In external environment might affect organizational performance in direct and indirect manners; therefore they need to be taken into account in strategic planning. PESTEL analysis can be highlighted as the most appropriate strategic analytical tool for specifying and categorizing external factors impacting businesses. PepsiCo PESTEL analysis is as follows.
Government stability in the south Asian countries selling PepsiCo products is a major political factor for the company. PepsiCo is also impacted by tax rates and tax policy initiatives in local markets, as well as, employment-related rules and regulations. Moreover, employee health and safety rules and regulations can be specifically mentioned due to its high level of importance. Food and Drug Administration (FDA) Regulation
These regulations define which ingredients can and cannot be used in the product, how the product is produced, where it is produced, as well as other laws concerned with the quality and health effects of the product. There are potential fines set by the government if companies do not meet a standard of laws regarding manufacturing, production, and distribution.
· Waste Management Regulation
Waste from firms’ manufacturing plants must be taken care of in a responsible and legal manner. If any of the waste management laws change, companies must update their processes to abide by the law. · Legal factors include consumer laws, discrimination laws, employment laws, & health/safety laws Firms must provide nutritional information of their product to the customer Employees must be provided with at least the required minimum wage and discrimination is not tolerated in the workplace
All factories of the firms must abide by OSHA standards and regulations.] If any of these laws change, companies must change their operations and procedures to avoid being fined or even worse, shut down. Economical factors
The soft drink industry experiences market shocks in periods of recession Since 2008, the industry has struggled to regain its previous market strength The industry is expected to take a positive turn with an expansion of 27% by 2015; the highest increase since 2008
Consumers of soft drinks have continued to spend their money frugally over the past few years following the 2010 recession Raw Materials:
Cost of raw materials can be a factor if the economy for certain materials is weak Sugar and carbonated water make up most of the content, but there are a lot of preservatives and flavoring such as ascorbic acid, gums, pectins, saponins, aspartame, etc. The soft drink industry has been characterized by the dominance of two or three firms for over 20 years. These firms have created products that have been stable within the industry since the year they came out. Product differentiation and innovation are two growing trends within the industry. Innovation and differentiation is key for smaller firms to try and compete with the larger ones. The industry is also characterized by great customer demand as roughly 48% of Americans drink at least 2 glasses a day on average but that in not a case in other countries like India. In this section of the report we will take an in-depth look at the dominant economic features of the industry.
Economical factors impacting PepsiCo include rise of inflation and unemployment in the all countries where they sell their products. Rising prices of raw materials have to be mentioned as another significant economic factor. Additionally, changes in income levels of current and perspective PepsiCo consumers can be highlighted as a substantial economic factor that impacts the business.
Social factors can also impact PepsiCo profitability in various manners depending on the nature of each individual factor. Specifically, increasing popularity of healthy lifestyle and changes in consumer attitudes towards carbonated drinks are social factors with potential detrimental impacts on the level of consumption of PepsiCo products. Consumer Choice:
Age is the most important characteristic when evaluating consumer choice The older generation is more health conscious and tends to consider nutritional factors between products (diet or zero-calorie options)
The younger generation leans towards products that are fun, new, and hip Celebrity endorsements, attractive commercials, and sweepstakes become more important to the younger generation in their product decision.
Studies have speculated a link between soft drink consumption and obesity. Dieting has become a very marketable, popular trend which forces the soft drink industry to create new products that meet consumer preferences Social Media:
Social media outlets (i.e. Facebook, Twitter, Instagram) keep consumers directly connected to the brand
Firms are able to obtain valuable information and suggestions from consumers about potential or current new products
Technological factors impacting PepsiCo profitability and growth prospects include breakthroughs in food and beverage manufacturing and penetration of internet-enabled technologies in manufacturing processes. Moreover, innovations in product research and development practices represent technological factors that might have positive impacts in terms of achieving the main objective of profit maximisation. Automation:
New tech advancement in manufacturing and quality improvement concepts are improving bottling operations efficiency.
High product volume requires high levels of automation in manufacturing. Technological advances increase the utility of employees and capital, which increases productivity. High costs for new technology can be an entry barrier to new competitors. · Marketing:
Technological advancement helps create new brands and product lines to meet consumer preferences.
Improved logistics help products move through distribution channels more effectively. This keeps distribution costs down while increasing sales information to consumers. Social media provides huge growth in consumer awareness, brand value/identity, promotions, and direct-to-consumer communication.
Legal factors that have direct impact on PepsiCo include potential changes in Food Standard Agency (FSA) regulations, as well as, federal rules and regulations specific to food and beverage sector. Furthermore, consumer data protection regulations and patents and protection of intellectual property may impact business performance of PepsiCo.
Revenues of PepsiCo may also be impacted by a set of environmental factors such as environmental implications of packaging practices and increasing importance of alternative energy sources. Moreover, impacts of global warming on consumer drinking patterns might have positive implications on PepsiCo revenues.