1. Analyze each company’s history, product / services, major customers, major suppliers, and leadership and provide a synopsis of each company.
History of the Companies
Caleb Bradham invented what became known as Pepsi-Cola in 1898 while experimenting with a variety of spices to prepare a refreshing drink for his customers (Stoddard, 2006). The invention grew in popularity through several advertisements and was renamed Pepsi-Cola. The response was enormous as the sales grew tremendously prompting Caleb to start a company. He launched the Pepsi-Cola Company in 1902 and applied for a trademark from the U.S. Patent Office (Stoddard, 2006).
The company was officially registered in June 1903 with the U.S. patent office. Caleb thought of ways to increase the sales so he began bottling the drink. Franchising was an excellent option as it increased the market size. As a result the number of Pepsi-Cola franchises grew from just two in 1905 to at least one in each of 24 states by 1910 (Stoddard, 2006).
The company enjoyed its success under the slogan “Drink Pepsi-Cola, it will satisfy you”. This was until the beginning of the First World War. The price of production increased forcing Caleb to gamble his business. Unfortunately, the company was declared bankrupt by 1923 as only two plants remained operational.
Charles Guth, who was the president of Loft Incorporated, brought new life to the company during the Great Depression. The advertisements boosted Pepsi-Cola’s profits, which doubled from 1936 to 1938 (Stoddard, 2006). The company experienced growth ruled by different presidents in the subsequent years. In 1965, PepsiCo was founded after the merger of Frito Lay and Pepsi-Cola corporations (Amason, 2011). The number of brands under PepsiCo increased in 1998 after acquisition of Tropicana. Another merger occurred with The Quaker Oats Company in 2001making PepsiCo acquire significant market control. The company brands are available in many countries generating great sales.
PepsiCo operates three business segments (Hitt & Ireland, 2009). The first segment is the Worldwide Beverage, which is divided into three units: Gatorade/Tropicana North America (GTNA), Pepsi-Cola North America (PCNA) and PepsiCo Beverages International (PBI). The second segment is the Worldwide Snacks comprising two units: Frito-Lay International (FLI) and Frito-Lay North America (FLNA). The final segment is the Quaker Foods North America (QFNA).
FLNA manufacturers have varied products that include Tostitos tortilla and Doritos chips, Ruffles potato chips, Lay's potato chips, Cheetos cheese flavored snacks, Quaker Chewy granola bars, Grandma's cookies, Fritos corn chips etc. These snack food is sold throughout the U.S and Canada. On the other hand, FLI’s products are available in countries outside the United States and Canada. They are sold through affiliated companies and company-owned businesses. The manufacturing of the products takes into consideration local tastes and preferences. However, the company has also introduced most of the U.S. brands in the international market. Prime international markets include the United Kingdom, Spain, the Netherlands, Mexico, Australia, Brazil, and South Africa.
PCNA is in charge of manufacturing concentrates for Pepsi, Wild Cherry Pepsi, FruitWorks, Slice, Sierra Mist, Mug, Mountain Dew Code Red, Pepsi Twist, Pepsi One and Diet Pepsi. It also manufactures AMP energy drinks, SoBe juice drinks and teas, and juice drinks. Bottlers in the U.S. and Canada serve as the customers for these products. GTNA also manufactures and sells its products within the U.S. and Canadian market. The products include Gatorade sports drinks, Propel fitness water, Tropicana Twister, Tropicana Season's Best, Tropicana Pure Premium, and juice beverages.
PBI is charged with manufacturing concentrates for Pepsi, KAS, Mirinda, 7UP, Pepsi Light and other brands. These are sold to bottlers outside the U.S. and Canada in approximately 170 countries. Prime international markets include The Philippines, Spain, the United Kingdom, Thailand, Brazil, Argentina, India, Saudi Arabia, China, and Mexico.
Products under QFNA are sold within the United States and Canadian territories. It includes Rice-A-Roni rice, Near East rice, Pasta Roni pasta, Quaker grits, Quaker oatmeal, Aunt Jemima mixes and syrups, and ready-to-eat cereals.
PepsiCo has numerous strategic partnerships with various companies. These include Lipton and Starbucks whereby the company creates, markets, and sells brands from the partner companies. For instance, PepsiCo sells bottled Starbucks Frappuccino drinks and ready to drink Lipton tea brands.
The Coca-Cola Company
John Pemberton developed a medicinal drink in the late 19th century, which later evolved to dominate the soft drink market in the 20th century (Watters, 1978). His inspiration was simple curiosity. Frank Robinson, Pemberton’s bookkeeper gave the name Coca-Cola and wrote it in a distinct script that is used to the present day. Unfortunately, Pemberton died in 1888 and never grasped the success of his invention (Watters, 1978).
Asa Griggs Candler became the Company’s first president after securing right to the business. The president transformed the invention into a business by introducing innovative and aggressive ways of marketing the new refreshment. Joseph Biedenharn was the first to bottle Coca-Cola in 1894 to satisfy the increasing demand. However, Biedenharn never realized the potential of bottled beverages. In 1899, Joseph B. Whitehead and Benjamin F. Thomas secured exclusive rights to bottle and sell the beverage from Candler. The Company avoided imitation by focusing its advertisements on the genuineness of Coca-Cola. Furthermore, the company created a distinct contour bottle in 1916 to assure customers of a real Coca-Cola (Watters, 1978). The bottles remain the signature shape to this day. Toward the begging of the new century, the company recorded rapid growth by moving into France, Puerto Rico, Cuba, Panama, Canada, and other countries.
Robert Woodruff succeeded Asa Candler as the Company’s president in 1923. The new president expanded the company overseas. Introduction of Coca-Cola to the Olympic Games in 1928 boosted the marketing and sales. Innovations, such introduction of the open top cooler and six-pack made it easier for people to consume Coca-Cola from anywhere. The president also saw a business opportunity to sell Coca-Cola during the World War II. During the war, the Coca-Cola Company managed to lay a firm foundation for doing business overseas. Under Woodruff’s watch, the number of countries reached nearly doubled from the mid 1940s to 1960.
The Company has introduced new brands since 1950 with the introduction of Fanta. Other brands include Sprite in 1961, TAB in 1963 and Fresca in 1966. Furthermore, the Company started a new line of business in 1960 with the acquisition of The Minute Maid Company (Watters, 1978). Advertising remains a crucial and exciting part of the Coca-Cola Company. The brands are always associated with friends, fun and good times.
Roberto C. Goizueta, who became the CEO of The Coca-Cola Company in 1981, completely overhauled the operations of the Company. He introduced Coca-Cola Enterprises Inc. and diet Coke. However, Goizueta's change in Coca-Cola formulation in 1985 was not well received by the public (Watters, 1978). The original formula was restored, and the product marketed as Coca-Cola classic.
The Company experienced continued growth in the 1990s. It strengthened its association with sports during this decade. The Company also opened up new markets such as India and East Germany. The number of brands increased with the introduction of Powerade, Qoo, sports drink, Dasani, and children’s fruit drink. The Company also acquired Maaza, Limca, and Thums in India, Inca Kola in Peru, Barq’s in the U.S., and Cadbury Schweppes' (Watters, 1978).
The Company still aims at providing magic with the consumption of its products. Commitment to the local markets enables the Company deliver according to the needs of the consumer. The Coca-Cola Company sells its products in restaurants, stores and vending machines worldwide in approximately 200 countries. The company sells cola concentrates to licensed bottlers with territorial contracts with the company. The bottlers produce finished products in glass bottles and cans using various sweeteners and filtered water. The finished product is then distributed to vending machines and retail stores.
The biggest Coca-Cola bottler in Asia, North America, Europe, and Australia is the Coca-Cola Enterprises. In addition, the company sells cola concentrate to large distributors of food service and restaurants for using it in fountain drinks.
2. Based on the stock price for the timeline listed below, present a graph that illustrates the stock price of each company. Indicate conclusions that can be drawn based on the trend
Comparison of Stock Price between Coca-Cola and PepsiCo
The trend indicates the growth in both companies’ stocks since Initial Public Offer (IPO). However, the stock price for PepsiCo records minimal changes between January 2011 and January 2012. Usage of the stock price as the only basis for influencing a potential investor would make Coca-Cola be the favorite choice due to its increasing stock value.
3. Research and summarize at least two (2) news events (this may include mergers, acquisitions, or political issues) that occurred from 2010 to the present day and the potential impact on the stock price of each company. Indicate how this influences your investment decision related to the company.
Events that Occurred from 2010 to the Present Day
The Coca-Cola Company
In 2010, negotiations began between Coca-Cola Enterprises and The Coca-Cola Company aimed at selling North American CCE’s division to Coca-Cola. The talks included regaining a third of the shareholdings in CCE by Coca-Cola. This made Coca-Cola enlist CCE as one of its assets. The process saved consumer money raising investor confidence. The company was also able to save money through shared advertisements. The stock price of the company made a significant rise after the acquisition.
In 2011, Coca-Cola began a campaign in Australia aimed at increasing the sales. The “share a Coke” campaign was conducted by replacing the Coca-Cola logo with popular Australian names on the bottles. The Company put up a website and Facebook page to support the campaign. The campaigns increased the sales and made consumers feel appreciated by the company. Consequently this move increased investor confidence in the Company and the share price rose.
PepsiCo made a strategic investment in frontline labor in its Midwest-South (MWS) Region. The effort was aimed at hiring the best candidates as sales representatives in frontline routes. The exercise engaged fourteen community houses, deepening the strong bond with organizations such as the Urban League, Native American tribal councils, and the Hispanic Chamber of Commerce. As a result, the company improved its frontline representation in the region boosting the sales and stock price.
PepsiCo Foundation increased its role in 2011 by providing access to safe water and sanitation to over a million people. To achieve the goal, the foundation sought assistance from partners such as the Earth Institute at Columbia University, China Women's Development Foundation (CWDF), The Energy Resources Institute (TERI), Safe Water Network, and Water.org. The projects helped communities in developing countries improve the sanitation programs. In addition, investor confidence has grown due to the social corporate responsibility.
4. Provide an overall financial analysis for each company that highlights the key characteristics for investment and how this may impact an investor’s decision
Overall Financial Analysis and Recommendations
Pepsi’s dividends have increased since 1986 and have been constantly paid. Investors have a tendency to move towards stocks that pay dividends and shun away from stocks that do not offer real returns. Therefore, Pepsi offers what the investors require.
Ability of a company to meet its financial obligations is determined by its liquidity ratio (Gowthorpe, 2008). PepsiCo performs better in meeting its financial obligations compared to Coca-Cola due to its stronger liquidity ratios. On the other hand, solvency ratio determines the ability of a company to meet its debt obligations (Gowthorpe, 2008). In this case, Coca-Cola is better placed than PepsiCo as it can utilize available cash in clearing a bigger proportion of its debts.
5. Based on your review of the financial data for each company, indicate the accuracy and reliability of the data for making investment decision. Provide support for your conclusion.
Coca-Cola has a relatively higher price to Free Cash Flow ratio compared to PepsiCo. A lower ratio is expected from a company that offers value. PepsiCo enjoys higher institutional ownership, which is a good sign for the investors keen on the management of the company.
PepsiCo has an inventory turnover that is superior to that of Coca-Cola. This is a demonstration of higher levels of efficiency. Moreover, PepsiCo has a higher Quick Ratio than the industry in which it operates. This makes the company more liquid than Coca-Cola, a factor that may attract more investors.
6. Recommend which company you consider as the better investment for your client and how you will present your recommendation. Support your recommendation with data from your analysis.
PepsiCo’s success over Coca-Cola may be attributed to a high standard of performance, superior products, high integrity of their personnel and distinctive competition strategies. Involvement of PepsiCo in snack food business is another boost over Coca-Cola. Division of PepsiCo’s business to three major segments gives it a competitive advantage over Coca-Cola. PepsiCo products are more appealing to the young generation compared to Coca-Cola. This makes the company enjoy a wide market share with growth prospects.