Pepsi Corporation and Its Subsidiaries - Essay Example

Pepsi Corporation and Its Subsidiaries In the year 1890, Caleb D. Bradham, a professional druggist form New Bern, North Carolina, came up with a fizzy drink, and named it Pepsi-Cola. It was greatly loved by the locals and this gave him an idea to sell it in barrels and by the year 1907, it was being sold in 24 states and production was past a million gallons. A few setbacks later, the Pepsi-Cola company was re established by Charles G. Guth who came up with an idea of recycling old bottles, then rebrand them and in the end, Pepsi-Cola doubled the size of bottled sodas but kept the price as before when the bottles were not resized. This made a great impact to the sales as it greatly increased more than its competitors such as Coca-Cola. In the year1940, sugar prices hiked and lead to Pepsi-Cola to drop from 23% to 16% market share. Alfred N. Steele, a former marketing executive with Coca-Cola Company, became President in 1949 and he tagged along 15 other former Coke managers. They came up with a campaign aimed at rejuvenating the company. He expanded the Vice President’s power and set aside $38 million for the purchase of new facilities and plants. He re standardized the Pepsi-Cola’s taste, revitalized franchising agreements and launched an advertising campaign. All this changes made the image of Pepsi to be a fun, glamorous product from its low cost portrait. In 1963, Donald M. Kendall took oath of office after Steele’s death and under him, five policies were created; adverts to be carried out in a big and unpredictable way, expand the soft drink to new territories, come up with innovative packaging, to take Pepsi-Cola to the overseas and diversity through acquisition. PepsiCo was formed in 1965 when Pepsi-Cola and Frito-Lay Inc. merged. This was the company’s first move in diversification. (Fortune p. 148) From the Frico-Lay Inc.’s merge, PepsiCo continued with its acquisition policy. In 1968, North America Van Lines was acquitted. Later on in1970, Wilson Sporting Goods was added to the acquitted list. Lee waay Motor Freight was acquired in 1976 and the following year Pizza hut was acquired. In 1978, Taco Bell was acquired then in 1982 and 1986, La Petite Boulangerie and Kentucky Fried Chicken were acquired. However PepsiCo had no managerial expertise in running business that were not associated with beverages or food. This later led to Kendall selling van line, motor freight and sporting business. In 1986, D. Wayne Calloway succeeded Kendall. Calloway had previously held 9 positions with PepsiCo and played a major role in the success of Frito-Lay. He started the three major PepsiCo diversifications; beverages, restaurants and snack foods. In1994, PepsiCo had established 8 businesses under their core values: PepsiCo Foods International, Pepsi-Cola global, Taco Bell international, Frito-Lay, Inc. Pepsi-Cola North America, Pizza Hut Worldwide, PepsiCo Food Systems Worldwide, and Kentucky Fried Chicken Corporation. All heads of these businesses directly reported to Calloway. Beverages In 1993, beverages were 34% of what PepsiCo sold and 38% of profits gained. Beverage segment was responsible for production, development, bottling of the soft drinks, marketing and promoting the product as well as delivering to other outlets. Fifty percent of the bottling was mainly done by its franchisees. Pepsi-Cola International and Pepsi-Cola North America accounted for 84% and 68% in the sum amount of beverage sales and profits respectively in 1993. During 1960 and 1970, the original Pepsi cola line expanded and established products like; Patio soft drinks, Diet Pepsi, Teem, Mug Root Beer, caffeine-free Pepsi, Slice and Mountain Dew, which was acquired from Tip Corporation. In 1993, Diet Pepsi, Mountain Dew, Pepsi and Caffeine Free Diet Pepsi were among the top selling soft drinks in U.S.A. it had third of U.S $ 47 billion soft drink market. At this point, PepsiCo wanted to enter into a full beverage business and in 1992, it partnered up with Thomas J. Lipton Company to bring Lipton’s ready to drink teas, some of them being flavored. PepsiCo later on challenged ‘Gatorade’ in sports’ drinks with their ‘All Sport’ drink. It also ventured into water production with ‘H2Oh!’ as their product name. Through agreements, Pepsi-Cola entered the natural fruit and still-water markets using Ocean spray and Avalon, though their major role was to distribute these products. PepsiCo’s aim is to have their products in their consumers’ reach. They were targeting new areas such as schools, food service stations, as well as airlines (Annual Report pg 7). Pepsi-Cola was now in a position to acquire international companies. The first one was Seven-Up. Seven-Up was the third largest soft drink company, that was not based in the U.S. it was acquired in 1986.in 1992, the company had strengthen its international business through acquisitions valued at half a billion dollars (Ibid p8). Calloway believed that the best area for expanding the company’s beverage business was to venture into international markets. By 1994, PepsiCo owned 55.7% of bottling and distribution process in the world. This was a gain from 21% back in 1981. This was achievable through buying franchisees which meant they had to spend billions of dollars. The merge between Pepsi-Cola and Frito-Lay was a complete success, and this was evident because in 1970, 8 out of the 10 best selling snacks where from Frito-Lay and this was approximately 50% of the local snack market as well as 13% of the snack food market in The United States. Frito-Lay was accountable for 23% of PepsiCo’s assets, 39% of profit, and 31% of revenue. Towards 1980, the steady growth of 15%-20% was reduced to 3%-4% due to strong competition from Procter and Gamble and Anheuser Busch. It led to Frito-Lay spending its early 1980s, building itself up and solving its problems. In 1990, Michael Jordan took over the leadership of Frito-Lay, he went on to restructure it from having a centralized hierarchy to a decentralize company that was comprised of 22 teams. With these teams in place, Frito-Lay was able to expand its customer base from 300,000 back in 1980 to 500, 000 in 1991. The company’s distribution cycle was reduced to 2 days from 2 weeks and this increased its products from 100 to more than 400. National promotions increased from 4in the mid 1980s to 500 in 1991. Being back up on its feet, Frito-Lay started its international acquisition in 1989, when it acquired British snack food companies through PepsiCo Worldwide Foods. In1990, it acquired 70%of Mexico’s largest cookie maker, Empresas gamesa, which was worth $327 million. In 1991, leadership was passed on to Roger Enrico, who brought a strategic agenda. He restructured the company’s operations and management which lead to 1,800 administrative and management jobs to be cancelled. He increased the consumer’s value by enhancing product quality as well as lowering its prices. Restaurants PepsiCo was the largest restaurant operating in the United States in 1991. Still in the same year, it surpassed the beverages segment to emerge with the highest revenue. It’s believed that its reputation gave it an advantage against its competitors. Each of its three chains, Pizza Hut, Taco Bell, and Kentucky Fried Chicken, were leading in terms of market share, sales, and number of units. Pizza Hut was acquired in 1977 at a tune of $300 million. It had 3,100 units across the country. Under its new owner, delivery service was introduced in 1985. In 1991, two new concepts, quick service, and carry-out were established and this lead to them decreasing their serving time to just1 min. in1993, East Side Mario was acquired and it expounded Pizza Hut Italian cuisine. Pizza Hut got into an agreement with Marriott’s Hospitality Franchise and Choice Hotels, to deliver its pizzas to their guests rooms. Taco Bell was acquired in 1978 and at that time it had 860 units. It went through dramatic changes under its new management. Its first acquisition was Hot-n-Now, based in Michigan. It later acquired Chevys, a Mexican fast food joint in 1993. It later expanded to 9,707 units by the end of 1993 PepsiCo corporate was the primary holding company for its business in 1994. Under Calloway, it was decentralized and this implied there was a limited role that each corporate had to undertake in their divisions. It also meant that each division had the power to do its own strategic management and planning. The role of a corporate was subdivided into 3 functions, planning, performance monitoring and budgeting, centralization of scalable functions and acquisition. The coordination by a corporate was limited to public affairs, human resource, as well as controlling functions. The role of the HR was to manage the company’s resource allocation and handling of executive compensation. They also played a role in training of leaders as well as the development of a company. The control of product publicity was not changed from the public affairs group. The extensive and complex franchise networks that were operated by PepsiCo’s division were managed by the legal department. They review all legal transactions and contracts that were involved with PepsiCo acquisition, joint ventures, and other similar arrangements. PepsiCo’s traditional of divisional autonomy led to a rise in a culture where executives were less receptive, if not hostile to views that aimed centralization. Promotion of sharing between divisions was established because it was noted that it was a hindrance in the workplace. Each division had its own responsibility of the development of a strategy, as well as takes care of its operations and maintains authority. The corporate had the responsibility of initiating the process, coordinate and monitor the process. Target and goals were set as per an intuition of the level of experience. Divisional targets had to be set and they were included in the overall set of goals. The use of stretch goals was used to discourage mediocrity and complacency. They were also used in compelling divisions to have a second though in how they conduct their businesses. They were not set too high in a way that it may damage the potential for a long term growth by a division. The expectation for each division in terms of goal achieving was 75% as the least level of achievement. Businesses had the responsibility of getting new acquisitions. The corporate identified the holes in their portfolios in order to correct them if they were to envision the expansion of their portfolios. Divisions were also given the mandate of expanding their portfolios irrespective of whether the corporate is there or not. Growth in PepsiCo has been experienced since the time of the founder. With each leader taking the oath of office, coming in with greater plans on how to grow the company in terms of sales, earnings as well as acquisition of property. This urge of growth by its executives has lead to the growth of Pepsi-Cola, a fizzy drink to PepsiCo as a company with three major stakes in beverages, restaurants, and food snacks. However the urge of growth isn’t for the company to look bigger but to create an attractive and exciting environment for hiring employees. It also creates newer and bigger opportunities for employees, which allow them to seek greater challenges and have a personal growth (Annual Report pg 5). In conclusion, PepsiCo is one of the major companies that one may look to as an example in terms of growth. Though they are not perfect, especially in terms of acquisitions, they are a real testimony that, when you have an idea, work on it, have a clear strategy, make plans, and set goals and most of all follow the rules, you will be successful in the end. Works Cited PepsiCo, Inc. Annual Report, 1991, Menzies, Hugh D., "The Ten Toughest Bosses," Fortune, April 21, 1980, p. 148 PepsiCo, Inc., 1992 Annual Report, p. 7. Ibid, p 8. Read More