Pepsico dominates the food and beverage industry with a vast lineup of products. To maintain profitability, it’s crucial for the company to pinpoint which segments of their product mix drive growth. And identify those that hold potential for future expansion.
The BCG Matrix is a helpful tool for analyzing Pepsico’s products and brands. By implementing this framework, team members can evaluate which products show the potential to be ‘Stars’ and ‘Cash Cows.’ or need further attention as ‘Question Marks’ or ‘Dogs.’
This post delves into Pepsico’s BCG Matrix Analysis and identifies its profitable and troublesome brands. It provides a comprehensive understanding of which brands have the potential to bring in profits and which ones are struggling.
Brief background about PepsiCo and its products
PepsiCo is a massive corporation renowned for an extensive selection of food and beverage products. The company’s origins date back to 1898. when Caleb Bradham first concocted the refreshing Pepsi-Cola soft drink. Today, PepsiCo generates significant revenue from its offerings spanning beverages, snacks, healthcare products and more. Some of their top brands include Gatorade, Lays Potato Chips, Doritos, Cheetos Mountain Dew, Quaker Oats alongside the iconic Pepsi-Cola.
Pepsi Cola has long been a leader in its category and is considered the flagship product of PepsiCo. Despite facing various transformations over the years. their carbonated drinks business has witnessed a significant decline in sales.
PepsiCo had to reanalyze its business methodology and products in response to changing market patterns. This article aims to examine the BCG Matrix of PepsiCo objectively. And gaining insight into which sections of their product inventory are contributing to company expansion and discovering potential prospects for growth.
BCG Matrix of Pepsico
PepsiCo is a successful global brand, but even the largest companies need to evaluate their product mix periodically. This is where the BCG Matrix can help marketers determine which aspects of a product mix are propelling growth and which may offer future potential for expansion.
PepsiCo has categorized its products based on the BCG Matrix, which uses four quadrants: Cash Cows, Stars, Question Marks, and Dogs.
Dogs
PepsiCo considers dogs as business units or products that have lower market share and growth potential, making them less profitable for the organization. These cash traps are not expected to exhibit substantial growth in the future.
PepsiCo’s 7-Up Nimbooz, launched in the Indian market in 2009, exemplifies their dog brand. Despite tough competition from established players like Sprite, Thums Up, and Kool-Aid, it has not been able to acquire a significant market share.
Diet Pepsi is a prime instance of an attempt to regain lost market share from Coca-Cola. Unfortunately, it fell short in generating the desired response from customers and ended up losing ground to its competitor’s diet version.
Investors of PepsiCo should exercise caution when considering low-growth or low-market share products. The company’s management must carefully consider the investment strategy for such items, as they may not generate a profit.
Stars in BCG Matrix of Pepsico
Star products or business units in the BCG Matrix of PepsiCo are those that hold high market shares in rapidly-growing industries. They require substantial investments to sustain their growth and profitability.
PepsiCo boasts several star products, including Gatorade, which dominates the sports drink market with a massive 77% share. As the reigning market leader, Gatorade requires consistent investment to maintain its position.
Aquafina, a star product of PepsiCo, dominates 15% of the bottled water market share. It is projected to experience twice the growth over the next five years.
Pepsi-Cola remains one of PepsiCo’s star products, holding a significant 8.4% segment share in the beverage industry. However, with growing consumer preference for healthy beverages, it may transition to the dog quadrant over time.
Stars represent an organization’s potential for future growth and require significant investment to sustain. To increase their market share and achieve a stronger position, companies should prioritize these products.
Question Marks
When analyzing PepsiCo’s BCG Matrix, segments are categorized as Question Marks. And those operate in industries with high sales growth but have low market share.
QFNA, a manufacturer and distributor of breakfast bars and cereal. Currently holds it 1.02% market share and contributes 3.56% to PepsiCo’s total revenue. To increase its market presence and attain star status in the industry. QFNA must channel appropriate investment into strategic planning.
Mountain Dew Kickstart, introduced in 2013, is yet to gain a significant market share. It could be considered another option for consumers looking for refreshing beverages.
To address these Question Marks, PepsiCo should focus on implementing product and market development strategies to increase their market share.
PepsiCo could explore collaborating with other brands or segments horizontally to improve its market position. Through proper strategy, ‘Question Marks’ – lesser known products, have the potential to become ‘Stars’, driving growth and profitability for PepsiCo in the long term.
Cash Cows in BCG Matrix of Pepsico
According to the BCG Matrix of PepsiCo, Frito-Lay is a prime example of a cash cow. As it maintains a high market share in the low-growth savory snacks industry. And currently holding 36.6% of the U.S. market share.
Frito-Lay has a dominant presence in the tortilla and tostada chips market, thanks to its successful brands like Doritos and Tostitos. Their strong foothold is evident in their impressive market share growth of 72.4%.
The products categorized as cash cows in the matrix require minimal investment to upkeep their market share while easily fending off competitors. These highly profitable products are the backbone of the company’s revenue stream, making them essential for ongoing success and sustainability.
The cash cow products generate a significant amount of revenue for the organization, which can be used to invest in other business units or products.
Companies looking for long-term growth and innovation rely on cash cows. PepsiCo’s strategy involves investing in their leading market position with Frito-Lay, generating revenue to ensure future growth.
Importance of BCG Matrix analysis for PepsiCo
1. Helps in Strategic Planning
The BCG Matrix assists PepsiCo in developing strategies for each segment within its conglomerate that operates across multiple industries. It categorizes business units or products into four groups: Dogs, Stars, Question Marks, and Cash Cows.
2. Identifies Growth Opportunities
The BCG Matrix analysis is utilized by PepsiCo to determine growth opportunities in various segments. This tool helps identify the position of a business unit or product relative to its market share and sales growth rate within the industry. It provides insight into which products or units should receive investment and which ones need re-evaluation.
3. Helps in Investment Decision Making
The BCG Matrix is a useful tool that PepsiCo uses to make investment decisions. It involves categorizing business units or products as Cash Cows, Stars, Question Marks or Dogs based on their market share and growth prospects. This helps the management team decide where to allocate resources and where not to invest.
4. Focuses on Core Busines
The use of BCG Matrix analysis enables PepsiCo to focus on its primary operations. Specifically, the matrix helps identify and prioritize Cash Cows that generate sustainable revenue for the organization in the long term. In addition, by allocating more resources towards promising Stars that exhibit growth potential, PepsiCo can ensure continued expansion and success in the future.
5. Provides Competitive Advantage
PepsiCo leverages the BCG Matrix analysis to gain a competitive edge by identifying and allocating its products or business units into optimal categories. By doing so, PepsiCo can position itself effectively in the market and achieve sustainable growth.
Limitations of BCG Matrix
The BCG Matrix is an acclaimed tool utilized by businesses for strategic planning. But, to ensure a comprehensive and robust strategy, it’s crucial for business owners to note its limitations beforehand. Here are the top 5 limitations of the BCG Matrix that one must consider before applying it in strategic decision-making processes:
1. The Matrix is too simple to account for complexity
The BCG Matrix considers only two factors- market share and growth rate. However, there are many other factors that can influence a business’s success, including company culture, technological advancements, and customer behavior. These other essential aspects are overlooked by the BCG Matrix.
2. It does not account for the dynamics of the market
The BCG Matrix assumes constant market growth, but this rarely occurs in reality. Markets are ever-changing and can experience fluctuations due to different factors such as economic shifts and competition. Therefore, companies should not rely solely on the BCG Matrix for decision-making.
3. It is subjective
When it comes to the BCG Matrix, categorizing a product or business unit can be a subjective process. Criteria for classification may differ among analysts, resulting in varying outcomes.
4. It ignores inter-dependencies between products
The BCG Matrix assumes that each product or business unit is standalone. However, in reality, products can be interdependent, which might have an impact on their performance and growth. This indicates that the model should not be used as a sole solution for strategic decision-making; it is imperative to consider other factors as well.
5. It lacks a clear approach to dealing with multiple products
The BCG matrix may not be the best tool to use for businesses with multiple products or business units due to its inability to provide an optimal approach for identifying the appropriate mix of products and business units. It lacks clarity in this aspect.
Conclusion
In summary, PepsiCo and other corporations benefit from using the BCG Matrix analysis as it aids in making strategic marketing and investment decisions. The tool enables them to assess the growth potential and performance of each product or business unit in their portfolio, ensuring that resources are directed effectively.
In analyzing PepsiCo’s business units, the BCG matrix identifies North America Beverages and Europe Sub-Saharan Africa as their stars. These units offer promising opportunities for sustained growth and development. Meanwhile, Frito-Lay North America is identified as a cash cow due to its ability to generate stable revenue, which should also be maintained.
PepsiCo would benefit from paying close attention to the question marks in their portfolio, specifically Quaker Foods North America. While they operate in rapidly growing industries, their market share falls short and requires more focus for improvement.
References:
BCG Matrix analysis of Pepsi By Heartofcodes (2018) https://heartofcodes.com/bcg-matrix-of-pepsi/
PepsiCo Limited. (2017). PepsiCo. The Annual Report Form 10-K. New York: PepsiCoLimited.
