Abstract
PepsiCo has built a strong empire that has given it dominance throughout much of the
world as a provider or snack foods and beverages. As it has worked to build its market
share, PepsiCo has made many key decisions * some positive and some negative. It has
also gone through a number of changes including the acquisition and subsequent
divestiture of several fast food chains.
This paper focuses on the process that all companies should follow to help determine
whether the industry they are in demonstrates sufficient attractiveness and whether their
current business units have sufficient competitive advantage.
In 1965, Pepsi-Cola and Frito-Lay combined forces to create a new company that could
capitalize on the combined strengths of the two companies. Almost immediately, the
company used this new synergy to create such new snack products as Doritos and
Funyuns, both or which have proven to be successes. In addition, PepsiCo entered new
markets including Japan and Eastern Europe.
However, the company also had its share of crucial missteps * principal of which was
entering into the fast food industry. With the purchase of Pizza Hut, Kentucky Fried
Chicken and Taco Bell, PepsiCo was well on its way to building a proverbial three-legged
stool. The CEO at the time, Wayne Callaway, believed that this new structure would bring
the company success and referred to the three legs of the stool as being snack foods, soft
drinks and fast food. He believed that there would be significant cost savings and skills
transfer with this new approach.
While there may have been many advantages to this new structure, it became clear by
1996 that the advantages did not outweigh the burden that it placed on the company in
terms of decreased margins and the drain on the vital resources of the company. PepsiCo
promptly divested itself of the fast food restaurants and focused more on developing the
snack food and beverage segments of its company.
In an effort to not repeat this sort of mistake, PepsiCo must be diligent to constantly
re-evaluate its products and structure to make sure that they are still in line with its core
business and that substantial benefit is offered to justify the demands on the companys
resources. To do this, two main models are utilized. First, the industries that PepsiCo is
engaged in must be assessed to determine if they provide sufficiently attractive attributes.
According to Thompson, Stickland and Gamble, three prime questions must be answered
