Case Study – Pepsi Co.
Prof: Dinesh Iyer
On: 19th November, 2008
TEAM 6 - (Section A)
Ohio University – Christ College, Academy for Management Education
This case presents a scenario where PepsiCo, a company known for its successful acquisitions of food chains to expand its business, has to weigh its options whether or not to acquire Carts of Colorado, a merchandiser of mobile food carts and kiosks and California Pizza Kitchen, a big name in the casual dining segment.
PepsiCo, established by Caleb D Bradham in 1907 was one of the largest food and beverage companies. The company adopted a decentralized organization structure. The company’s relationship with its people and their willingness to move people within and across divisions was a practice that worked well for PepsiCo. Through its innovative practices, it has built various competitive advantages for itself. The success of PepsiCo can be attributed to the fact that they can establish for themselves, a distinct image in every business they carry out. PepsiCo’s corporate strategy is to concentrate their resources on growing beverages snack foods and fast food restaurants businesses, through internal growth of each divisions and carefully analyze different companies which are favorable for acquisition, thereby having an edge over its competitors.
In the case, Senior Management of PepsiCo is evaluating the potential acquisition of two companies – Carts of Colorado and California Pizza Kitchen, in order to expand the company’s restaurant business. If indeed PepsiCo decides to pursue the acquisition of one or both, they must decide how to align each of these business units in its historically decentralized management approach and how to forge relationships between the acquired business units and existing business units.
After a thorough qualitative analysis by considering the benefits and demerits to both PepsiCo and the target companies and financial analysis by computing the growth rate in sales, growth rate in operating profit and operating margin for the target companies and comparing them with PepsiCo, we recommend PepsiCo should go ahead with the acquisition.
The issues to be addressed in case are given below:
• Should PepsiCo acquire Carts of Colorado and/or California Pizza Kitchen? • Will COC and CPK’s culture fit with PepsiCo’s organizational culture? • Does PepsiCo add value to its business by the acquisitions?
Pepsi Co.’s Strategy: Pepsi Co., the giant operates in three segments – soft drinks, snack foods, and restaurants. These three segments were considered as three flagships and were allocated resources according to their belief of where it could achieve the highest returns.
Soft drinks, snack foods and restaurants were all under a single umbrella, the operational relatedness between these three segments worked well for PepsiCo, every time they planned to expand. If the expansion did good to one business, the benefits would show in the other two segments also.
For acquisition, PepsiCo targeted the chains which were leaders in their segments. Pizza Hut had a big share in the Pizza market of USA, Taco Bell had 70% of the USA’s quick service Mexican style category and KFC had half of the quick service chicken restaurant category. Hence, it is quite evident that PepsiCo played their cards well while choosing the right companies to acquire. Also, these target companies had strong international presence which would work well for Pepsi.
PepsiCo’s strategic planners believed that quick service restaurants would remain the largest segment over the following decade. The industry trends were a positive sign for PepsiCo to go ahead with the acquisitions. Evaluating various trends like...