Macro Environmental Analysis Worksheet

Student Name: Benedict Francis Y. Baban Submission Date: February 18, 2012 Strama Class: R40 2nd Term SY2011-2012 Version: Draft1

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Pepsi-Cola Products Philippines, Inc. (PCPPI)

Pepsi-Cola Products Philippines is the 2nd largest Softdrinks (Non-Alcoholic Beverage) in the Philippines.

2010 Gross Revenues amounted to Php 16,190M (Net Income: Php 739M).
Revenue mix is changed from 80/20% CSD/NCB mix (Carbonated Softdrinks/Non-carbonated Beverage) to 70/30 % CSD/NCB mix.

Cost Drivers: Raw materials and packaging (50~60% of COGS) Operations Expenses (4~5% of COGS) Marketing Sales / Distribution (3~4% of COGS)

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Economic
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)

Inflation Rate As of January 2012, inflation rate is at 3.9%. Below is a table on the inflation rate:
Year-on-Year Inflation Rates, All Items Philippines NCR AONCR

One of the major risk under the Food and Beverage industry (Softdrinks Sector) is the steady increase of inflate rate. Thus, increase on commodity prices which affects the cost of materials. Pepsi Cola Product Philippines will be subjected to market risk and its bargaining power to supplier will be limited. This may be attributed to strong market competition. Increased on the commodity prices will have an impact on the overall pricing of its product. COGS will be increased. Profit/Income will be affected.

Jan 2012 Dec 2011 Nov 2011

3.9 4.2 5.3

3.5 3.6 4.4

4.0 4.2 4.9

Source: http://www.census.gov.ph

Consumer Price Index: By Commodity Group, Month-on-Month Consumer prices at the national level generally increased by 0.4 % in January from -0.2 % in December. The food and non-alcoholic beverages index increased to 0.2 % in January from -0.1 % in December.
http://www.census.gov.ph/data/pressrelease/2012/cp1201tx.html

Another factor is the purchasing power of consumer since the price commodity is increased. Allotted allowance for Food & Drink or Beverage spending will be decreased. Thus market share of softdrinks producers will eventually decreased.

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Economic
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) Unemployment Rate
Philippines Unemployment Rate (%) Underemployment Rate (%) October 2011 6.4 19.1
1/

RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)

October 2010 7.1 19.6

Another market risk is reduction of market shares by the firm. This is due to unemployment rate. Buying power will greatly affected and will most likely reduced revenues. In this case, price preference on product selection will be affected. Since no income, the consumer will select a product that will suit to its budget.

Source: http://www.census.gov.ph

There is a slight decrease on the unemployment. Theres a reduction on the purchase power of the consumer. Price preference will have an effect on the consumer choice. Labor Cost Minimum Wage Labor Cost is increasing and would impact the operational cost. See next slide on table of average daily cost per region. Infrastructure: Transport infrastructure: An efficient transport network will reshape the countrys physical and economic configuration. From fragmented and island economies separated by mountains and seas, the country will develop into a unified, well-integrated economy where people and goods can move and trade swiftly and efficiently, locally and internationally. Government DPWH will be spending estimated P832B on Infrastructure Projects (NEDA)
Source: http://www.gov.ph/2012/02/10/dpwh-off-to-strong-start-in-2012/ http://www.abs-cbnnews.com/business/12/15/11/govt-sees-p832b-infraprojects-2012-neda

COGS will be affected. It will increase its expenses due to labor cost constraints. High cost would mean lesser profit or income. Bottlers needs to strategize to reduced its COGS and Operation Expenses.
Major factor on better market share on Softdrinks firms such as Pepsi Cola Philippines is strong channels and distributions. To make this happen, the country must have excellent transport infrastructure and road accessibility. An Example on this is the RO-RO (Roll on and Roll Off) Project (Philippine Nautical Highway System) which connecting every island in the Philippines. It can reduced the transport cost at 20~50% depending on the commodity or items. Thus, distribution cost will be reduced. Impact on logistics, operations and strategy
Source: ADB Bridges and Ocean: Initial Impact Assessment of the Philippine Nautical Highway System and Lessons for Southeast Asia.

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Economic

Source : http://www.bles.dole.gov.ph/PUBLICATIONS/Current%20Labor%20Statistics/STATISTICAL%20TABLES/Tab23.pdf

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Political / Legal
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)
One of the latest operational directives of the firm is the implementation of ISO 14000 Environment Management System. Waste Reduction Management System such as reduction of carbon emissions. CFC replacement. Aspect on the EMS is to reduced material such as packaging and water wastage. Firm are building water treatment facility to remove impurities on the water waste before it released to the environment. Another factor is the elimination of CFC material such as Freon Fluid. This is reduced CFC emissions. This is relevant to the firm since this will be involved capital expenses. Since the new technology is energy efficient, savings will be felt. New Technologies
The CFC phase out prompted research into alternative methods for cleaning applications in electronic assemblies and precision parts. Users often found that the need for chemicals during cleaning processes was reduced or even eliminated, while maintaining product quality and reducing costs. New "noclean" technologies eliminate the cleaning process altogether for printed circuit boards. The CFC phase out provided an impetus to develop and invest in a new generation of energy efficient air-conditioning and refrigeration equipment. Electric utilities have acknowledged this benefit by providing financial incentives for installing energy-efficient equipment. The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) reports that by 2000, 45 % of existing chillers (large scale air conditioning units for buildings) were converted or replaced with equipment that uses non-CFC refrigerants. This conversion to more efficient equipment reduced energy use by almost 7 billion kilowatt hours per year, amounting to $480 million annual savings for new equipment owners by 2000. Source: http://www.epa.gov/ozone/geninfo/benefits.html

Environment Management System (EMS) ISO 14000 Environment Management System: Provide assurance on environmental issues to external stakeholders such as customers, the community and regulatory agencies comply with environmental regulations support the organization's claims and communication about its own environmental policies, plans and actions provides a framework for demonstrating conformity via suppliers' declarations of conformity, assessment of conformity by an external stakeholder - such as a business client and for certification of conformity by an independent certification body. Source: http://www.iso.org/iso/iso_14000_essentials

Energy Savings

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Technological
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)

Raw Materials Alternatives Development of Additives Development of additives such as sugarless sweeteners, caffeine free products, etc. had an impact on product variation on food and beverage industry that will meet customer taste reference. The Market for alternative sweetener holds considerable potential growing 8.3% on year until 2008 Source: http://www.foodnavigator.com/Financial-Industry/Sweetenerstop-growth-in-food-additives-market
Packaging Innovations Plant based PET Bottles: Its Plant Bottle is made from 30% sugarcane based materials, the reduced reliance on petroleumbased PET reducing the carbon emissions from the manufacturing process by around a quarter. Plant Bottle was launched in 2009 and has since been introduced in more than 20 markets the world over. Source: http://www.foodprocessing-technology.com/features/featuretopinnovations-in-drinks-packaging/ PepsiCo's "green" bottle is 100 % recyclable and far surpasses existing industry technologies. The bottle is made from bio-based raw materials, including switch grass, pine bark and corn husks Source: http://www.pepsico.com/PressRelease/PepsiCo-DevelopsWorlds-First-100-Percent-Plant-Based-Renewably-SourcedPET-Bott03152011.html

This factor is relevant to the firm. This will impact the product. It can create product variation. The firm products will be diversified. An example on this is the advent of Aspartame as sugar replacement. This new material has resulted to different product variations such as PEPSI MAX or COKE MAX.

This is relevant to the firm because of the cost impact on the packaging cost. Cost of the plant bottle is more stable than the petroleum based PET. Petroleum based materials price is volatile so the packaging cost will vary depending on the fossil fuel prices. This will not only benefit the environment by reduction of carbon emissions. It will eliminate dependence on petroleum based products. This aspect will also falls under the environment /climate and political/legal aspects.

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Technological
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)

e-Marketing Innovations RFID Radio Chip Technology & Marketing: RFID technology streamlines inventory management according to the University of Arkansas RFID Research Center. Retailer JC Penny has noted increased precision and accuracy when counting products. RFID tags lead to fewer out-of-stock products. Keeping shelves full results in increased sales and a positive shopping experience for customers.

Adapting the innovative technology will enchase the marketing aspect. It will improved such activities such as inventory tracking which will be more efficient for warehousing and retailing/retailing operations. Transactions will be more efficient and tracking/identification of products will be easier.

Source: http://www.ehow.com/about_6527658_rfid-radio-chiptechnology-marketing.html

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Social / Cultural
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source)

RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm) Another factor for market share increase is to determine the consumer preference. Theres a gradual change of lifestyle in the Philippines. Filipinos are now knowledgeable effects of high intake sugar. With the development of additives, the firms product such Pepsi and Coke can be modified to address the health concerns of the cola products. According to Softdrinks-Philippines Report (Euromonitor): Outlook The health and wellness trend is expected to continue over the forecast period, as media exposure through television commercials and print advertisements is anticipated to further improve awareness of health issues which are affecting a significant number of Filipinos. It is therefore expected that more consumers from households with different incomes will adjust their lifestyles, opting for healthier soft drink products to minimise the likelihood of acquiring serious illnesses which may lead to permanent disability or even death. Future Impact Growing health-consciousness amongst Filipinos is expected to increase demand for healthy beverages between 2011 and 2015. Manufacturers are expected to attach more importance to differentiation, because positioning brands plainly towards health and wellness will soon become mundane. Strengthening their credibility through marketing campaigns which can demonstrate the effectiveness of products is expected. Players are also expected to extend their healthy soft drinks product lines to take advantage of this growing trend. There are numerous opportunities in the lower-end of the market, which accounts for the bulk of the population. Economy brands remain limited; therefore, lower-income consumers are not able to benefit from these fortified beverages. Furthermore, the availability of good quality and lowerpriced options could stimulate demand, allowing Filipinos to consume these products on a more regular basis. Source: Euromonitor International : Country Market Insight, April 2011

Changes in lifestyle Filipinos Growing Health-consciousness Drives New Product Developments: Consumers are becoming more health-conscious, as the Department of Health, together with other health advocates, continued to invest in health and wellness information campaigns in 2010. Adopting healthier lifestyles became more apparent due to increasing awareness about real life-threatening issues such as obesity, high blood pressure, high cholesterol and diabetes, amongst others, which are currently affecting a considerable number of Filipinos. As in the packaged food and hot drinks markets, there was growing demand for healthier soft drinks products in 2010.
Source: Softdrinks Philippines Euromonitor International : Country Market Insight April 2011

In the same study, it was revealed that Filipinos have become more health-conscious. A total of 93 % of Filipinos preferred to buy healthy foods in 2010, up from 83 % in 2005. When purchasing food items, it is interesting to note that 90 % of consumers read the labels first to avoid buying unhealthy foods. Plus, more Filipinos have started exercising (a 13 percentage point increase from 2005) and put great effort in keeping their bodies in good shape (up by 17 percentage points from 2005).
Source: http://mb.com.ph/node/329059/filipino

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Environment / Climate
SPECIFIC FACTOR (Describe briefly the factor, provide key data & cite source) RELEVANCE TO ENTERPRISE (Elaborate on why or how is the factor relevant to the firm)

Availability of Water and Non-renewal resources Access to clean and adequate water remains an acute seasonal problem in urban and coastal areas in the Philippines. The National Capital Region (Metro Manila), Central Luzon, Southern Tagalog, and Central Visayas are the four urban critical regions in terms of water quality and quantity. The Governments monitoring data indicates: Just over a third or 36 % of the countrys river systems are classified as sources of public water supply: Up to 58 % of groundwater sampled is contaminated with coliform and needs treatment; Approximately 31 % of illness monitored for a five-year period were caused by water-borne sources; and Source: http://www.wepadb.net/policies/state/philippines/overview.html Increasing Global Non-renewable Natural Resource Scarcity: Fifty (50) of the 57 analysed NNRs (88%) experienced some level of global scarcity during the period of global economic growth (2000-2008) that preceded the Great Recession. Refer to next slide on table. Source: http://www.theoildrum.com/node/6345

Carbonated water constitute 94% of the softdrnink. Rest of the ingredients are high fructose corn syrup, sugar and etc. Water is one of the main ingredients on softdrinks production. Availability of water is scarce nowadays. If not taken cared, clean water access will be very limited. This will be a major impact on the firms production. Due to the Environment Law factors, firms needs to reduced water contaminants. There will be greater access to clean water and minimized cost of treatments. Another factor is the scarcity of packaging materials such as aluminum metals which is 100% used by all canned products since it will not oxidized and cost impact. Firms packaging materials must be renewable or recyclable so as to prolong the raw materials such as bauxite, alumina and reduced the material packaging cost impact.

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Environment / Climate

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References:
http://www.ncc.gov.ph/files/mtpdp20042010neda_chapter6_infrastructure.pdf BSP Website http://www.census.gov.ph http://www.abs-cbnnews.com/business/12/15/11/govt-sees-p832binfra-projects-2012-neda http://www.gov.ph/2012/02/10/dpwh-off-to-strong-start-in-2012/ Softdrinks Philippines Euromonitor International : Country Market Insight April 2011 www.bles.dole.gov.ph Euromonitor International : Country Market Insight, April 2011

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