Pepsico Restaurants Case
MGM 399 1:30-2:50 PepsiCo’s Restaurants PepsiCo started off being a passive company, but later took a more aggressive stance into acquiring key figures like Frito Lay, Pizza Hut, and KFC. The mastermind CEO Calloway orchestrated unique mindsets within each business, and also learned through experience (buying a bakery that failed). Calloway has a lot of success but now faces another important decision: Should he acquire Carts of Colorado? I believe this decision does have some issues and some risk, however overall the benefits might outweigh the problems.
If PepsiCo has the right managerial experience and finances Calloway might want to acquire or at least do business with COC. As stated in the case PepsiCo has many competitors in the restaurant industry. The primary reason for acquiring COC is to give PepsiCo a larger advantage over their competitors and maintain sustainable growth. One way these carts can be of great value is their accessibility. Having a low cost mobile service has great benefits.
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An example of mobility might be in an amusement park, or a populated city. Another advantage towards acquiring COC might be backward integration. If the carts are doing well other companies might want to buy carts from PepsiCo. A costly venture within the carts is technology. Research and development might be costly in the beginning stages. Management has to be efficient and up to date just as it would be in a restaurant. According to PepsiCo’s Foodservice Revenue of $250 billion 25% of that is from Quick Service.
From the expertise with quick service, this should be implemented to increase revenue with the COC. From the case COC was technically bankrupt, and owed $1. 25 million. Pizza Hut helped to keep COC in business. PepsiCo has the capabilities that COC did not have in order to achieve sustainability. PepsiCo analyzed COC as not being the lowest-cost cart and kiosk manufacturer. They also evaluated its engineering and design to be around 18 months ahead of its competitors. This can be very attractive looking at the short term.
Maintaining the competitive advantage in technology can be costly, especially since PepsiCo does not have much experience in this field. If PepsiCo acquires COC they would have to invest in technology which could be too expensive. The first recommendation is getting the carts or kiosks in the best location possible according to demographics and population. Backward integration may be possible down the road, but can also oppose a threat by giving competitors some market share. The main risk factor or issue down the road might be the technological aspect.
I would suggest hiring managers that have mixed expertise with engineering/design, and with restaurant management skills. PepsiCo can definitely use their success in the quick service business. By using similar standards as they did with Taco Bell, Pizza Hut, and KFC can be very helpful in order to reach their growth goals. The low cost of the carts/kiosks may be one of the more attractive incentives. My overall decision is to not acquire COC, but come up with some kind of an agreement/contract to do business with them.
The main reason for not acquiring COC is PepsiCo would have to invest a lot in resources that deal with technology/R&D. I think it is too risky to get involved in areas where you do not have the correct resources/capabilities to maintain net gains. After a few years the competitors would have the same machines and loss could be evident. COC can provide a temporary competitive advantage. By just doing business with COC this can secure a competitive advantage in the industry for snacks/beverages/food at a low risk.
