Pepsi Co What Is Pepsico

Pepsi Co

What is PepsiCo competitive strategy with respect to its restaurant group state you assessment of the overall PepsiCo restaurant group's performance to date?

The period that we are talking about is 1997 and at that stage, the efforts of PepsiCo was concentrated in three different industries of soft drinks under the generic brand name of Pepsi, fast foods and restaurants. The beverages were under the name of Pepsi Cola, the fast foods were under the name of Frito-Lay and the restaurants had a number of brand names - Taco Bell, KFC, Pizza Hut, California Pizza Kitchens, Chevy's Mexican Restaurants, Hot-n-now, Eastside Mario's and D'Angelo's Sandwich shops. It is clear that whereas the other two divisions had a clear focus, the restaurant group was burdened with different names for promotions. The reason for the diverse range of activities was the belief of the chairman of the board and CEO, Wayne Calloway's belief that the three different groups combined well and had a good fit. This is however a point of strategic management and what was being followed is a top down formula for strategic management and this is the general approach in most companies. The CEO, along with a strategic planning team decides on the strategies that the organization should follow.

The fast food restaurants were on a good wicket and the growth of the division sales by 5% in United States and 16% at the international level during 1995. The total market in United States for fast food had also been growing at similar rates during the period 1990 to 1996 - at 6%. Thus it cannot be said that PepsiCo was doing any better or worse than the market. The total value of the market was $100 billion in 1996, and this was a growth in terms of food dollars spent to 50% from the earlier figures of 33% that it had in 1980. Thus the market was clearly growing. The style of consumption was also changing and the consumption of the food off premise now amounted to 64% of the food purchased in 1996, while it was only 34% in 1984. The users of PepsiCo restaurants also followed a similar pattern and only 24% of Pizza Hut restaurants chose to dine in as was the case with 12% of KFC customers. At the same time, the problems had appeared due to underperformance of the PepsiCo restaurants and the major reason for this was felt to be that there were not enough hard-working franchisees to look after these units.

There were also a high shortage of people to work in these restaurants, and the group was not being able to organize purchases in a manner to make them effective. At the same time, the group was among the top three of the United States restaurant chains, and with a large number of restaurants under their control. At the same time, it was the largest international chain in terms of the number of restaurants. At the same time, all the groups had been acquired by PepsiCo and not originally developed by PepsiCo. Thus one can say that they did not have a uniform culture or practice. Thus one can say that this was the reason for them to effectively work as a group and make profits, and there were many suggestions in 1996 that the group dispose of its restaurant chain and concentrate on its core activity of beverages for which the group had been started. It is clear that a real leader of any business should grow faster than the growth of the total business of the industry. The growth of PepsiCo restaurants is not enough.

2) For the time period of the case, what is your assessment of the overall performance of PepsiCo as a diversified company?

The measure of performance of any company can be viewed in terms of the value that the market places on it and this is reflected in a continuous increase over the period 1991 to 1996. Thus the market has faith that the situation of the company will improve over time. When one looks at the other aspect, the book value, which is a real valuation of the assets concerned with the share, that has shown a continuous increase from 1991 to 1995, but has trailed off in 1996 to less than half of the previous value, and the market value is about 7 times the book value. This clearly shows that there are some reasons why the company has been forced to reduce its assets leading to the drop in book value, but at the same time, the market has a lot of faith in the company. That is also affected due to the gambling instincts of the market, and that is the reason why expert investors do not depend on the market values for deciding on investment.

Regarding outlook for the future, which can at best be described as only judgments of the particular person, it is seen that there are some differences between PepsiCo and Coca Cola regarding operations. The first is that during the period under consideration, growth in volumes of Coca Cola Classic was 27.4% as compared to the 9.7% growth of Pepsi. There was an earlier leadership of PepsiCo in the control over bottlers, but Coca Cola was beginning to cut down the lead with the introduction of Coca Cola Enterprises, a subsidiary which was taking over the responsibility of improving performances in areas which were doing badly. Regarding the international market, PepsiCo had not really been providing a competition to Coca Cola in countries other than United States and Canada. The market shares of Coca Cola and PepsiCo were 61% to 21% in Mexico, 34% to 5% in Japan, 51% to 10% in Brazil, 40% to 21% in East Central Europe, 56% to 5% in Germany, 20% to 10% in China and 32% to 12% in UK.

The only place where PepsiCo had a lead was in Middle East where it led by 38% to 23%. Thus it is clear that in spite of all the publicity, Pepsi was the junior brand, and the advantage that it had due to more control of bottlers was being removed by Coca Cola. This was a stated objective of Coca Cola, which wanted to get more than 50% of the market share in all countries and naturally this had to be at the expense of Pepsi. On top of this, during the period under consideration, and one of the major bottlers of Pepsi was in trouble during 1995 which caused Pepsi to take a loss of $525 million in 1996 and another loss of $200 million was to be taken in the next year. Coca Cola has also bought over the major bottler of Pepsi in Venezuela. The reaction from Pepsi was emotional, and stated to be so by Coke.

The other divisions of Pepsi were not performing up to the expectations from them, and thus, it seems clear that Pepsi were on a slide. This makes it more important for them to have gone into methods through which they could make more profits, which are what they required, but this did not look like happening from their strategy. The area where Pepsi was clearly successful was the snack food business unit, but this was small compared to the other units.

3) For the time period of case, state the top three strategic recommendations that you would make to Enrico PepsiCo's CEO to rejuvenate PepsiCo's growth earning and market to book value?

This is a very difficult question to answer, as the decisions taken by Pepsi to run its business were decisions of strategic management. This is the process of clearly stating the organization's objectives and then developing policies and plans to meet these objectives. Then the resources have to be provided for implementation of the suggested activity. In general, this is the highest level of management activity and generally conducted by the company's Chief Executive Officer and his team. In the case of PepsiCo, the decisions had clearly been taken by the chairmen and CEO as stated earlier. Thus the first step required for changing these strategies would be to change the chairman and CEO, as without his removal, no changes can be made in the plans made by the strategic management team.

It is clear that the shareholders realized this problem and this is reflected in the share prices. PepsiCo's share prices had remained flat in 1996 while the general share prices had gone up by 25% during the year, and the share prices of Coca Cola had gone up by 42%. Naturally this shows that the share market was worried about the performances of PepsiCo. Some Wall Street analyst had even ascribed the reason for the failure of PepsiCo to its strategy for change in the restaurant group to the reason that PepsiCo knew that it would fail. He had also said the reason for the earlier success with these activities was due to the partners that PepsiCo had managed to get and which they do not have now. In September 1996, a mutual fund manager who had over 3 million shares in PepsiCo had told the CEO that no one understood why the restaurant group was not being sold off while the group was not being run efficiently. He had also mentioned that it did not fit in with other business of PepsiCo. Thus it is clear that the CEO of PepsiCo knows the reason, but is not able to take the action, or is unwilling to take the needed action.