Finance

PEPSICO., INC.

PepsiCo, Inc. (PepsiCo) operates three major businesses: restaurants, soft drinks, and snack foods. PepsiCo has three major restaurant chains: Pizza Hut, Kentucky Fried Chicken, and Taco Bell. Major soft drinks include Pepsi-Cola, Diet Pepsi, and Mountain Dew. Snack foods are produced and sold domestically by Frito-Lay (major brands include Doritos, Fritos, Ruffles, and Lay’s) and under various brand names in foreign markets. In 1995, restaurants accounted for 37% of sales and 14% of profits, beverages contributed 35% of sales and 41% of profits, and snack foods accounted for 28% of sales and 45% of profits.

The Restaurant Industry

PepsiCo is the world leader in the restaurant business as well as being the world leader in the snack food business and a strong number two (to The Coca-Cola Company) in the soft drink business. The U.S. restaurant industry is highly competitive with a large number of national chains competing with local restaurants. The national chains offer a menu of choices ranging from fast food (McDonald’s, Burger King, CKE Restaurants’ Carl’s Jr., and Wendy’s) to casual family-style dining (TGI Friday’s, Applebee’s, and Bob Evans Farms), and full-service restaurants (Shoney’s). PepsiCo’s three major restaurant chains belong to the fast food segment: KFC (fried chicken), Pizza Hut (pizza), and Taco Bell (Mexican).

The 1995-1996 winter was especially difficult for the restaurant business. Harsh winter weather in much of the country, including the “Blizzard of ‘96” and one snowfall after another, reduced restaurant traffic. Most restaurant operators experienced reduced sales from December 1995 through the spring of 1996, although the casual restaurants were the most seriously affected.

As of early 1996, the long-term outlook for the restaurant industry was favorable. The industry would continue to benefit from two-wage-earner families, who have larger disposable incomes but less time to prepare meals at home....