as higher labor costs and increased costs of marketing. Increased costs will hurt the firm’s profitability.

Sustainability concerns:

One of the key challenges facing Pepsico right now is how to operate more and more sustainability. As already mentioned, the company depends heavily on natural resources for raw materials, and has also faced criticism for water consumption, pollution and other environment related matters in the past. While the company has taken several firm steps towards being more sustainable and making its business processes more environment friendly, the pressure related to being sustainable from the government and other agencies is high. Being sustainable can be good for the brand and its image, but in the short term it will drive costs of operation higher for it.