PepsiCo

Restaurants:
An Industry
Analysis
David Alzate
Miranda Blank
Matthew Davis

Defining the Industry

Quick-Service Restaurant Industry

PepsiCo
Food
Systems,
Produce/
Meat
Producer
s

Pizza
Hut, Taco
Bell, KFC, End
McDonal Consume
ds,
r
Dominos
Pizza

PepsiCos History
1977-

PepsiCo purchased Pizza Hut for

$300 million

1978-

PepsiCo purchased Taco Bell for

$148 million

1986-

PepsiCo purchased Kentucky Fried

Chicken for $840 million

 1958-

Founded by Dan and Frank Carney

1969-

Went public

1977-

Purchased by PepsiCo

1985-

Launch of delivery business

1986-

Start of expansion into nontraditional locations

1991-

dining

Began Quick service and Casual

1963- Glen W. Bell opened the first Taco Bell

1969- Went public

1978- PepsiCo purchased Taco Bell

1983-1988- Start of additional products and

turning Taco Bell into a fast-food retailer

1991- Three-tier value menu

1992- Operating in non-traditional settings

 1950s

Founded by Harlan Sanders

1964

Sold to investors

1970

Added 500 US units

1986

Purchased by PepsiCo

1991

Start of locations in non-traditional

areas

PepsiCos Continued Growth

1981-

PepsiCo. creates distributions and

supply unit called PepsiCo Food Systems

1987-

Agreement of joint purchases

1991-

Pepsi Partners established to

coordinate sales to large customers

1992-

Taco Bell joins with KFC counterpart

PepsiCo, Inc. (in $ millions)

23,750

19,000

17,143

18,775

15,127

14,250

11,135

9,500

9,023
4,750

1987

1988

1989

1990

1991

Net Operating Profits (in $

millions)
400
300
200
100
0
1989

1990
KFC

Pizza Hut

1991
Taco Bell

Industry Rivalry: High

Wide range of different franchises

Medium differentiation between established

franchises

High price competition

Ex: Pizza Hut Dominos KFC Popeyes

Ex: Dollar menus, coupon discounts

Low concentration CR4 of 42%

Market Share of Industry

Highly saturated industry

Competition from Substitutes:

High
Wide

range of substitutes

Quick-Service restaurants make up only 25% of

Foodservice Revenue
Ex: Home cooked meals, Family & Institutional
Restaurants, Grocery Store salad/soup bar
Type

% Makeup

Other

12

Delivery

Take Out

Casual Dining

10

Institutional

22

Family

22

Quick-Service

25

Threat of New Entrants:

Low
Barriers

Brand recognition and consumer preference

Moderate capital requirements (Franchise

) (Local )

Established firms have absolute cost advantage

High advertisement cost
Economies of scale

(Buy large, sell large)

High government and legal barriers

permits, music permits)

(FDA regulations, food handling

Bargaining Power of Buyers:

High

Little to no switching cost

Ex: Pizza Hut Prices = Dominos

Low importance/low quality item

Many available substitutes

Cheaper and healthier to cook own food

Consumer are well informed

Health risks
Questionable Ethical Procedures

Bargaining Power of Suppliers:

Low
Agricultural

goods are commodities

High amount of suppliers

Many farmers compete for contracts

Suppliers

are dependent on their

contracts
Big franchises = Big power

Overall Effect of Forces

Force

Overall Strength of Force

Industry Rivalry

High

Threat of Substitutes

High

Threat of Entry

Low

Buyer Bargaining Power

High

Supplier Bargaining Power Low

Overall

Moderately High

Moderately Low Attractiveness of Industry

Industry Strategies
PepsiCo

identified four pivotal

characteristics of the Quick-Service
Restaurant market

Simplicity & Convenience in face of increased

pace of life
Value over status & prestige because of economic
pressure
Variety in response to the populations increasing
ethnic diversity
Health & Nutrition trends predicted to take hold

Simplicity & Convenience

Franchised

Chains with many locations

KFC alone had over 14,000 units upon PepsiCos

acquisition

Non-Traditional

unit locations &

operations

Kiosks, mall corner stores, etc.

Pizza Huts delivery service

Decrease

customer-employee
Interaction

Taco Bells K-Minus program cut time by 54%

Value
Introduction
PepsiCo

of Value Menus

Food Systems

Offered alternative source of materials for

restaurants
Saved restaurants up to 5% of food costs

Restructuring

of operations saw
increased value for both restaurants and
customers

Variety
Industry

covers different market

segments in the US

KFC: Southern Style Chicken

Taco Bell: Mexican Cuisine
Pizza Hut: Italian Cuisine

Constant

addition of new menu items

Pizza Huts deep-dish pan pizza

Taco Bells new menu reboot with K-Minus

Health & Nutrition

Freshly

prepared ingredients for menu

items

KFC added roasted and barbequed chicken

Refused to switch to frozen chicken

Healthier,

higher-class food

Pizza Hut planned to open Fastinos and Pizza Hut

Caf, offering dine-in quality meals

PepsiCos Division-Based
Outlook
Restaurants

should be autonomous
Synergy is a dirty word here [at
PepsiCo][But] there is a shared sense
of loyalty across the divisions.
High profitability through autonomy

1991 Operating Profit of PepsiCos Restaurant

Division alone was $575.6 million

Future
Profitability

for existing firms will

continue to increase

High effect of forces in industry

Not

many new firms will enter the

industry

High Entry Barriers

Health

and Nutrition trends is largest

influence on market behavior

Health-oriented product offers

Increase public image

Questions?