Case Memo 1 Pepsi Co - Grade: A PDF

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Group Final Essay
Professor Shah...

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UNIVERSITY OF ILLINOIS, COLLEGE OF BUSINESS CASE MEMORANDUM #1 → PEPSICO’S RESTAURANTS TO: PROFESSOR SHAH DATE: MARCH 2, 2015 Should PepsiCo acquire Carts of Colorado & California Pizza Kitchen? In order to evaluate the potential acquisition of Carts of Colorado (COC) and California Pizza Kitchen (CPK), several important factors will be considered and demonstrated: Economies of scale: After the acquisition, the fixed costs can be reduced by removing the overlapping functions. Since COC is specialized in producing carts, which is not part of PepsiCo’s main business, there will be a little or gain from economies of scale. On the other hand, acquiring CPK would lead to the opportunity of cutting the

no fixed

costs since PepsiCo also serves in the restaurant business. Increase revenues and market share: Since the customers of COC consist of both PepsiCo’s restaurants and competitors such as Coca-Cola and Burger King, COC could lose the majority of its customers when part of PepsiCo. This circumstance will severely damage COC’s revenues and market share as well as

Indeed, CPK has a strong position in the industry, a large network and a solid customer support.

it, acquiring COC can help PepsiCo control input prices of such market. In the case of not have transferable resources with the rest of PepsiCo, since they operate in CPK can provide human resources to other restaurant chains. As for the restaurant chains will reluctantly purchase the products from COC if there is

becoming

PepsiCo. In the

dining segment.

case of CPK, the acquisition would likely increase the market power of PepsiCo in the casual

integration and Resource transfer: As far as vertical integration is concerned, while CPK

their

Synergy, Vertical

does not account for

resource transfer, COC does

separate industries. In contrast,

synergy, the empowered PepsiCo’s conflict in price. CPK is a good

complement to Pizza Hut if it wants to expand into casual dining besides fast food

service. However, brand

cannibalization may happen. The founders’ wish to stay in manager positions creates

contradictions in management

approaches. Conclusion: Based on the explanation, CPK possesses the lower risk of acquisition and therefore, it should be acquired by PepsiCo with high caution. PepsiCo should keep track of the cannibalization effect and pay attention

to the strategy of Flax and Rosenfield. Despite a promising future, PepsiCo should not buy COC, since there are incompatibility in operations as well as the risks of incurring losses. PepsiCo should focus on firms in relevant industries instead of expanding into markets where it has little knowledge. To whom should they report? If PepsiCo was to acquire COC or CPK it would make no sense to modify the current organizational structure of company. Both COC and CPK would become part of the big family and possibly enjoy the same benefits of the chains.. While CPK operates in the same business of the other chains, namely the fast-food and industry, COC does not and this is why it deserves a special treatise in this analysis. CPK would to its own managers - intermediary managers - who would then report to PepsiCo’s higher degree of supervision may be suggested to find compatibility. Whether COC is not so clear though, simply because it would become a new supplier to the to not require premium prices for its products when charging internal control of COC without intermediary managers and integrate it in the

the other

casual-dining

definitely report

management. However, a

should report to its managers

restaurant chains. This entails COC

customers. PepsiCo should then take direct

supply chain.

Is PepsiCo’s current organization of its restaurant chains appropriate? PepsiCo’s management of its restaurant chains is all about decentralization. Each of the chains enjoys significant autonomy so that all of them can set up their own mini-strategy and the goals they would like to achieve. Being independent enhances innovation and fosters motivation and growth, and at the same time, by being part of a larger family, each of the chains can receive help from and share ideas with, the other chains. A shared sense of loyalty allows each chain to exploit this open view without putting business’ secrets at risk. Furthermore, the industry is highly competitive and decisions need to be taken very fast; without autonomy the overall process would require an amount of time that would lower competitiveness. The main drawback of this approach to management is that there are no big synergies within the restaurants’ chains. Even though this clearly reflects company’s overall vision, PepsiCo has realized that some coordination may actually reduce costs, thus enhancing profitability. A few first attempts to exploit cost savings have allowed the chains to reduce supply costs by coordinating supply and distribution. This is apparently not sufficient though. Indeed, coordinating purchasing and general tasks more extensively would likely result in higher savings. The firm has come up with

the

an intelligent compromise to solve this issue. It has neither forbidden nor facilitated coordination and joint activities. What it did was to empower divisions so to let them decide whether to pursue joint activities with other company’s chains. This organizational structure allows PepsiCo to run its operations smoothly. Each of the chain constantly achieves satisfying financial performance, has a strong brand identity and has the opportunity take advantage of higher cooperation without sacrificing autonomy.

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