Pepsi Five Forces Analysis

Pepsi is one of the two of world’s largest soda beverages brands. Over time, the company has expanded its product portfolio to include more food products. Now, the company makes, markets and sells a wide range of beverages and convenient foods to the customers located in various corners of the globe. The company is headquartered in Harrison, NewYork. Its leading market is the United States that accounted for around 57% of the company’s total net sales in 2022.

In 2022, Pepsi enjoyed around 9% growth in its annual net sales. Its total net sales remained $86.4 billion in 2022 and a large part of its total sales (58%) came from the sales of food products. People have mostly known Pepsico as a soda beverages brand. However, that is not the case any more. The company has acquired other brands and built a solid business of convenience foods also.

The main rival of Pepsico in the global market is Coca Cola, which enjoys a slightly larger market share in soda beverages compared to Pepsico. However, with the expansion of its food business, the number of its rivals in the food sector has grown. Pepsi is operating in an intensely competitive environment. However, it is a well established brand, enjoying a leadership position and having solid competitive strength.

In this five forces analysis, we will analyse the competitive position of Pepsi and how the five important factors affect its competitive position and market share. The five forces analysis is an analytical framework, named after its creator Michael E Porter and is used to guide business strategy and decision making.

gaining power of suppliers:

The bargaining power of suppliers depends on several factors including the size of supplier firms, their financial position and their ability of forward integration. In the case of Pepsico, the bargaining power of suppliers is low to moderate. Its suppliers are not concentrated in a single sector but dispersed.

Most of them are small firms and agricultural producers. However, the costs of agricultural products has increased over time and production has reduced in several geographical areas. So, in case of some products, Pepsi might have to depend on a limited number of suppliers for some specific products. This gives the suppliers some bargaining power and they can increase the prices of their products. However, there are also several factors that moderate the bargaining power of suppliers.

First of them is the size of Pepsico which is a large and global firm with sufficient financial strength. It pays its suppliers well and in many cases, it might be easy for Pepsi to switch to other suppliers. However, suppliers depend on large firms like Pepsi to sell their produce. Since Pepsi is a large buyer, its buying power gives it enormous bargaining strength over its suppliers. The threat of forward integration from the Pepsi suppliers is also very low. Overall, the bargaining power of the Pepsi suppliers is moderate.

Bargaining power of buyers:

The bargaining power of buyers is higher in cases when the buying firms are larger than the supplying firm and the threat of backward integration by the buyers is high. However, the case is not so in the food and beverages industry since the buyers are mostly smaller firms compared to Pepsi like its distributors, wholesalers and retailers. Some of the big brands in the fast food industry that are among the large buyers of the Pepsi products may hold some bargaining strength. However, the number of factors moderating the bargaining power of buyers is also very high. They control the bargaining power of Pepsi buyers.

Pepsi is financially a strong brand and has acquired a leadership position in the food and beverages industry. Due to its enormous size, global presence and the strong demand of its products worldwide, the bargaining power of buyers gets moderated. The company also makes a strong investment in product quality and marketing. Since its products enjoy already very high demand, conducting business with Pepsi is profitable for its wholesalers and retailers. Moreover, the threat of backward integration from the buyers is low. Many of Pepsi brands are celebrity brands and highly popular in various corners of the world. So, overall these various factors work to moderate the bargaining power of buyers.

Threat of substitute products:

The threat of substitute products before Pepsico is high and the main threat comes from the products made and sold by the rival brands. Its large portfolio is made up of both food and beverage products. However, its portfolio of beverages is very similar to that of its nearest rival Coca Cola. Coca Cola also sells a vast range of soft drinks that are similar in flavor and work as substitutes for Pepsi products. There are also several juice and energy drink brands including international brands like Red Bull or Monster Energy whose products compete with those made by Pepsico.

In the food segment too, the number of substitutes for Pepsi products is very high. There are a large number of brands that make similar products. Several of these are leading global brands with a strong presence in various corners of the globe. Brands like ConAgra, and Kellogg company make several food products which are similar to the ones made and sold by Pepsi and serve as substitutes in various markets. So, overall the threat of substitute products for Pepsico is high. Pepsi’s brand image, global popularity and investment in marketing serve to reduce the threat from substitute products but since the substitute brands and products also have strong market presence, the threat still remains high.

Threat of new entrants:

The threat of new entrants in the food and beverages industry is low. It is mainly because of the presence of a large number of established brands in the market aggressively competing for market share. However, there are also financial and regulatory barriers preventing new players from entering the market at a large scale. New entrants face the financial barriers and several more barriers related to supply chain management, business operations and marketing. However, several local brands have made an entry with small capital but then their market share is negligible compared to that of Pepsi or other leading international brands in the food and beverages industry.

Some of the other key factors that moderate the threat from new players are Pepsi’s market position, brand image, marketing and product quality. These are the factors that are difficult to imitate or match for smaller brands or new entrants. Pepsi is a well established brand and invests heavily in marketing and maintaining the demand of its products worldwide. It enjoys a strong competitive edge over the smaller players. The company is also quite aggressive about maintaining its market share. Overall, the threat from new players is minimal for the global leader Pepsi.

Intensity of competitive rivalry:

The intensity of competitive rivalry faced by Pepsico is very high. Its primary competitor is Coca Cola. These two brands have been engaged in a fierce battle for market share over the past several years. In the past, the aggressive rivalry between the two had been termed as Cola wars. However, Coca Cola is its leading rival but not the only rival in the US and overseas markets. The company also faces strong rivalry from several more local and international food and beverages brands. The list of the competitors of Pepsico that threaten its market share is quite long.

Its competitors include many other well recognized and popular brands that enjoy strong market position and high demand of their products. Apart from Coca Cola, the other leading competitors of Pepsico include Campbell Soup Company, Conagra Brands, Inc., Hormel Foods Corporation, Kellogg Company, Keurig Dr Pepper Inc., The Kraft Heinz Company, Link Snacks, Inc., Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A., Red Bull GmbH and Utz Brands, Inc. However, this is only a limited list since there are many more brands that are competing with Pepsico for market share.

Pepsi is a well established and competitive brand. It is financially strong and positioned well to compete against its rivals including leading international brands. The factors that mitigate the competitive pressure on Pepsico include its product quality, strong brand recognition, marketing, innovation and other factors like supply chain and superior operations management. The competitive threat gets mitigated only to some extent by these factors and the company each year spends billions on maintaining the demand of its products and market share.

Conclusion:

Pepsi is operating in a highly competitive market environment and despite a challenging business environment, the company has experienced business and revenue growth over the recent years. It is a highly competitive brand that focuses on marketing, innovation and customer experience to grow loyalty. In the food and beverages industry where the switching costs are low, brand loyalty is difficult to maintain. It gives the customers some bargaining power. However, the company is able to moderate the bargaining power of its buyers through economical pricing, product quality, brand image, a diverse product portfolio and marketing. The company is investing in digitalizing its supply chain and other parts of its business operations. However, the key challenges before Pepsico include the competitive pressure and the threat from the substitute products. The list of Pepsico rivals is quite long and Coca Cola is at the top in this list. To battle the competitive pressure, the company invests in marketing and innovation as well as product quality and safety. However, despite a challenging market environment, Pepsi is a strong and competitive brand poised for faster growth in the future.