PepsiCo restaurants Essay

I. IntroductionThe divulge oppugn is whether PepsiCo should expand its restaurant wrinkle by pursuing the leverage of CARTS OF atomic number 27, a $7 trillion manufacturer and merchandiser of expeditious fare handcarts and kiosks, and calcium pizza pie KITCHEN, a $34 million restaurant train in the casual dining segment.II. synopsis of the main caperPepsiCo has 3 main segments slowly potables (35% of PepsiCos gross revenue and 39% of its in operation(p) usefulnesss in 1991), snack foods (29% of PepsiCos sales and 35% of its operating pro scenes) and restaurants (36% of PepsiCos sales and 26% of its operating pro sounds). In the early 1990s PepsiCos trine restaurant chains (KFC, Taco doorbell and pizza shack) were the leaders in their individual segment. PepsiCos senior fore popular opinion believes its competency to move people at heart and across divisions gives PepsiCo a competitive reinforcement in the restaurant segment. PepsiCo believes their restaurant s be scram due to their salutary management teams which are developed in spite of come forwardance the corporation. PepsiCo would like to utilize their competitive reinforcement in running restaurants with PepsiCo managers by adding calcium pizza pie Kitchen and CARTS OF carbon monoxide gas to the PepsiCo portfolio.Despite PepsiCos success with KFC, Taco doorbell and Pizza hut it had unvoicedy expanding La piffling Boulangerie, a three-unit bakery chain it purchased in 1982. The large overhead for La piddling Boulangerie made the federation unprofitable and Pepsi change it in 1987 for a $13 million loss. The unsuccessful venture into La footling Boulangerie suggested that although PepsiCo managers were gifted and could be easily locomote across divisions the moves would non always guarantees a successful furrow expansion.Therefore, the main problem for PepsiCo management is to decide whether it great deal successfully purchase and administer atomic number 20 pizz a pie KITCHEN and CARTS OF carbon monoxide. This is in light of the fact that PepsiCo believes it has a competitive advantage in the skillfulness of its managers that was non borne out in the unsuccessful La diminutive Boulangerie bakery endeavor.III. RecommendationsPepsiCo outhouse be categorized as a relate diversifier. Approximately 30% of its tax revenue is adjourn between its 3 main industrialcategories. PepsiCos line of descent units comp unrivalednt usual resources and skills. Historically companies that use up a corporal st lay outgy of related diversification perform the best (GBS_634M lecture nones). Therefore on the surface it would appear that diversification by acquiring calcium pizza KITCHEN and CARTS OF carbon monoxide would be an excellent strategic decision.However, in arguments described below the evidence does non support a recommendation for PepsiCo to purchase Carts of Colorado or calcium pizza KITCHEN.IV. Justification for recommendationsPepsiCo is a lucrative company and thus does non shoot to radiate into atomic number 20 pizza KITCHEN and CARTS OF atomic number 27 to honor it profitability. From 1987-1991 PepsiCos sales doubled, income from continuing operations grew at a compound rate of much(prenominal) than 20%, and the companys value on the stock commercialise egress tripled (PepsiCo restaurant Case, pg. 4, and Exhibit 3).Eight key drives NOT to broaden into atomic number 20 pizza KITCHEN and CARTS OF atomic number 27.It is poor rationale for PepsiCo to diversify into atomic number 20 pizza KITCHEN and CARTS OF COLORADO simply to adulterate risk. The restaurant logical argument is cyclical. Some restaurants allow be profitable, composition round lead non be profitable. PepsiCos shareholders crumb diversify risk by get shares in CALIFORNIA pizza KITCHEN and CARTS OF COLORADO themselves. Furthermore, it is not an appropriate transcription for PepsiCo management to over-diversify to protect t heir personal wealth.Maintaining growth is not a dandy basis to diversify into CALIFORNIA pizza pie KITCHEN or CARTS OF COLORADO. most(prenominal) shareholders would rather hold shares in a small profitable company, not a big unprofitable company. As a shareholder, there is only a supercharge ground if PepsiCo makes a profit. Currently PepsiCo is making a profit. Although managers benefit from growth regardless(prenominal) of profit or loss , growth for the interest group of growth is not an appropriate spring to diversify.Although PepsiCo rat use CALIFORNIA pizza pie KITCHEN and CARTS OF COLORADO to balance cash lead by funneling cash from its large business units to the smaller CALIFORNIA pizza KITCHEN and CARTS OF COLORADO business units this is not recommended. Even thought PepsiCo has the capability of doing this an individual shareholder back do this for himself. The counterargument would be that PepsiCo managers can do a better job equilibrize cash flow than share holders because the corporation can be more tax efficient than the individual shareholder. precisely this alone is not a ample reason to diversify.The scholarship of CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO leave not create synergy within the PepsiCo corporate strategy. PepsiCo already has a Pizza segment (i.e. Pizza hovel) and does not get under ones skin experience in the quick food cart segment. Diversifying into these two market segments volition not produce corporate synergy where the whole is greater than the sum of the parts. star peachy reason for PepsiCo to diversity into CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO is the sharing of stand and to create economies of chain. PepsiCo is shortly saving silver because they are competing in several diametric industries (ie. Soft drinks, snack foods, and restaurants). These business units share the support structure and then the reduced costs. While Pepsis economy of scope can be used to dish out chips j ust as wellspring as nutty drinks it is not apparent that they can deliver well in the recession restaurant market like CALIFORNIA PIZZA KITCHEN (refer back to La Petite Boulangerie misfortune).If PepsiCo were to dispense two or more different products simultaneously that would be unspoilt by creating an economy of scope. For example, if PepsiCo could distri entirelye Pepsi soft drinks and calcium Pizza from a cart they would get to justification for the accomplishment of CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO because they would be sharing common infrastructure that would make them unique. The singularity would make it really difficult for competitors to obey and would be a reason to diversify. But there are currently no mechanisms to sell California Pizzas from a cart. Therefore at this time, sharing ofinfrastructure is not a obedient justification for PepsiCo to diversify into these two markets.It is not apparent that PepsiCo volition increase its market power i f they acquire CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO. PepsiCo already has multiple business units that demoralise from the very(prenominal) set of suppliers and sell to same set of customers. They have used this to gain market power. It is not apparent that adding CALIFORNIA PIZZA KITCHEN or CARTS OF COLORADO to the pot will increase PepsiCos market share significantly.It could be argued that by acquiring CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO PepsiCo is exploiting message competence. Although this is generally a good reason to diversify by generating more revenue opportunity and competing in several markets this is not a good initiative for PepsiCo in the situation with CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO. In order to exploit core competencies, PepsiCos business units must be related, so they share the same set of skills. In order for this strategy to be successful, the benefits to PepsiCo have to be unavailable to PepsiCos competitors.If PepsiCos co mpetitors can gain the same advantage, thusly PepsiCo will not have a strategic benefit. Although the Colorado Carts are unique, they can be duplicated by the competition (e.g. California Carts, All-Star Carts, Creative Mobile systems). With regards to CALIFORNIA PIZZA KITCHEN, other pizza restaurants can barf the unique flavors and styles of pizza. Therefore, PepsiCo will not be exploiting its core competence and should not diversify.If PepsiCo is contemplating CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO as good black eye projects then this is not a justification for diversification. CALIFORNIA PIZZA KITCHEN is a profitable company. CALIFORNIA PIZZA KITCHEN has change magnitude both sales and net income from 1990 to 1991. CARTS OF COLORADO has also shown an increase in sales and operating income from 1985-1991. The management teams of both companies appear to be performing well. Therefore the turnaround potential is not a good reason to diversify.CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO do not fit into the PepsiCo incorporate strategyWhere does PepsiCo compete?There whitethorn be a market opportunity for PepsiCo in the acquisition of CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO, but that does not necessarily imply that PepsiCo should take the opportunity. The overall scope of PepsiCo is on pleasant foods and beverages. The acquisition of CARTS OF COLORADO would certainly be in-line with PepsiCos focus of providing foods and beverages at golden locations. However, PepsiCo does not have experience in the placement of mobile food carts and therefore PepsiCo would be at a discriminate to those more experienced in the mobile cart business.There is even less evidence for a distinctive market opportunity for PepsiCo with the acquisition of CALIFORNIA PIZZA KITCHEN. PepsiCo already owns Pizza Hut and therefore has a place in the dine-in and take-out pizza business. Although CALIFORNIA PIZZA KITCHEN is suited for more upscale markets with unique fla vors and tastes, Pizza Hut could introduce similar unique flavors and tastes. In addition Pizza Hut has stores across the United States and internationally, while CALIFORNIA PIZZA KITCHEN has a limited geographic scope. It currently operates only 25 restaurants in ogdoad states (PepsiCo look, pg. 15). The offbeat pizzas may not sell well across the United States and internationally. For example, jerk-chicken pizza may sell very well in Beverly Hills, CA but not sell well in Peoria, Illinois or Duesseldorf, Germany.How does PepsiCo compete?PepsiCos corporate strategy allows for transfer of resources (i.e. managers) across their business units. PepsiCos philosophy is We take eagles and teach them to vaporize in formation (PepsiCo case, pg. 3). Therefore PepsiCo may have a strategic advantage by transferring managers from one of its current business units to CALIFORNIA PIZZA KITCHEN or CARTS OF COLORADO. For example, one manager could transfer her knowledge from a position at Pizza Hut to CALIFORNIA PIZZA KITCHEN relatively transparently although it may be more difficult to transfer knowledge from Pizza Hut to the food carts and kiosks the business of Colorado Carts.PepsiCo does transfers resources which fit well with the CARTS OF COLORADOenterprise. PepsiCo can place a Cart outside a shopping mall on the lane selling food. At some carts PepsiCo could stretch out KFC or Taco Bell while offering a Pepsi soft drink maybe put forward some Frito lays chips. But this strategy does not fit well with the idea of the upscale CALIFORNIA PIZZA KITCHEN being adoptly approximative a KFC or Taco Bell in a mega-mall food court.How does PepsiCo bleed?PepsiCo, although a very large corporate office, has an execution strategy in which they permit the managers go at their own pace. They have a decentralized organization (PepsiCo case pg. 4). PepsiCo managers are rewarded on a two-phase system reporting performance first to direct managers then to upper level managers. In order to be promoted managers of CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO would have to perform very well relative to all of the be PepsiCo restaurants. Because all of the other PepsiCo restaurants are at the top of their respective segments it will be a challenge for managers of CALIFORNIA PIZZA KITCHEN and CARTS OF COLORADO to surpass other PepsiCo business units. Therefore the managers will not be incentivized as well managing CALIFORNIA PIZZA KITCHEN or CARTS OF COLORADO.Therefore, diversifying into California Pizza Kitchen and CARTS OF COLORADO is not copasetic with the PepsiCo corporate strategy.V. Summary.The acquisition of CARTS OF COLORADO and CALIFORNIA PIZZA KITCHEN will not lead toward the fulfillment of PepsiCos mission which is To be the worlds premier consumer products company focused on convenient foods and beverages and seeks to produce healthy fiscal rewards to investors as they provide opportunities for growth and enrichment to their employees, their busine ss partners and the communities in which they operate. And in everything they do, to strive for honesty, legality and integrity. (http//www.pepsico.com/PEP_Company/Overview/index.cfm)PepsiCos management should take the culpable until proven innocent approach and not diversify into these two business segments. As described in the preceding paragraphsat this time there is not sufficient and convincing evidence to support the need for diversification into CALIFORNIA PIZZA KITCHEN or CARTS OF COLORADO.References1. http//www.pepsico.com/PEP_Company/Overview/index.cfm2. www.cpk.com3. PepsiCo restaurants. HBS 9-794-078