Pepsico's 'Focus' Strategy

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Case Details:

Case Code : BSTR118
Case Length : 15 Pages
Period : 1996-2004
Organization : Pepsico
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Consumer Packaging

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Restructuring & Acquisition

PepsiCo announced plans, in early 1997, to restructure its business. As a first step, the company decided to spin-off its restaurant business as an independent publicly traded company. PepsiCo also decided to sell-off its food distribution company.

Justifying his decision to spin-off the restaurant business, Enrico said that when the company acquired the restaurant business in the 1970s, the company had many reasons to do so. PepsiCo had enough cash, quality people, and the ability to build restaurant brands. When PepsiCo bought them, the brands like Pizza Hut and Taco Bell were very small businesses. The company allocated its resources to them and soon became the leader in the restaurant business. According to the executives of PepsiCo, the restaurant business had sufficient cash and quality personnel working for it. However, the restaurant culture and processes did not align with PepsiCo's organizational culture. Another reason for the spin-off was the management's efforts to make PepsiCo a focused packaged foods company, to compete with its archrival Coca-Cola...

The Spin-Off

In September 1998, in continuation of its restructuring efforts, PepsiCo decided to separate its bottling operations from the company. PepsiCo's Pepsi-Cola business included two units - a bottling company and a concentrate company. The bottling operations, which were called Pepsi Bottling Group (PBG) after the spin-off, consisted of certain North American, Canadian, Russian, and other selected overseas bottling operations.

With sales of more than $7 bn, PBG was the world's largest Pepsi Cola bottler accounting for more than half of Pepsi Cola's North American volume. The concentrate company focused on product innovations and marketing Pepsi Cola's brands. It manufactured and sold beverage concentrate syrup to PBG and other Pepsi-Cola bottlers. The company also supported PBG and other bottlers in advertising, marketing, sales, and promotion programs. Analysts felt that PepsiCo's decision to spin-off its bottling operations would help the company compete more effectively in the beverage business and serve its retail customers better. PepsiCo was also expected to improve margins on its beverage operations, as bottling operations were less profitable than the supplying of beverage concentrate...

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