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PepsiCos Restaurants Case Solution

Solution Id Length Case Author Case Publisher
2753 1358 Words (6 Pages) Cynthia A. Montgomery, Dianna Magnani Harvard Business School : 794078
This solution includes: A Word File A Word File

PepsiCo operates primarily in the soft drink, snack food, and restaurant industries. Beginning in the 1990s, three of PepsiCo's restaurant chains dominated their respective markets. These included KFC, Taco Bell and Pizza Hut. The senior management of PepsiCo believes that the company's ability to transfer employees between the different units gives it an edge over the competition in the restaurant industry. PepsiCo had difficulty expanding its 1982 acquisition of La Petite Boulangerie despite its success. The failure at La Petite Boulangerie demonstrated that even though PepsiCo managers were skilled, this did not always guarantee the successful expansion of the business. Therefore, the primary challenge for PepsiCo's management is determining whether or not the company can successfully acquire and administer CPK and CoC. This case study examines strategy formulation and coordination issues in a group of related businesses within a large, decentralized consumer products corporation.

Following questions are answered in this case study solution

  1. What type of diversifier is PepsiCo? (unrelated, related, linked, related linked, etc.)

  2. Support this conclusion with specific elements from the case.

  3. Should PepsiCo acquire Carts of Colorado? Support your conclusion regarding what each firm offers the other in terms of efficiency, monopoly, synergy, and diversity.

  4. Should PepsiCo acquire California Pizza Kitchen? Support this decision in a similar fashion to CoC.

Case Analysis for PepsiCos Restaurants

1. What type of diversifier is PepsiCo? (Unrelated, related, linked, related linked, etc.)

PepsiCo has engaged in related diversification. While many companies achieve the goal of diversification by way of a merger or an acquisition, others branch out into new markets on their own, without the involvement of another company. Because this type of diversification capitalizes on strategic fit, firms that engage in related diversification have a greater opportunity to increase their shareholder value. When a company enters a new market that is significantly similar to one or more of its existing markets, this is an example of related diversification. The decision of which portfolio of businesses a company will compete in is an essential component of any organization's business strategy. The 'superiority' of related diversification over unrelated diversification ought to be reflected in this decision. This is due to the fact that related diversification presumably makes it possible for the corporate firm to capitalize on the interrelationships that exist among the various businesses that it operates, allowing it to achieve cost and/or differentiation competitive advantages over its competitors. Additionally, the risk that a company faces from operating in only one industry can be reduced with the help of related diversification strategies. Having a foot in more than one industry can help cushion the blow if one of them runs into problems or experiences a decline in activity.

2. Support this conclusion with specific elements from the case.

Soft drinks account for 35% of PepsiCo's revenue and 39% of its operating profits, snacks for 29% of PepsiCo's revenue and 35% of its operating profits, and restaurants for 36% of PepsiCo's revenue and 26% of its operating profits. In 1991 they collectively generated sales of nearly $20 billion. Since all three segments belong to the food industry, PepsiCo has engaged in related diversification. The beverage and snack businesses of PepsiCo are complementary. Many people choose a drink to complement their meal or the other way around, which means that a company like PepsiCo that is diversified has opportunities to take advantage of this demand through brand positioning and the development of complementary drinks and snacks. For this reason, Kendall merged Frito-Lay with Pepsi, as he believed that snack chips went well with soda.

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