A PEST/PESTLE/PESTEL Analysis of Pepsico

Pepsi Pestel/PEST/PESTLE analysis

INTRODUCTION:

The entire soda industry has faced a decline during the last few years. Not just Pepsi, its rivals too have felt the pinch bitterly. Behind the declining performance there were mainly the social and economic factors. Several economies around the world have not performed so well in these years even after the recession. The dollar has grown stronger since the recession causing additional problems by hitting the soda brands’ profits outside US hard. Coupled with the economic woes, it is the social factors that can be challenging for such businesses as Pepsi. The sweeping health trends are affecting the sales of all the soda and fast food brands. Pepsi released some new products to boost its profits but the soda industry, it seems will continue to face difficulties.

The PESTEL factors have an important effect on any brand and particularly the ones operating in the international sector. Even if the political and technological factors are under control, it is equally important that social and economic conditions are favorable to do business profitably. Pepsi is a global brand and operates in more than 200 countries. For a brand of this size, the social and cultural factors become even important. The whole world has grown more and more health conscious during the recent years and it has led to a decline in sales of soda.  Even if Pepsi has released a few healthy products it will not be easy to make up for the losses. From 2014 to 2015, its revenue fell more than $3.5 billion.

Political factors:

Political factors can have a major impact on business. If political instability grows in one of the bigger markets that Pepsi operates in, it can be even more harmful. Moreover, civil unrest and disruption can affect the business in two ways. First it affects the sales. Political instability or civil unrest leads to loss of sales. Second it can affect the supply chain and in that case, effects can be deeper. Apart from the developing markets like India and China, Pepsi earns a significant part of its revenue from developed markets like UK, Canada, Russia etc. Several times, political instability leads to a decline in consumer purchasing power and therefore can result in lost sales. Government and politics both have an important impact on how profitably businesses can operate. Political stability also means economic stability in most cases and in turn it means flourishing businesses.

It provides new opportunities for brands to expand. It is why the big brands also spend significantly on lobbying to make the business environment more favorable. Pepsico spent $2,380,000 in 2016 on lobbying according to an opensecrets.org report. Increased collaboration with governments of other nations means better market conditions for Pepsi in foreign markets. However, if government launches initiatives against unhealthy products or the ones leading to obesity, brands like Pepsi are bound to be hurt. Changing governments can also bring regulatory changes which can be either profitable or adverse for big brands. Such changes can sometimes lead to increased production and supply costs and thus losses. Regulation on transfer of funds to and from foreign countries and restrictions on foreign ownership too can impact Pepsi’s business adversely. Politics and the regulatory environment of the foreign markets depend on the type of governments they have. Many of these governments are still not taking a very open minded approach to business.

Economic factors:

Economic factors always have a direct impact on business. Whether it is the global economy or the local economies of the nations, their performance affects the purchasing power of the customers. In turn it is the sales of these products like Pepsi’s that is impacted. The global recession is past. However, in some parts of the world economic activity is still not fully revived.  The performance of the brands like Pepsi in these parts of the world is affected. Moreover, the economic recession left behind a stronger dollar that has continued to affect the soda giant’s profits. However, this is just the surface of the problem.

Volatile commodity markets and inflation as well as contraction in availability of credit too can adversely affect Pepsi’s business. Not just this, a slowdown in national or global economy has the potential to drive the demand of products low. Sometimes such adverse economic conditions also result in a shift in the consumer preference. In times of economic slowdown people can opt for the cheaper substitutes. While on the one hand the improved condition of the global economy presents an opportunity for Pepsi, on the other a stronger dollar means low profits in foreign markets.

Social:

The importance of the social factors for the brands that cater to the needs of diverse societies in diverse nations becomes higher. Social trends can have favorable or unfavorable effects of the big brands. Their sales are influenced by the changing customer demographics, aging of the population and similar other trends. Pepsi’s customers are mainly in the age range of 13 to 35 years old. Brands are also required to maintain high ethical and social standards and focus upon their social responsibility to maintain a good image social. The social image of a brand has a direct relation with its business.

The better its social image, the better is the condition of a brand’s sales and profits. Moreover, there are other sweeping trends also that time to impact the sales of particular brands. Health consciousness in the global society has grown during the last several years. This has had an adverse impact on soda sales globally. Brands need to adapt to such changes and Pepsi has responded by releasing more of health friendly products. Changes in social trends also impact leisure activity and consumption. Their effect too can be positive or negative for brands. Social trends can bring opportunities and threats and need to be responded to in a timely manner. However, the social events can also impact businesses indirectly as sometimes social events lead to changes in law and regulations.

Technological:

Technological factors too have a major impact on businesses. It is because technology is used in all areas from marketing and supply chain to HR and finance. Everywhere there is the use of technology and no business whether big or small has remained untouched. It is the era of social networking and news travel faster. All good and bad news gets shared by just a click. Moreover, social media has proved useful for brands in terms of marketing of their products. Brands use them not just to market their products and share advertisement videos and pictures but also to know and address consumer concerns. Changing technologies thus have a deep impact on how the big brands conduct their businesses.

Pepsi has shared thousands of videos on YouTube alone and has more than 900K followers on the video sharing network. On Facebook it has more than 36 million followers. This is just a part of how social media has connected brands with customers. Apart from it technology is also in production, sourcing and supply chain. In all these areas Pepsi has a massive technological infrastructure to take care of. In HR too Pepsi makes use of newest technology to recruit and groom talent worldwide. Another important area where Pepsi has made a huge investment in technology is R&D.

Environmental:

The environmental factors have grown in importance throughout the globe in the 21st century. From waste reduction to environmental footprint, all these factors have a direct impact on the business image and in turn can affect its sales and profits. Pepsi is focused at achieving a net zero environmental impact.  These environmental problems are complex and apart from the environmental groups it is also the governments that are taking action to force the businesses to reduce their impact. Another important environmental problem that has a direct impact on the business of Pepsi is water scarcity. Scarcity of water too can have a severe impact because the production of beverages requires its use in very large volumes.

However, Pepsico has taken some big and smart steps in the direction of water conservation and water stewardship. Some of the programs that it initiated in this direction have had a positive impact and reduce its operational water consumption ratio by around 20 percent. The brand has invested in both water saving equipment and technologies. In this way, it has been able to conserve billions of litres of water. Sustainable agriculture is another key area where Pepsi is investing heavily. Both the things are important as Pepsi’s business depends heavily on both. Environmental factors are important for another reason too. Governments are also focused at environmental protection and are rewarding the brands that are investing in it. However, consumers too love the brands that love the environment. Such brands enjoy higher customer loyalty. Therefore, any big brand must address its environment related concerns whether it is in the production or down the supply chain first.

Legal:

The legal factors too have grown notably in importance in the 21st century and which is partly because of grown consciousness of health and product quality. Labor health and safety is also a critical area where compliance is essential. Pepsi has faced legal issues over product quality in the past. Now, it is focused on both ethics and compliance. In India both Pepsi and its arch-rival Coca Cola have faced issues related to the use of pesticides in their drinks. Brands like these have to maintain a clean image otherwise there is a negative effect on brand image and then on sales globally. However, the issue is not limited to just inside their factories and production facilities but they need to be cautious that even down their supply chain things are running fine. Even if a supplier is violating the labor laws or any other important law or regulation, it can prove damaging for the brand. So, the legal factors can cause both financial loss and damage to brand image. It is why the focus on them has to be high.