This Five Forces analysis of PepsiCo, Inc. provides insights into the business factors linked to competitive rivalry or competition, the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitutes or substitution, and the threat of new entrants or new entry in the consumer goods industry. Considering Michael E. Porter’s model, this Five Forces analysis indicates which of the five forces warrant prioritization in PepsiCo’s food and beverage manufacturing business. The recommendations provided in this Five Forces analysis apply to current industry and market conditions relevant to the multinational operations of PepsiCo.
This Five Forces analysis of PepsiCo reveals that the company must prioritize the impacts of competition, customers, and substitutes. Suppliers and new entrants can also have a significant impact on the consumer goods business environment. However, competitive rivalry, customer power, and substitution threat are the main forces that shape PepsiCo’s generic competitive strategies and intensive growth strategies.
Summary & Recommendations: Porter’s Five Forces Analysis of PepsiCo
Because of the global nature of its business, PepsiCo faces varying external factors in its industry environment. The following are the strengths or intensities of the corresponding five forces influencing PepsiCo:
- Competitive rivalry: Strong force
- Bargaining power of customers: Strong force
- Bargaining power of suppliers: Weak force
- Threat of substitutes: Strong force
- Threat of new entrants: Moderate force
Recommendations. This Five Forces analysis of PepsiCo indicates that competition, the bargaining power of customers, and the threat of substitution are the issues most significant to the company. Based on the factors and forces in this Five Forces analysis, the following are business recommendations for PepsiCo:
- PepsiCo’s marketing mix (4P) can improve competitiveness through aggressive strategies and tactics that effectively pique consumers’ interests and persuade them to buy the company’s food and beverage products. This recommendation recognizes the aggressive nature of competitors’ strategies responsible for the competitive challenges in the consumer goods market considered in this Five Forces analysis.
- In product innovation, PepsiCo can integrate principles, concepts, and new standards based on emerging and current market trends, such as environmentalism and healthy lifestyles. The PESTLE/PESTEL analysis of PepsiCo provides insights into these trends and corresponding external factors in the consumer goods industry.
Competitive Rivalry with PepsiCo (Strong Force)
This component of the Five Forces analysis shows factors that determine the degree of competitive rivalry. The following are the notable external factors that create the strong force of competition against PepsiCo:
- High aggressiveness of consumer goods firms (strong force)
- Consumers’ low switching costs (strong force)
- High number of consumer goods firms (strong force)
Many food and beverage firms are aggressive, such as in product innovation and marketing, and exert a strong force on PepsiCo. Competitive rivalry is also strengthened because consumers can easily shift from one provider to another (low switching costs). In addition, PepsiCo competes with many other firms, including The Coca-Cola Company, Keurig Dr Pepper, and Unilever. This Five Forces analysis shows that PepsiCo faces strong competitive rivalry as one of its most pressing concerns. The business competencies, capabilities, and competitive advantages discussed in the SWOT analysis of PepsiCo are foundations for strategies for business growth and expansion amid the aggressive competition noted in this Five Forces analysis.
Bargaining Power of PepsiCo’s Customers (Strong Force)
Consumers are among the top priorities in PepsiCo’s mission statement and vision statement. The effects of consumers and customers on the company are determined in this component of the Five Forces analysis. External factors that lead to the strong bargaining power of PepsiCo’s consumers/buyers are as follows:
- Customers’ low switching costs (strong force)
- High access to product information about snacks and drinks (strong force)
- High availability of substitutes (strong force)
Consumers can easily shift from one firm to another. This condition strengthens consumers’ ability to influence PepsiCo. In addition, consumers have access to extensive information to easily make choices between PepsiCo products and competing products. Also, substitutes give buyers even more reasons to stay away from PepsiCo products. Based on this component of the Five Forces analysis, PepsiCo must ensure customer satisfaction to maximize its revenues. Strategies in various areas of the consumer goods business contribute to improving customer relations and customer satisfaction. For example, PepsiCo’s corporate social responsibility (CSR) and ESG programs can lead to positive consumer perception of the company and its food and drinks. This effect on consumer perception helps in managing the bargaining power of buyers assessed in this Five Forces analysis.
Bargaining Power of PepsiCo’s Suppliers (Weak Force)
PepsiCo maintains profitable relationships with suppliers. This component of the Five Forces analysis covers the impact of suppliers on the company and its industry environment. The weak bargaining power of PepsiCo’s suppliers is based on the following external factors:
- High overall supply (weak force)
- Low forward integration of suppliers (weak force)
- Moderate size of individual suppliers (moderate force)
The high overall supply increases PepsiCo’s options in acquiring input materials, such as raw ingredients, and reduces the bargaining power of suppliers. This power is also weakened because of low forward integration, which limits suppliers’ influence and control of PepsiCo’s supply chain. These external factors weaken suppliers’ influence on the company even though some of them are moderately sized or large firms. This component of the Five Forces analysis indicates that suppliers’ bargaining power is a low priority for PepsiCo. Nonetheless, the company has policies, strategies, and standards that manage issues related to the supply chain. For example, supply chain management in PepsiCo’s operations management ensures cost-effectiveness, productivity, and reliability that manages the bargaining power of suppliers discussed in this Five Forces analysis.
Threat of Substitutes (Strong Force)
Consumers may prefer substitutes for PepsiCo products. The influence of substitution on the company’s business and industry environment is examined in this component of the Five Forces analysis. The following external factors contribute to the strong threat of substitutes against PepsiCo:
- High performance of substitutes (strong force)
- Consumers’ low switching costs (strong force)
- High availability of substitutes (strong force)
Many substitutes for PepsiCo products are satisfactory. For example, consumers can enjoy real fruit juices and brewed coffee instead of drinking Pepsi soft drinks. In addition, PepsiCo consumers can easily shift to these substitutes, which are generally affordable. Also, most of these substitutes are widely available in grocery stores, restaurants, and other providers. Based on this component of the Five Forces analysis, external factors make the strong threat of substitution a priority issue facing PepsiCo.
Threat of New Entrants (Moderate Force)
PepsiCo faces the possibility of new firms competing against it. This component of the Five Forces analysis covers the influence of new entrants or new firms on the food and beverage business. External factors that maintain the moderate threat of new entry against PepsiCo are as follows:
- Consumers’ low switching costs (strong force)
- Moderate customer loyalty (moderate force)
- High cost of consumer goods brand development (weak force)
New firms threaten PepsiCo because consumers can easily shift from one company to another (low switching costs). However, through moderate customer loyalty, PepsiCo has a corresponding level of protection from new entrants. Also, the high cost of brand development makes it difficult for new entrants to directly compete against PepsiCo, which has one of the strongest brands in the industry. In this component of the Five Forces analysis, external factors make the threat of new entrants a considerable strategic concern for PepsiCo’s management.
References
- About PepsiCo.
- Macias, W., Barquet-Arenas, G., & Yambay-Aucancela, J. (2024). Brand equity and purchase decision of fast-moving consumer goods. Tec Empresarial, 18(2), 97-114.
- PepsiCo, Inc. – Form 10-K.
- PepsiCo Positive – We’re charting a new course to drive positive action for the planet and people.
- Schroedel, S. (2024). Best business models for the fast-moving consumer goods sector: Patterns for innovation. Sustainability, 16(9), 3787.