Pepsi Company- An Analysis of Corporate

Strategy-

Presented by: Danny Fehrenbach, Derek Chestnut, Kaitlyn

Rawson, Kelsey Lushenko, Tim Mahoney

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• Started as a syrup production company• Kendal took leadership and built up the Pepsi

brand image and pushed for aggressive tactics• Complimentary interest allowed expansion

into snack food industry • Leadership was grounded around high

employee expectation and the 3 P’s– People, People, People!

Background of Pepsi. Co

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Organizational Structure of Pepsi

• Strong management, high expectations• Managers move to different positions

within company• Emphasis on people, not products, in

resource allocation decision-making• “We take eagles and teach them how

to fly in formation” –Wayne Calloway

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35%

29%

36%

Pepsi breakdown of industry sales

Soft Drinks

Snack Foods

Restaurants

Market Segmentation

Greatest Market

Potential

Restaurants are the plurality of Pepsi’s sales

With a relationship with CPK, there could be expansion and more growth within the restaurant segment

Calloway believed in investing where there were the highest returns

The entirety of sales in 1991 accounted for $20 billion.

With the Food service revenue the greatest market potential rests within quick service restaurant, family, and institutional

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Current Restaurants

• Consumers want variety in their food purchasing opportunities.

• The U.S. population is growing towards health and nutritional trends that began in 1980’s.

• Pizza Hut- shifted focus from casual dining to quick-serve and delivery, leaving opportunity to develop a mid-scale restaurant segment.

• No coordination in purchasing costs between restaurants. (potential $100 million in annual savings)

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CALIFORNIA PIZZA KITCHEN AND CARTS OF COLORADO

FINANCIALS

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California Pizza Kitchen Financials

Carts of Colorado Financials

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Threats of Acquiring COC

With Restaurants holding the most capital spending, partnering with a backwards integrated company might increase expenditures drastically

In manufacturing the physical carts, Pepsi runs the risk of increased sunk costs and depreciation As a larger firm, CPK offers greater financial incentives in relation to an acquisition or alliance

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Interpreting the Numbers…

• Consistent sales growth in both firms• Larger total sales in CPK, showing less

liability• More market reach and revenue potential

from California Pizza Kitchen• Past mishaps in manufacturing and

management restrictions with COC might cause inconsistent growth

• Pepsi’s past attempts at dine-in establishments have shown great potential, and CPK provides strong resources for the target segment’s needs

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CARTS OF COLORADO

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Choosing modes of change for Carts of Colorado

Change in Food Service consumers

Pepsi hold high brand equity and coherenceLack of

manufacturing

Manufacturing

Experience?Internal

Development

NO

COC produce a Specialized product

And service

ResourceMarkets

Mkt Failures are

Extensive?

Alliance

Acquisition

YES

NO

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Carts of Colorado

• In 1980 brothers Stanley and Daniel Gallery became the first creators of NSF-approved food carts.

• Designer, manufacturer and merchandiser of mobile food carts and kiosks.

• 30% of business owned by venture capital firm

• Management problems: Company almost went bankrupt

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Current Strategy of COC

• Sell carts to companies for use of sales of their products

• Ability to make large profits and to serve customers without the high costs of a restaurant.

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Pepsi’s Interest in COC

• Large customer list– Burger King, Coca-Cola, Dunkin

Donuts• Low cost with returns of a typical

restaurant– Returns as high as 1.2 million

annually• Accounted for 20% of COC’s sales in

1990

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Changing Competitive Environment and Firms

Capabilities• Changing from a central

knowledge in restaurants to manufacturing

• Changing their capacity to accommodate a smaller growing company (as in La Petite Boulangerie)

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Gap

• Backwards integration– Pepsi is not in the business of

manufacturing

• No internal development available

• Moving into a whole different industry

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Alliance or AcquisitionWe would advise against either an

alliance or an acquisition • May lose customers: Major companies

COC currently supplies to are competitors (Burger King, Coca-Cola)

• Not specialized in backwards integration therefore no economies of scales would exist.

• Not used to expanding small businesses, most successful ventures are acquiring established businesses.

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CALIFORNIA PIZZA KITCHEN

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California Pizza Kitchen

• Started and owned by Larry Flax and Rick Rosenfield

• Best known for individual-sized pizza with unique healthy toppings

• Located in affluent, urban and suburban shopping centers

• High level of service with intense staff training

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CPK Current Strategy

• Moderately priced, yet comparable- quality alternative to a fine dining restaurant

• Targeting young, upscale singles and couples, families and retired people

• Select cities with the potential to support more than one CPK

• Limited advertising

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Failed and Successful Ventures

• 1965- Merged with Frito-Lay Company• 1970- Acquired Wilson Sporting Goods

Co. • 1976- Acquired Lee Way Motor Freight• 1977- Acquired Pizza Hut• 1978- Acquired Taco Bell• 1984- Sold Lee Way Motor Freight• 1985- Sold Wilson Sporting Goods • 1986- Acquired Seven-UP and KFC• 1987- Sold La Petite Boulangerie

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Pepsi’s Interest

• Casual dining segment• Table turnover was nearly double

that of a typical fine dining restaurant

• Growth rate of 42% net income• 25 restaurants in 8 states

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Changing Comp Environment/ firm capabilities

• Pepsi would change from:– A fast food industry to a higher end

service restaurant– Less advertising and more unique

products– Pre-made frozen food to fresh ingredients

• Firm Capabilities:– Experience in running chains– Already have experience in pizza industry–Money to invest and grow CPK

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The Gap

• Level of customer service• Environment designed to draw

customers in • Value chain in getting fresh

ingredients • Location strategy for restaurants• Innovative ideas for continually

building the menu with unique items • Pepsi is moving further away from

homogenous products

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Alliance or Acquisition

• Flax and Rosenfield want to remain apart of their company

• The training and quality management of servers must be closely maintained

• Limited Liability• Merging point with going public

and aligning with Pepsi

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PLANS FOR THE FUTURE

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Follow up Plan for Pepsi

• We would want the alliance of CPK with Pepsi to operate as an equity alliance that could possibly lead to an acquisition.

• Create detailed contracts partnering with current owners and build a Pepsi team to join with the current CPK management team.

In the Market

In the Firm (Hierarchy)

Arms-LengthContracting

Long-Term Contract

Non-EquityAlliances

Equity Alliance/ Joint Venture Acquisition

Alliances

Administrative ControlsIncentive Alignment

Low High

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QUESTIONS?