Cases MR 2

PepsiCo Corporate Strategy

- Basic approach: broad differentiation using related diversification (of highly complementary products) - Consumer foods and beverages that share key success factors:o Branding, Advertising, New product development, Operating efficiencies, Strong distribution. - Capture cost-sharing benefits among the business units where possible. - Grow all the businesses by expanding into foreign markets.o Utilize free cash flows for: Strategic acquisitions, Increasing dividend payments, Repurchasing shares

Yeti: On the other hand

- Brand is well known - Product durability is proven (except new cooler product line) - Financials have been solid except for minor organizational realignment, business optimization expenses and product recall issues - Global warming will continue to drive up the need for the industry

Yeti's business model

- Business Model = formula for how a firm will make a profit by managing costs, revenues, and how we satisfy customer wants and needs at a price considered to be a good value *CVP + profit formula - Strategy = formula for how a firm will compete

UB: What are the overall implications from SWOT analysis?

- Carefully conduct research on influencers they want to align with - Use evidence-based data analysis of their followers to ensure ROI on influencer investments and aligning their channel and audience - Ulta will suffer from limited social media impact if it allows competitors to control influencers - Competition is intensifying from direct and indirect incumbents - Consider the potential return from altering the domestic-centric business model

What strategy change does UB need to implement to strengthen its competitive position?

- Ch. 6 emphasizes strengthening a company's competitive position - Invent a new industry segment; blue ocean - Pursue strategic alliance and partnerships with the most strategically important product innovators - Go on the offensive o First mover o Fast follower o Late mover - Launch pre-emptive strikes all along the value chain - Build reputation for being the firm that delivers the hottest most value-laden products to UB's specific target demographic - Create a product innovation cell embedded at the corporate level to dish our imaginative social media content; build linkages with vastly credible influencers; and spark outrageous customer loyalty - Drop board members who want to think like its 2015 or earlier

What's the Relevance to PepsiCo

- Chapter 8 focuses on Diversification & the Multi-business Company - Chapter 8 emphasizes this need for multi-business companies tocarefully manage their portfolios in order to achieve synergies 1+1 = 3 - Yet PepsiCo's experience with Tricon (and Tricon's experience with YUM! And YUMC) illustrates a whopping serving of imaginative strategy thinking - Pepsi stepped outside the box to illustrate that in the real world thepromise of synergy may be very difficult

UB Indicators of business strategy success since 2022

- Continued growth in sales, net income and earnings per share($24.10 per share in 2023 or 33.5% increase over 2022) - 1,374 stores opened in 2023 versus 1,302 stores in 2022 - Loyalty members grew to 42.2 million in 2023 vs 40.2 million in 2022 - All time stock closing price of $551.43 on April 28, 2023 - All time high capitalization of $27.15 B on April 17, 2023 - Employees in 2023 were 53,000, a 31% rise over 2022 - The Smith family purchased two eyeliners on two trips to the Federal Way UB store

Yeti's competitive strategy (formula for competing), how it evolved and how its been influenced by Yeti's business model

- Design new offerings - Expand product line - The company's products were familiar products renewed utility that could be employed in a number of ways - Attract new audience segments - Traditional, digital, social media, and grass-roots initiatives - Direct to consumer sales - Fewer retail middlepersons taking part of profit

Yeti: Substantive issues since 2021

- Diminishing perturbations from COVID and its variants positively affect: supply chain (gradual improvement by 2024), increased consumer buying behavior, promising micro and macro-economics, and more accessible outdoor recreation - Waning COVID and its variants unleased a huge demand for outdoor recreation broadly defined; reemergence of virus could pause demand in 2021-2022 phase but all appears clear in 2023 - Political instability continues throughout the world, especially in int markets where Yeti is expanding? - Global warming heats up (positive upside demand for a cold one)

Yeti: Strategic Rub

- Domestic market sales are stagnating because the market is saturated by look-a-likes or those with a better value proposition - Brand ambassadors provided effective word of mouth advertising - Yeti has progressively tried to raise DTC sales (cutting out middle person)

What was PepsiCo thinking?

- Essentially it was an acknowledgement that neither the fast food division nor the beverage/snack division could capitalize on purported synergies and efficiencies along the value chain - For example, when a customer went into a Pizza Hut (PH), that customer had beverage choices limited to PepsiCo products, there was a sense that PH wasn't selling sufficient quantities of Pepsi products - Meanwhile PepsiCo's snack line was soaring with profit margins that humbled the fast food return - The issue was not financial losses but insufficient profitability - Savvy executives recognized that there were serious foregone opportunity costs by combining beverage & snacks with fast food restaurants - Beverages and snacks could perform better independently (free from restaurants) by expanding in convenience stores and other outlets

Long-term attractiveness of industries in PepsiCo's portfolio

- Except for a few Quaker products, PepsiCo has diversified into convenience food and beverage industries rather than the broader processed foods industry - Snacks and beverages offer more growth potential and are more profitable than the overall food andbeverage industry - All divisions focused on snack foods and beverages have generated consistent revenue growth - Only Quaker Foods North America and Latin America have experienced inconsistent revenues and operating profits during the 2019-2020 period - The carbonated soft drink industry is highly mature with low single digit growth in overall demand, but total operating profits remain quite healthy. - Highly attractive options in cereals include flavored grains, ready to drink coffees, hot cereals, and otherbreakfast products - Flavored grains, ready-to-eat cereals, other breakfast products, and hot cereals have some appealingcharacteristics—strategic fit with other PepsiCo/Quaker products and exceptionally high profit margins.

Competitive strength of PepsiCo's business units

- Exceptional lineup of businesses with strong competitive positions in their respective industries. - PepsiCo holds #1 market shares in almost every convenience food and beverage category while only trailing Coca-Cola in soft drink market share. - All businesses strength in product innovation skills and marketing and promotion expertise - PepsiCo's marketing-related success = worldwide name recognition for its businesses & products. - Added to its competitive strength by developing a healthier lineup of snacks and beverages - Very good worldwide distribution capabilities in all of its businesses except Quaker brands haven't expanded outside the United States & Canada

The Big Take-away for PepsiCo

- Pepsi realized that the opportunity costs of the capital tied up in itsrestaurant division were too much - Pepsi could make more money on that capital by reinvesting it in the snack food market. It could pursue more acquisitions of promising new items/brands and grow those business units at a higher level than it could the restaurants. - In practice, PepsiCo is essentially letting other entrepreneurs do the product development and market testing for them. As a nascentbusiness shows allure, Pepsi doesn't mind paying a bit of acquisition premium because it saved so much on R&D

Does PepsiCo's portfolio exhibit good resource fit?

- Portfolio has very good resource fit, with the company's businesses generating free cash flows of nearly $10 billion in 2021 - Frito-Lay North America and PepsiCo Beverages North America business units generate the vast majority of cash flows. However, all business units produce ample cash flows with Europe and Latin America each contributing approximately $1 billion in free cash flows in 2021. - Even though Quaker Oats' brands compete in mature processed food categories that offer little growth potential, the brands provide hefty operating profit margins(and balance the snack persona). - PepsiCo Beverages North America unit has far lower operating profit margins relative to Frito-Lay North America and Quaker Foods North America but compares favorably with PepsiCo's Europe business units - Profit margins of all PepsiCo units are strong and contribute to shareholder value.

What do the operating and financial data reveal about UB's performance?

- Profitability: deteriorated significantly between 2017-21; gross margin, operating margin, return on sales, return on assets, operating return on assets, return on equity - Activity: has been variable w/ lower total asset and fixed asset turnover, stable cost of goods sold, and variable average sales per day - Financial leverage: has increased w/ more debt per total assets on per equity; long-term debt to equity has risen greatly in recent years - Growth rates: have suffered w/ lower net revenues, operating income and net income - BUT, since dave Kimbell began his CEO position in June 2021, UB's performance is much more positive

Macys: And Tony selected?

- Quality (of course, he came from Bloomingdales and knows the value of brand identity behind the trinity of Macy's Bloomingdales and Bluemercury) = "Bold new chapter" strategy

What is driving down Yeti's profitability (other than product recall)?

- Rising sales general and administrative costs in 2023 have risen 12.6% in 2023 over 2022 o Product recall costs o Rising production costs o Rising freight costs

yet: key leadership

- Roy and Ryan Seiders founders 2006 - Matt Reintjes joined in 2015 after stint with Bushnell, took Yeti public in 2018

Yeti Sniff Test (leaves us worried)

- Stagnated domestic market - Yeti is viewed as a cooler company but 59% of sales in 2023 (42% in 2022) is attributed to drinkware, not coolers... *4th q 2023 drinkware sales rose 12% - Wholesale sales are falling in favor of DTC (due to easy marketability of drinkware) 47% of sales were wholesale in 2022 vs 41% in 2023 - Limited experience, strategy and results for the global marketplace - Growing number of competitors with similar performing products at lower price - Latest new product fumbled resulted in $129 million in 2022 alone; worse, this undermined product innovation, consumer confidence and brand identity - Except in extreme uses, lots of subs can perform satisfactorily - What is Yeti but, in its time, a great name built on great coolers (which are now diminishing in sales) - What's next after coolers and drinker ware?

Macy's strategy

Focused low-cost Broad differentiation

How successfully is Yeti performing in each element of the strategic management process

Perhaps for the domestic market:• Vision 3 out of 10• Mission 5 out of 10• Objectives 7/8 out of 10• Strategy 7/8 out of 10• Implementation 8/9 out of 10• Control 8/9 out of 10We know where Yeti is going - globalBut, where is it really going? Yeti has 13% of the global cooler market which is valued at$1.5 Billion and was expected to grow 8.6% from 2022-2023What happens after everyone has a better cooler or mug?Do I (you) need the best but just don't know it...?

How well is Macy's strategy working

Polaris Strategy = 3-year last gasp after Growth50 failed - Strengthen customer relationships: build customer value, accelerate personalization, expand loyalty programs - Curate quality fashion: latest trends, exclusive products and higher margin best private brands - Accelerate digital growth across brands - Rest cost base (reduce headcount 9% or about 9000 positions) - Optimize store portfolio: o Close 125 least productive stores o Update remaining stores for consistent experience via "growth treatment" to a total of 250 stores o Expand backstage store w/ in store locations (n=50) + 7 off-mall locations o Test small store format (Market by Macy's) Financial results of Polaris : (not good enough) - "Curated digital marketplace" strategy and/or corporate strategy is not working. Macy's recorded almost a 1billion deficit in operating income for 2024 due to closing 150 stores

Yeti: Innovation lead to product recall...

due to kids ingesting harmful chemicals from magnets, leading to big loss

yeti Mission statement

o Build the cooler we would use every day if it existed• At YETI, we believe that time spent outdoors matters more than ever and our gear can make that time extraordinary. When you work here, you'll have the opportunity to create exceptional, meaningful work and problem solve with innovative team members by your side. Together, you'll help our customers get the high-quality gear they need to make the most of their adventures. We are built for the wild.

Briefly summarize an external analysis of UB: Threats

o Continuing pandemic-related perturbations o Intense competition from lead rival Sephora o Intense competition form indirect/online rivals

Balanced against these external pressures are Macy's internal resources and capabilities Up side- Huge internal resources/assets and capabillites

o Deeply experienced and fashion savy luxury brand stuff o Extensively experienced, insightful and courageous past CEO (Jeff Gennette) o Solid financials that militate the sense of crisis, that buy time and that enable several strategic paths to be considered o Luxury brand (name) that can elevate off-price/discount sales

UC: What are strategy-relevant conclusions from SW analysis? Weaknesses

o Doesn't carry extensive luxury cosmetics/beauty items (as Sephora) o High growth easing as UB has retail outlets in all major U.S. markets o Weak social media presence compared to Sephora

- Financial and strategic objectives Yeti should pursue in 2024

o Examination of Yeti's financial statements indicated a sound and improving financial condition up to 2022 o Product recall by end of 2022 cost $129 million (product returns $38 million, inventory write-off and replacement $57 million and operating expenses $32 million) o Sales have been increasing but costs increasing faster o Careful cost and expense management required o Company is liquid and debt structure is well situated o Analysis of income statements reveals sound financial management of product evolution. As coolers have waned, drinkware increased and Yeti sought to introduce a soft side cooler line to continue sales growth. That flopped and the back-up is the global market where growth has been consistent yet slow

Briefly summarize an internal analysis of UB: Weaknesses

o Interesting and aggressive online presence still in nascent stage o Exclusive focus on U.S. market o Soft in-store sales o Supply chain management issues

Balanced against these external pressures are Macy's internal resources and capabilities Down side- significant

o Limited e-commerce/digital sales experience o B&M heavy o New CEO Tony Spring will be sprung from Bloomingdales as former EVP - Now: yet another "new" strategy = 1. Growth50 2. Polaris 3. Curated digital marketplace and mission every one

Strategy-relevant conclusions from OT analysis? Threats

o Sephora is partnering w/ another major retailer (Kohls) o Insta and Meta contribute the most to ecommerce shopping yet Sephora beats UB in # of followers *celeb brands at Sephora... o Sephora has superior social media usage and ratings and is recognized for quality product selection *free shipping, easier app...

Briefly summarize an external analysis of UB: Opportunities

o Strategic partnerships and alliances o Cost reductions o Social media influencers

Strategy-relevant conclusions from OT analysis? Opportunities

o Team up with beauty influencers o Host influencer events (vlogs/videos) to connect customers with influencers o Expand and push the conscious beauty product line o Expand Target and other partner retailers o Expand globally!

UC: What are strategy-relevant conclusions from SW analysis? Strengths

o UB is at the top of its industry w/ the strategic omnichannel business plan o Must maintain partnership with target to make UB brand even more prevalent

Briefly summarize an internal analysis of UB: Strengths

o Well-known brand elicits customer loyalty (rewards system) generates 44% ecommerce sales vs. Amazon's 22% o Introduces new products that capture customers' attention o Innovation in omnichannel marketing = omnichannel presence before COVID o Respected leadership o Industry market share leader partnered with Target for mini locations & one-stop shopping o Extensive store network = leads cosmetic industry with sites; double Sephora

Yeti vision statement

o Yeti's vision statement is to treat all its clients to the ideal outdoor experiences that they long for. The company has specialized tools for any wild experiences that one would wish for. **TOO BROAD, not a good statement • Alternatively, by 2024: BUILT FOR THE WILD. We've expanded into other products and categories since those first coolers, but our bull-simple approach to design hasn't changed. Focus on quality. Design for durability. Never cut corners on form or function. It's the same philosophy we've used to make drinkware, soft coolers, chairs, bags, cargo and more. Built for the Wild™ means it's built to last. *"Outdoor Pursuits" = diversification of products into cookware, blankets and more, more more ("outdoor living"). Solostove?

Overall Evaluations of PepsiCo's business portfolio

- A collection of food and beverage brands capable providing shareholders with the opportunity for above-average market returns - All businesses hold impressive positions in their respective industries and some have outstanding potential for growth - The slow growth of its core business units has caused PepsiCo's common shares to trail the S&P 500 by a considerable margin between May 2017 and May 2022. - It is unlikely that the domestic sales of soft drinks or snack foods will grow much more quickly than current annual growth rates, but Gatorade, Propel, Aquafina, LIFEWTR, Stacy's Chips, KeVita, Bubly Sparkling Water, Rockstar,SodaStream, and Pure Leaf offer growth opportunities in North America. - Whether the markets for these products are large enough to offset the slow growth of vast carbonated soft drink and snack foods industries - PepsiCo has the potential to increase Gatorade's sales outside of the United States and Frito-Lay's focus on developing healthier snacks is likely to contribute to revenue and volume gains in developed countries where healthand fitness are growing concerns of consumers. - Serious question concerning the ability to gain synergistic benefits between some of Quaker's food businesses and PepsiCo's convenience food and beverage businesses

PepsiCO: Actions to improve the corporation's financial and market performance

- Accelerate its expansion of snack brands into rapidly growing markets located in Asia Pacific, Latin America, and Africa, Middle East, and South Asia. - Many of PepsiCo's products have universal taste appeal and become consumed widely outside of North America. - Internationalizing Gatorade and non-carbonated soft drink brands. There are likely many attractive markets outside North America for healthier beverage brands such as Gatorade, SodaStream, KeVita Probiotic, and Pure Leaf. - Push Propel, Rockstar, and Aquafina into additional markets in Europe and Asia, Middle East and Africa. - Divest its Quaker ready-to-eat cereals, flavored grains, and other breakfast products because of low industry growth rates? Quaker's financials suggest these businesses have handsome operating profit margins and free cash flows - Utilize cash flows to support the ongoing $2 billion share repurchase program and dividend payments ofapproximately $5.5 billion. - Utilize its cash flows to make additional "tuck-in" acquisitions of producers of healthier snacks and beverages. - Continue to develop better-for-you snacks and beverages. The prospect of a major acquisition is unclear. The company's small "tuck-in" acquisitions have helped build astronger portfolio and brands and may in time add to its lineup of $1 billion brands.

Macys: what happened industry wide prior to 2022? What are the strategic considerations of the department store segment of the global retail industry macro-environment?

- As a first step in mapping the external environment, consider the following overview in late 2020 from Business Insider.com: Department store segment = $100 billion (projected decline to $67 billion in 2025)

PepsiCo Business Strategies

- Basic Approach: Broad differentiation strategies keyed to: o Brand image and reputation o Product differentiation o Marketing innovations o Extensive distribution networks

Is Yeti's strategy winner or loser?

- Fit test o Was well matched to the cooler and drinkware industry o Good internal fit o Exhibited dynamic fit - Competitive advantage test o Enabled the company to achieve a comp advantage over its rivals that showed no sign of weakening o Sales are continuing to rise -Performance/profitability test o Strategy has produced outstanding performance o Net profit has been variable o International markets growing

Strategic Opportunities to be Addressed for Macys

- Focus e-commerce / digital channels... third-party marketplace a la Amazon Target Walmart - Build a social media presence for those channels... - Retrench out of brick-&mortrar locations except in upscale malls and afflunt global... B&M investments = $20B o Huge asset base = resource option to fuel turnaround... but M must revitalize malls (aspirational luxury brands)... - Seek strategic channel partnerships = new clothing (private labels; organic fabrics) & furniture lines for at-home workers - Meet/exceed industry stds. For product quality, return guarantees, & data security - Pursue omnichannel retailing (integral customer experience across all sales & marketing channels from ecommerce, B&M, mobile apps to social media, email and loyalty marketing) to deliver a seamless customer experience - Reimagine customer experiences: high glam touch to upscale; different high access touch for younger demographic - Paradigm shift = conceive an entirely new business model = Reimagine strategy

UB: Top priority issues for COO Steelman & CEO Kimbell to address?

- Focus on out-performing the primary competitor (Sephora) - Lead with innovative product introductions which are essential to staying ahead - Expand e-commerce and social media - Enhance agility to respond to the changing needs and demographics of its customers

What should UB do to reimagine its strategy?

- Global given how stale strategy has become - UB could envision itself as a global answer to a specific target market by delivering awesome products that are environmentally and health-enhancing while crushing the value proposition for consumers - Identify the most promising country markets that can afford UB products and go penetrate them with a non-store-based approach.... UB cannot afford any more B&M

Translation

- If PepsiCo kept doing what it had been doing with beverages andrestaurants, it would have kept receiving the same approximate level of profitability - But it didn't keep doing what it had been doing...it sold offrestaurants and invested more heavily in snacks and raised itssynergies with the beverage side thus improving corporateprofitability - Take this lesson with you....it has impressive applicability

Macys: What are the implications for strategy formulation?

- Imagine trying to run an organization under these conditions - Macy's ship is sinking, and Tony is trying to create a new base for the long-term which affects thousands of lives - He cannot just delay devising and implementing a new strategy while he waits to see how it is all going to turn out - The decisions that he is making regarding strategy are breathtakingly far-reaching requiring insight, experience, courage, imagination, and luck - And on top of all this... gut-wrenching retail merchandizing environment is adversely affecting millions of firms

PepsiCO: Enter YUMChina (YUMC)

- In 2016 YUMC was spun off as an independent publiclytraded company - YUMC = 14,000 restaurants in 1900 cities within China - YUM! = 55,000 restaurants in 155 countries - YUM China pays 3% of total sales annually to YUM Brands

Macys: What's in it for Arkhouse & Brigade?

- In 2023 the assets of Macy's were valued at around $20 billion - Arkhouse & Brigade is a real-estate focused investing firm which has analysts projecting that A&B would sell off parts of Macy's portfolio which is valued at $5 billion to $14 billion - JP Morgan estimates Macy's assets at $8.5 billion

3-4 top issues Yeti should address & actions to keep yeti the dominant firm in the cooler industry

- Increase global market share - In more affluent countries, export glamor of its world-class endorsers - Yeti already sponsored professional soccer in the US, and thus has familiarity with the sport and contacts that could help expand the Yeti brand into the global soccer community - Cricket, hockey and tennis are other sports that Yeti could target - Find distribution partners for other areas of the world - Yeti could move into other markets in the US - Continued emphasis on innovation Company should concentrate on increasing its direct-to-consumer sales, through the company's direct-to-consumer strategy including its websites and Amazon

Macys: and then this happened

- Jeff Gennette decides to seek a whirled peace by resigning Jan 31, 2024, after 7 years as CEO - Tony Spring, who was CEO of Bloomingdales, is promoted to CEO of Macy's - Arkhouse Management and Brigade Capital seek to Macy's private w/ a $5.8 billion offer - March 4, 2024, the Arkhouse/Brigade offer is upped to $6.6 billion cash

Major milestones in reaching 2023 & Industry segment leadership

- Leadership in omnichannel strategy (online via mobile or desktop, telephone, B&M) beginning in 2012 (after 5 years of testing) and great expansion in 2020 - Conscious Beauty product line (clean ingredients, cruelty-free, vegan sustainable packaging, planet-positive) - Expanded ecommerce beginning 2019 (fueled by pandemic) from 13% of sales to 23% of sales in 2020, currently at 19% - Brand & product expansion (25,000 products under 500 brands) - Full beauty services in-store: cosmetics; skincare, bath & fragrance; haircare products & styling tools; services (hair, skin & brow services) and other (nail products, accessories)

Yeti is really an umbrella

- Limited production facilities except for the roto-mold in the Midwest - Does not have significant in-house retail system: most sales are DTC or farmed out on a wholesale basis to retailers (REI, Dick's) - DTC strategies are evolving. DTC doesn't really have any champion similar to what Yeti created via the brand ambassadors in the USYeti proudly points out that it is using an "omnichannel" strategy across its DTC and wholesale; Macys... - Yeti has decreased the number of US dealers by about 60% from 2015 to 2023 to increase promotional consistency

Why should UB reimagine strategy

- MOS will only deliver MOS: If you keep doing the same thing, you'll keep getting the same thing - How many lifestyle (fashion, cosmetics) firms are successfully using a store-based growth strategy to drive up revenues? Some are such as lulu; but their secret sauce is more complex than just expanding the # of B&M outlets - It is possible to argue that UB is hitting the apex of its growth in a coming recessionary economy - UB strategy could be old and boring to younger demographics seeking exciting new merchandizing methodologies

Macys since late 2019

- MOS= More of the same - Economic decline + inflation - Socio-cultural = mall traffic, alternative clothing, private labels, 25-24 (40-45 million customers) & 65-74 (65 million customers) - COVID-19 related disruptions - Supply chain issues - Labor shortages - Technological = social media, flash sales, cloud-based transactions, e-tailing, B&M check-out free shopping, delivery - Where did Macy's revenue of $28 B in 2014 go?

Which generic strategy is Macy's implementing?

- Macy's strategy has been drifting from broad differentiation (differentiate Macy's products others by high quality/luxury brand) strategy to: a focused discount (off-price) luxury strategy for younger demographic, plus luxury strategy for older demographic - Macy's current competitive strategy approach is becoming bifurcated = one of focused lower-cost (and higher quality) versus broad differentiation (perhaps focused luxury) - Macy's is not pursuing a best-cost provider strategy but it might for Gen Z types (Gen Z shun brands... Macy's doesn't want these customers)

How can Steelman & Kimbell Strengthen UB's position in its most important markets?

- Millennial and Gen-Z customers may bite on the environmentally friendly cosmetic line and packaging / the healthy cosmetics emphasis, but isn't it really about what these products do to make each customer vibrantly alive and attractive? - Isn't it also about the influencer vibe that drives customers to the stores? - UB absolutely must make magic happen as those customers go through the doors. "Magic" in order to have customers leaving saying "WOW I want to come back here soon"

Business model components for Yeti

- Outsource all manufacturing - Add customer value via design, tech features and high-quality materials to products to justify a premium price - Add customer value by expanding to parallel products - Sell direct to customer - Introduce customized products - Control e-commerce channel - Contract w rotomold manufacturing plants in the Midwest - Instill efficiency in its supply chain by using 3PL third part logistics

Yeti In Sum

- PAST strategy checks the three tests of a winning strategy - Destined to be a winning long-run strategy?

Does PepsiCO's portfolio exhibit good strategic fit?

- Substantial cost sharing and skills transfer opportunities exist between PepsiCo's beverage brands and between its various snack brands (less strategic fit opportunities across business platforms) - Operating processes vary greatly between bottled water and functional beverage bottling, soft drink concentrate production, grain-based food products production, and snack food production - Beyond PepsiCo's corporate-wide purchases for ingredients and packaging materials, it is unlikely that PepsiCo managers can find ways to share costs or transfer skills between these businesses - Ample opportunities to share costs and transfer skills within broad product categories - Research and development activities directed at creating healthier products can likely benefit all businesses within a division. - Synergies among its business units generated approximately $1 billion annually in productivity savings. - Marketing innovation plays a major role in PepsiCo's competitive strategy in each business.• PepsiCo management shares market research and relies heavily on marketing innovations to position their brands.• The operations, sales and marketing, and advertising/promotion of Quaker's hot and RTE cereals, flavored grains,and other breakfast products have little in common with value chain activities of PepsiCo's convenience foods and beverages but do offer cost sharing and skills transfer opportunities among themselves.

PepsiCo: Central ideas of corporate and business strategies

- Sustain growth in revenues and themselves - Consistently innovate products especially in GFY*, FFY* & BFY* - Expand internationally to capitalize on developing markets and build brand loyalty where populations are growing rapidly - Seek strategic acquisitions (The "let someone else take all the risk, do all the R&D and initial market testing before buying them" approachmentioned for BM)...note no major acquisitions in 2021 & 2022 - Seek value chain synergies*PepsiCo nomenclature GFY = good for you, FFY = fun, B = better

UB strategy continues to thrive

- Sweet spot - At optimum point where a combo of factors or qualities lead to the most desirable outcomes - The larger sweet spot, the greater ability to absorb less than the optimum efforts or new constraints and still perform at a high level

What is UB waiting for?

- The obvious answer is for UB to go global - But we have to ask why they haven't changed strategy - One possibility is that UB believes there is sufficient expansion domestically/in Canada - Another possibility is that the governing board is still thinking along the conservative lines of Mary Dillion. The board membership and culture may not have changed since 2022 and the prospects may argue against this happening any time soon - A third possibility is that the UB governance views the risks of expansion as too high and current profitability sufficient to meet their goals

Lessons from fast food spin-off that are applicable to current PepsiCo

- Travel back in time 1997 - After decades of trying to capitalize on value chain synergies from its trinity of fast food stores, PepsiCo spun them off into anindependently publicly traded company: Tricon Global - KFC, Taco Bell and Pizza Hut were converted into Tricon with theproviso that Tricon would pay 3% of total annual sales to PepsiCo - Analysts were against about the move

PepsiCo: Enter YUM! Brands

- Tricon began testing co-branded locations (e.g., housing a KFCalongside a Taco Bell) - Tricon also tested co-branding with Yorkshire (A&W and Long JohnSilver's) - In 2002 Yorkshire and Tricon merged to form YUM! BrandsFrom 2002 to 2011 YUM! tested various co-branding (usually co-location) combinations - In 2011 YUM! Began to expand its global strategy with Chineseacquisitions followed more recently with European acquisitions (e.g.,Ireland, Britain)

Macy's: key case

- Tumultuous external environment (ch. 3) - Internal environment reeling from cutbacks (ch 4) - Strategy drift between generic strategies (ch 5) - Macy's and its employees are fighting a tough battle with no clear path to pursue... its all-unexplored territory and the tendency to fall back on what worked strategically will not stem the tide - It's the near perfect case because it exemplifies business today where everything is open to change, no hard and fast rules

UB Old School B&M approach

- UB (like Lx3) uses a semi B&M approach by leasing, unlike Macy's anchor stores that are owned assets - From UB's SEC Quarterly Report April 29, 2023:5.Leases• The Company leases retail stores, distribution centers, fast fulfillment centers, market fulfillment centers, corporate offices, and certain equipment under non-cancelable operating leases with variousexpiration dates through 2035. All leases are classified as operating leases and generally have initial lease terms of 10 years and when determined applicable, include renewal options under substantially the same terms and conditions as the original leases. Leases do not contain any material residual value guarantees or material restrictive covenants

Yeti Global Strategy

- US, CA, Aus, NZ, EU, France, Germany, Ireland, Italy, Netherlands, UK - Expansion Strategy o Focus on existing market o Build localized leadership and processes o Grow ambassador network

Yeti: Quick Review of Vision & Mission

- Well-conceived vision statement should be: o Forward-looking o Focused o Flexible journey o Memorable o Directional path = good business sense o Too broad, not connected to Yeti's products ! - Well-conceived mission statement: o Who what why o Uses specific language to give the firm unique identity o Focuses on describing the firm's business, not on "making a profit"- earning a profit is an objective, not a mission o Mission statement focuses on coolers and Yeti is into drinkware !

PepsiCo: 30,000 ft perspective

- World's largest snack & beverage company - 318,000 employees, 315,000 in 2022, 309,000 in 2021, 291,000 in 2020, 267,00 in 2019 - 200 plants, 3,500 distribution systems, 120,000 service routes NM Beverage - Complementary products/brands that can be consumed together:• Rice-a-Roni• Stacy's pita chips• Gatorade• Aquafina• Doritos• Mountain Dew• Propel• Sabra hummus• Quaker Chew Granola Bars, Oatmeal,• Pepsi soft-drink products• Frito-Lay snacks

Yeti: Bottom Line

- Yeti is long way from being a failure - Major slip-up can start the entire ball rolling downhill, a cascade - Troublesome- lack of product innovation - Yeti records no expenses for R&D - Product development may be a responsibility of every employee - Consider GoPro cameras... failed to develop new products and was left in smaller, narrow technical market

Macys: Reccs for addressing the strategic issues

1. Emphasize a refreshed strategic business model, vision, and execution. Data now hint that total sales are rising where there are stores + high activity in ecommerce; the combination of the two may be lifting total sales 2. Restructure to boost the performance of Macy's portfolio of brands Go global via JV or M&A? Bifurcate luxury and non-luxury (but retain under one corporate shell for omni-channel mojo)? 3. Sell the non-luxury and re-invest in the luxury side... pursue only the luxury side (we don't know what % of digital sales are non-luxury)

UB: Critical industry trends going forward

1. Shifting geographic priorities within Beauty = China (decreasing dominance) & US major markets with India & Middle East rising 2. Rise of wellness 3. Consumer behavior (69% like to try new products) & loyalty (40% identify as loyal) 4. Difficulty of scaling = new brand entrants are vulnerable 5. Mergers and acquisitions rising - 42 million loyalty members paying no fee - Costco has 130 million members paying 4.6 billion in fees at the end of 2023 - 25,000 products under 500 brands - Full beauty services In-store - Store layout... - AI personalization - Summer camps..? **offer tiers of membership with a paid aspect... they receive samples/gifts/etc.?