Pepsico's 'Focus' Strategy
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Case Code: BSTR118 Case Length: 15 Pages Period: 1996-2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.400 Organization: Pepsico Industry: Consumer Packaging Countries: USA Themes: Operational Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background Note
PepsiCo was formed in 1965 by the merger of Pepsi-Cola and Frito-Lay (#1 maker of snack chips in the world). The company's popular drink, Pepsi-Cola had been invented in 1898. In a bid to generate faster growth for the company, PepsiCo diversified into the restaurant business through a series of takeovers. It purchased Pizza Hut in 1977, Taco Bell in 1978 and Kentucky Fried Chicken in 1986. Soon, PepsiCo emerged as a world leader in the restaurant business.
In 1986, PepsiCo was reorganized and decentralized by combining its beverage operations under PepsiCo Worldwide Beverages and snack food operations under PepsiCo Worldwide Foods. In 1986, PepsiCo purchased 7-Up International, the third largest franchise soft drink outside the US. In 1988, the company reorganized along geographic lines - East, West, South and Central regions - each with its own president and senior management staff. Over the years, PepsiCo took several steps to bring its three restaurant chains together into a single division so that they could grow rapidly. The company brought all operations under a single senior manager and combined many back office operations like payroll, accounts payable and data processing, purchasing real estate, construction, and information technology.
The company also took up aggressive re-franchising to improve financial returns and restaurant operations. With revenues of $17.80 bn, in 1990, PepsiCo was ranked among the top 25 of the Fortune 500 companies. By 1995, PepsiCo's sales had crossed $30.42 bn, and with 480,000 employees, Pepsi had become the third largest employer in the world after Wal-Mart and GM. Roger Enrico (Enrico) became the CEO of PepsiCo in 1996. Immediately afterwards, PepsiCo's performance deteriorated as it faced intense competition from Coca-Cola in both the domestic and overseas markets. For the fiscal year 1996, PepsiCo's beverages division reported an operating profit of just $582 mn on $10.5 bn in revenues as compared to Coca-Cola, which reported an operating profit of $3.9 bn on $18.5 bn revenues. In the same year, Pepsi Cola's market share lagged behind Coca Cola by the maximum margin in over two decades. According to Beverage Digest, an industry newsletter, Coca-Cola's Sprite brand had replaced Diet Pepsi as the fourth-largest selling soft drink in the US while Diet Pepsi had dropped to seventh...
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