Harvard Business School 9-794-078 Rev. February 27, 2001
Research Associate Dianna Magnani prepared this case under the supervision of Professor Cynthia Montgomery as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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PepsiCo's Restaurants In early 1992, Wayne Calloway, PepsiCo's chairman and CEO, along with the presidents of
each of the company's restaurants, and Ken Stevens, the senior vice president of strategic planning, was evaluating two opportunities to expand PepsiCo's restaurant businesses-Carts of Colorado, a $7 million manufacturer and merchandiser of mobile food carts and kiosks, and California Pizza Kitchen, a $34 million restaurant chain in the casual dining segment. The issues before them included whether to pursue these companies, and, if so, how the relationships might be structured, given PepsiCo's large organization and decentralized management approach.
Pepsi-Cola Company: The Early Years
Pepsi-Cola, a combination of Pepsi-Cola syrup and carbonated water, was invented in the 1890s by Caleb D. Bradham, a southern druggist. When he discovered how much his soda fountain customers liked his beverage, he began to sell it in bottles and to barrel the syrup for other soda fountain operators. Bradham's business, Pepsi-Cola Company, grew quickly. By 1907, its annual syrup production exceeded one million gallons.
After two bankruptcies, one caused by escalating sugar prices due to rationing during World War I and the other caused by the Great Depression, Pepsi-Cola, under a new owner, changed its selling strategy. In 1933, the company doubled the size of its bottles to 12 ounces while lowering the price of a bottle to a nickel, the same price as 6 ounces of Coca-Cola. Depression-weary customers were ready for a bargain, and Pepsi-Cola sales increased dramatically.
By the end of the 1940s, higher sugar prices meant that Pepsi-Cola could no longer maintain its nickel price. Alfred N. Steele, a former marketing executive for Coca-Cola, who became Pepsi- Cola's president and CEO in 1950, moved the company away from the low-price strategy and launched an extensive marketing campaign to boost the company's image. Customers were urged to "Be sociable, have a Pepsi." With the help of actress Joan Crawford, Steele's wife, Pepsi took on a stylish, even glamorous, image. The strategy was successful-Pepsi-Cola's profits increased to $14.2 million in 1960 from a postwar...